-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MmXnWdrpte6wZqDNxfGIbDZPahvc9DMyCAvpF+U+NilfbCZ7EYsA0/B6arakyj4u rNgBaIMRMGZq5ppPN1OyqQ== 0000950131-97-004479.txt : 19970718 0000950131-97-004479.hdr.sgml : 19970718 ACCESSION NUMBER: 0000950131-97-004479 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19970717 SROS: NASD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DH TECHNOLOGY INC CENTRAL INDEX KEY: 0000728376 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 942917470 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: 1934 Act SEC FILE NUMBER: 005-36652 FILM NUMBER: 97641723 BUSINESS ADDRESS: STREET 1: 15070 AVENUE OF SCIENCE CITY: SAN DIEGO STATE: CA ZIP: 92128 BUSINESS PHONE: 6194513485 MAIL ADDRESS: STREET 1: 15070 AVENUE OF SCIENCE CITY: SAN DIEGO STATE: CA ZIP: 92128 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: DH TECHNOLOGY INC CENTRAL INDEX KEY: 0000728376 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 942917470 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 15070 AVENUE OF SCIENCE CITY: SAN DIEGO STATE: CA ZIP: 92128 BUSINESS PHONE: 6194513485 MAIL ADDRESS: STREET 1: 15070 AVENUE OF SCIENCE CITY: SAN DIEGO STATE: CA ZIP: 92128 SC 14D9 1 SCHEDULE 14-D9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- SCHEDULE 14D-9 SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 DH TECHNOLOGY, INC. (NAME OF SUBJECT COMPANY) DH TECHNOLOGY, INC. (NAME OF PERSON(S) FILING STATEMENT) COMMON STOCK, WITHOUT PAR VALUE (TITLE OF CLASS OF SECURITIES) 23290610 (CUSIP NUMBER OF CLASS OF SECURITIES) WILLIAM H. GIBBS CHAIRMAN OF THE BOARD 15070 AVENUE OF SCIENCE SAN DIEGO, CALIFORNIA 92128 (619) 451-3485 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT) COPIES TO: HENRY P. MASSEY, JR., ESQ. STEVEN L. BERSON, ESQ. WILSON SONSINI GOODRICH & ROSATI, PROFESSIONAL CORPORATION 650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304-1050 (415) 493-9300 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 1. SECURITY AND SUBJECT COMPANY The name of the subject company is DH Technology, Inc., a California corporation (the "Company" or "Target"), and the address of the principal executive offices of the Company is 15070 Avenue of Science, San Diego, California 92128. The title and the class of equity securities to which this statement relates is the Company's common stock, without par value (the "DH Common Stock"). ITEM 2. TENDER OFFER OF THE BIDDER This statement relates to the tender offer disclosed in a Tender Offer Statement on Schedule 14D-1, dated July 16, 1997 (the "Schedule 14D-1"), of AX Acquisition Corporation, a California corporation ("Purchaser") and an indirect wholly owned subsidiary of Axiohm S.A., a French corporation ("Parent"), to purchase no less than 6,500,000 shares and no more than 7,000,000 shares of DH Common Stock (the "Shares") at a price of $25 per Share without interest, net to the seller in cash, upon the terms and subject to the conditions set forth in Purchaser's Offer to Purchase dated July 16, 1997 (the "Offer to Purchase") and in the related Letter of Transmittal (which, together with any supplements or amendments thereto, collectively constitute the "Offer"), copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively. The Offer is being made by Purchaser pursuant to the Agreement and Plan of Merger, dated as of July 14, 1997 (the "Merger Agreement"), among Target, the Purchaser and Parent, a copy of which is filed as Exhibit(c)(1) to this statement and is incorporated herein by reference. The Schedule 14D-1 states that the address of the principal executive offices of Parent is BP 675-1 a 9, rue d'Arcueil, 92542 Montrouge Cedex, France and the address of the principal executive offices of Purchaser is 950 Danby Road, Ithaca, New York 14850. A copy of the press release issued by the Company, Parent and Purchaser on July 15, 1997 is filed as Exhibit(a)(3) to this statement and is incorporated herein by reference. Following (or concurrently with) the Offer, Purchaser will attempt to enter into stock purchase agreements with the shareholders of Parent pursuant to which Purchaser will attempt to purchase from such shareholders up to all of the outstanding shares of the capital stock of Parent for an aggregate of 5,518,524 of the Shares which Purchaser is acquiring in this Offer (the "Exchange Shares") and an aggregate of $12.1979 million in cash (the "Axiohm Exchange") (or, if at the closing of the Axiohm Exchange, Purchaser has not obtained the financing necessary to pay the entire amount of such cash, an aggregate of 5,833,732 Exchange Shares and an aggregate of $4.3177 million in cash). The Axiohm Exchange will result in approximately 79% to 85% (depending on the actual number of Shares purchased pursuant to the Offer and the actual number of Exchange Shares transferred by Purchaser in the Axiohm Exchange) of Target's outstanding Common Stock being held by Parent shareholders after the completion of the Merger and the cancellation of the Shares owned by Purchaser (described below). Simultaneously with the closing of the Axiohm Exchange, Parent will sell to Target, and Target will purchase from Parent (the "Acquisition of Purchaser"), all of the outstanding shares of the capital stock of Purchaser in exchange for Target's assumption, on a joint and several basis with Purchaser, of any and all obligations with respect to indebtedness incurred, or preferred stock issued, by Purchaser or Purchaser's shareholders in connection with the Offer and the Axiohm Exchange, which obligations shall not exceed $199.0 million. As a result of the Axiohm Exchange and the Acquisition of Purchaser, Parent will become a subsidiary of Purchaser and Purchaser will become a wholly-owned subsidiary of Target. Following the Axiohm Exchange and the Acquisition of Purchaser, Purchaser will be merged with and into Target (the "Merger") and the Shares owned by Purchaser will be cancelled. In the Merger, the name of Target, as the surviving corporation in the Merger, will be changed to Axiohm Inc. Following the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, Parent will be a subsidiary of Target and Target will be approximately 79% to 85% owned by the former Parent shareholders and approximately 15% to 21% owned by the current shareholders of Target (depending on the actual number of Shares purchased pursuant to the Offer and the actual number of Exchange Shares transferred by Purchaser in the Axiohm Exchange). ITEM 3. IDENTITY AND BACKGROUND (a) The name and business address of the Company, which is the entity filing this statement, are set forth in Item 1 above. (b) Certain contracts, agreements, arrangements and understandings between the Company and certain of its directors, executive officers and affiliates are described under the headings "Compensation of Directors--Retainer and Meeting Fees," "Compensation of Directors--Director Warrant Plan" and "Executive Compensation--Employment Agreement and Change-in-Control Arrangements" on pages 2 through 7 of the Company's proxy statement dated March 24, 1997, relating to the Company's 1997 Annual Meeting of Shareholders held on April 24, 1997, copies of which pages are filed as Exhibit(c)(10) to this statement and are incorporated by reference herein. Certain contracts, agreements, arrangements and understandings relating to the Company's directors, executive officers and affiliates which are affected by the Merger Agreement or are to be entered into in connection therewith, are described below. Merger Agreement The following summary of the Merger Agreement is qualified in its entirety by reference to the complete text of the Merger Agreement, which is attached hereto as Exhibit(c)(1) to this statement and incorporated herein by reference. For purposes of this Section, all capitalized terms not defined herein shall have the definitions assigned to them in the Merger Agreement. The Offer. The Merger Agreement provides for the commencement of the Offer as promptly as practicable, but in no event later than five business days after the initial public announcement of Purchaser's intention to commence the Offer. The obligation of Purchaser to accept for payment and pay for the Shares tendered pursuant to the Offer is subject to the satisfaction of (i) the Minimum Condition prior to the expiration of the Offer and (ii) certain other conditions described in "The Offer--Certain Conditions of the Offer" of the Offer to Purchase. Purchaser expressly reserves the right, in its sole discretion, to increase the Maximum Number and waive any Offer Condition and make any other changes in the terms and conditions of the Offer, provided, however that, unless previously approved by Target in writing, no change may be made which decreases the Offer Price, changes the form of consideration payable in the Offer (other than by adding consideration), reduces the Maximum Number, changes the Minimum Condition, or imposes conditions to the Offer in addition to those set forth in the Merger Agreement which are adverse to holders of the Shares. Purchaser may, without the consent of Target, (i) extend the Offer beyond the scheduled expiration date (the initial scheduled expiration date August 12, 1997, if, at the scheduled expiration date of the Offer, any of the conditions to Purchaser's obligation to accept for payment, and to pay for, the Shares, shall not be satisfied or waived, (ii) extend the Offer for any period required by any rule, regulation or interpretation of the Commission or the staff thereof applicable to the Offer, or (iii) extend the Offer for an aggregate period of not more than 10 business days beyond the latest applicable date that would otherwise be permitted under clause (i) or (ii) of this sentence, if as of such date, all of the conditions to Purchaser's obligations to accept for payment, and to pay for, the Shares are satisfied or waived, but the number of Shares validly tendered and not withdrawn pursuant to the Offer equals at least the Minimum Condition but less than the Maximum Number of the outstanding Shares; provided, however, that if, on the initial scheduled expiration date of the Offer, the sole condition remaining unsatisfied is the failure of the waiting period under the HSR Act, to have expired or been terminated, then, in either case, Purchaser shall extend the Offer from time to time until five business days after the expiration or termination of the applicable waiting period under the HSR Act. The Axiohm Exchange. Pursuant to the Merger Agreement, as soon as practicable after the date of the Merger Agreement, Purchaser shall commence the Axiohm Exchange by seeking to enter into stock purchase agreements ("Axiohm Purchase Agreements") with all holders of Parent Shares (the "Parent Holders"). Pursuant to the Axiohm Purchase Agreements, Purchaser shall attempt to purchase from the Parent Holders all Parent Shares held by such Parent Holders for an aggregate of 5,518,524 Shares of Target Common Stock purchased by Purchaser in the Offer (the "Exchange Shares") plus an aggregate of $12.1979 million in cash (the "Exchange Cash") (the Exchange Shares and the Exchange Cash are hereinafter referred to collectively as 2 the "Exchange Consideration"). The aggregate value of the Exchange Consideration to be paid by Purchaser to each Parent Holder shall be in proportion to the percentage of outstanding Parent Shares which are held by such Parent Holder, provided, however, that Purchaser reserves the right to vary the relative amount of Exchange Shares and Exchange Cash to be received by each Parent Holder as a part of such Exchange Consideration. In the event that at the Axiohm Exchange Closing (as defined below) Purchaser does not have available the financing necessary to pay the entire amount of the Exchange Cash to the Parent Holders, then the aggregate Exchange Cash to be paid by Purchaser shall be reduced to $4.3177 million and the number of Exchange Shares to be transferred by Purchaser to the Parent Holders in the Axiohm Exchange shall be increased to an aggregate of 5,833,732 Shares. The Merger Agreement provides that, within 45 days after the satisfaction or waiver of the conditions set forth in the Merger Agreement and immediately prior to the consummation of the Merger, Purchaser shall cause the Axiohm Exchange to be consummated. The Merger Agreement also provides that, as soon as practicable following the closing of the Axiohm Exchange, Target shall file with the Commission a registration statement on Form S-3 under the Securities Act relating to the resale by the Parent Holders of the Exchange Shares and will cause such registration statement to be continuously effective for a period of not less than two years. The Acquisition of Purchaser. Pursuant to the Merger Agreement, simultaneously with the closing of the Axiohm Exchange, Parent, IPB and Target shall effect the Acquisition of Purchaser. In such transaction, Target shall purchase from IPB and Parent shall cause IPB to sell to Target, all of the outstanding shares of capital stock of Purchaser in exchange for the assumption by Target, on a joint and several basis with Purchaser, of any and all obligations with respect to indebtedness incurred, or preferred stock issued, by Purchaser or IPB in connection with the Offer and the Axiohm Exchange, which obligations shall not exceed $199.0 million. The Merger. The Merger Agreement provides that, upon the terms and subject to the conditions of the Merger Agreement and in accordance with California law, at the Effective Time, Purchaser shall be merged with and into Target. As a result of the Merger, the separate corporate existence of Purchaser shall cease and Target shall continue as the surviving corporation of the Merger (the "Surviving Corporation"). In the Merger, the name of Target, as the Surviving Corporation will be changed to Axiohm Inc. At the Effective Time, by virtue of the Merger and without any action on the part of Purchaser, Target or the holders of any of the following securities, (i) each share of Target Common Stock issued and outstanding immediately prior to the Effective Time (other than any shares to be cancelled pursuant to (ii) below) shall remain outstanding; (ii) each share of Target Common Stock owned by Parent, Purchaser or any other direct or indirect wholly-owned subsidiary of Parent, in each case immediately prior to the Effective Time but after the consummation of the Axiohm Exchange, shall be cancelled and retired without any conversion thereof and no payment or distribution shall be made with respect thereto; and (iii) each share of common, preferred or other capital stock of Purchaser issued and outstanding immediately prior to the Effective Time, shall be cancelled, since such shares will, immediately prior to the Effective Time, be owned by Target. The Merger Agreement provides that, at the Effective Time, the Articles of Incorporation of Target will be amended to change the name of the Target to Axiohm Inc. and, as so amended, will be the Articles of Incorporation of the Surviving Corporation. The Merger Agreement also provides that the By-laws of Target, as in effect immediately prior to the Effective Time, will be the By- laws of the Surviving Corporation. Pursuant to the Merger Agreement, the directors of Target immediately prior to the Effective Time (which includes three directors designated by Parent) will be the initial directors of the Surviving Corporation and the officers of Target immediately prior to the Effective Time (which include Messrs. Dupuy and Gibier as Co-Chairmen) will be the initial officers of the Surviving Corporation. 3 Conduct of Target's Business. Pursuant to the Merger Agreement, Target has covenanted and agreed that, during the period from the date of the Merger Agreement to the earlier of termination of the Merger Agreement or the Effective Time, Target will conduct its business and that of its subsidiaries only in the ordinary course of business consistent with past practice and will use all reasonable efforts consistent with past practices and policies to preserve intact its present business organization (including the services of its existing employees) and preserve its relationships with customers, suppliers and others having business dealings with it, to the end that its goodwill and on-going business shall be unimpaired at the Effective Date. By way of amplification and not limitation, the Merger Agreement provides that neither Target nor any of its subsidiaries will, without the prior written consent of the Purchaser: (a)amend or propose to amend its Articles of Incorporation or By-laws; (b)(i) authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any other securities or equity equivalents (including, without limitation, any stock options or stock appreciation rights) except shares of Target Common Stock issuable upon exercise of Company Outstanding Options (as defined in the Merger Agreement) or (ii) amend any of the terms of any such securities or agreements outstanding as of the date of the Merger Agreement, except as specifically contemplated by the Merger Agreement; (c)split, combine or reclassify any shares of its capital stock, declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem or otherwise acquire any of its securities or any securities of Target's subsidiaries; (d)(i) incur or assume any long-term or short-term debt or issue any debt securities except for borrowings under existing lines of credit in the ordinary course of business; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person or entity except in the ordinary course of business consistent with past practice, and except for obligations of its wholly-owned subsidiaries; (iii) make any loans, advances or capital contributions to, or investments in, any other person or entity (other than to its wholly-owned subsidiaries or advances to employees in the ordinary course of business consistent with past practice and in amounts not material to the maker of such loan or advance); (iv) pledge or otherwise encumber shares of its capital stock or any of its subsidiaries; or (v) mortgage or pledge any of its material assets, tangible or intangible, or create or suffer to exist any material lien thereupon; (e)except as may be required by law or as contemplated by the Merger Agreement or described on Target's Disclosure Schedule accompanying the Merger Agreement (the "Target Disclosure Schedule") delivered to Purchaser, enter into, adopt or amend or terminate any bonus, profit sharing, compensation, severance, termination, stock option, stock appreciation right, restricted stock, performance unit, stock equivalent, stock purchase agreement, pension, retirement, deferred compensation, employment, severance or other employee benefit agreement, trust, plan, fund or other arrangement for the benefit or welfare of any director, officer, employee or former employee or independent contractor in any manner, or (except for normal increases in the ordinary course of business consistent with past practice that, in the aggregate, do not result in a material increase in benefits or compensation expense to it and as required under existing agreements) increase in any manner the compensation or fringe benefits of any director, officer or employee or pay any benefit not required by any plan and arrangement as in effect as of the date of the Merger Agreement (including, without limitation, the granting of stock appreciation rights or performance units); (f)acquire, sell, lease, license to others or dispose of any assets outside the ordinary course of business which individually or in the aggregate are material to Target or enter into any commitment or transaction outside the ordinary course of business consistent with past practice which would be material to Target; (g)except as may be required as a result of a change in law or in US GAAP, change any of the accounting principles or practices used by it; 4 (h)revalue in any material respect any of its assets, including, without limitation, writing down the value of inventory or writing-off notes or accounts receivable other than in the ordinary course of business; (i)(i) acquire or agree to acquire (by merger, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership or other business organization or division thereof or any equity interest therein, other than as specifically described on the Target Disclosure Schedule; (ii) enter into any contract or agreement other than in the ordinary course of business consistent with past practice which would be material to it; (iii) authorize any new capital expenditure or expenditures which, individually, is in excess of $250,000 or, in the aggregate, are in excess of $2,500,000; or (iv) enter into or amend any contract, agreement, commitment or arrangement providing for the taking of any action that would be prohibited hereunder; (j)make any tax election or settle or compromise any income tax liability material to Target; (k)pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in, or contemplated by Company Financial Statements and Company Subsidiaries or incurred in the ordinary course of business consistent with past practice or customary fees and expenses relating to the transactions contemplated by the Merger Agreement; (l)settle or compromise any pending or threatened suit, action or claim relating to the transactions contemplated hereby; or (m)take, or agree in writing or otherwise to take, any of the actions described in (a) through (l) above or any action which would make any of the representations or warranties of Target contained in the Merger Agreement untrue or incorrect as of the date when made. Maintenance of Cash by Target. Pursuant to the Merger Agreement, Target has agreed, from the date of the Merger Agreement until the consummation of the Offer, to cause approximately $45.0 million to be maintained in its existing investments and, upon maturity of such investments, to invest such sums in municipal instruments with a rating of BBB or better (together, the "Target Investments"). From the consummation of the Offer until the Effective Time, Target agreed to cause approximately $33.0 million to be maintained in Target Investments. Conduct of Parent's Business. The Merger Agreement includes Parent's covenant that, except as contemplated by the Merger Agreement, during the period from the date of the Merger Agreement to the earlier of termination of the Merger Agreement or the Effective Time, Parent has agreed to conduct its business and that of its subsidiaries only in the ordinary course of business consistent with past practice and to use all reasonable efforts consistent with past practices and policies to preserve intact its present business organization (including the services of its existing employees) and preserve its relationships with customers, suppliers and others having business dealings with it, to the end that its goodwill and ongoing business shall be unimpaired at the Effective Date. Without limiting the generality of the foregoing, and except as otherwise expressly provided in the Merger Agreement, neither Parent nor any of its subsidiaries will, without the prior written consent of Target: (a)amend or propose to amend its Articles of Incorporation or By-laws (or equivalent organizational documents), provided, however, that IPB may amend its Articles of Incorporation or By-laws in any manner as may be necessary in connection with the transactions contemplated by the Merger Agreement and the Financing Letter; (b)except as contemplated in connection with the Financing, (i) authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any other securities or equity equivalents (including, without limitation, any stock options or stock appreciation rights) except shares of Common Stock of the Parent issuable upon exercise of the Parent Outstanding Options or (ii) amend any of the terms of any such securities or agreements outstanding as of the date of the Merger Agreement, except as specifically contemplated by the Merger Agreement; 5 (c)split, combine or reclassify any shares of its capital stock, declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem or otherwise acquire any of its securities or any securities of Parent's subsidiaries, except as otherwise contemplated in the Financing Letter; (d)except for the Financing contemplated by the Financing Letter, (i) incur or assume any long-term or short-term debt or issue any debt securities except for borrowings under existing lines of credit in the ordinary course of business; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person or entity except in the ordinary course of business consistent with past practice, and except for obligations of its wholly owned subsidiaries; (iii) make any loans, advances or capital contributions to, or investments in, any other person or entity (other than to its wholly-owned subsidiaries or advances to employees in the ordinary course of business consistent with past practice and in amounts not material to the maker of such loan or advance); (iv) pledge or otherwise encumber shares of its capital stock or any of its subsidiaries; or (v) mortgage or pledge any of its material assets, tangible or intangible, or create or suffer to exist any material lien thereupon; (e)except as may be required by law or as contemplated by the Merger Agreement or described on the Parent Disclosure Schedule, enter into, adopt or amend or terminate any bonus, profit sharing, compensation, severance, termination, stock option, stock appreciation right, restricted stock, performance unit, stock equivalent, stock purchase agreement, pension, retirement, deferred compensation, employment, severance or other employee benefit agreement, trust, plan, fund or other arrangement for the benefit or welfare of any director, officer, employee or former employee or independent contractor in any manner, or (except for normal increases in the ordinary course of business consistent with past practice that, in the aggregate, do not result in a material increase in benefits or compensation expense to it and as required under existing agreements) increase in any manner the compensation or fringe benefits of any director, officer or employee or pay any benefit not required by any plan and arrangement as in effect as of the date hereof (including, without limitation, the granting of stock appreciation rights or performance units); (f)acquire, sell, lease, license to others or dispose of any assets outside the ordinary course of business which individually or in the aggregate are material to Parent, or enter into any commitment or transaction outside the ordinary course of business consistent with past practice which would be material to Parent; (g)except as may be required as a result of a change in law or in US GAAP, change any of the accounting principles or practices used by it; (h)revalue in any material respect any of its assets, including, without limitation, writing down the value of inventory or writing-off notes or accounts receivable other than in the ordinary course of business; (i)(i) acquire or agree to acquire (by merger, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership or other business organization or division thereof or any equity interest therein, other than as specifically described on the Parent Disclosure Schedule; (ii) enter into any contract or agreement other than in the ordinary course of business consistent with past practice which would be material to it; (iii) authorize any new capital expenditure or expenditures which, individually, is in excess of $250,000 or, in the aggregate, are in excess of $2,500,000; or (iv) enter into or amend any contract, agreement, commitment or arrangement providing for the taking of any action that would be prohibited hereunder; (j)make any tax election or settle or compromise any income tax liability material to Parent; (k)except as contemplated in the Financing Letter and the engagement letter between Parent, Purchaser, IPB and Lehman, pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in, or contemplated by the Parent Financial Statements or incurred in the ordinary course of business consistent with past practice or customary fees and expenses relating to the transactions contemplated by the Merger Agreement; 6 (l)settle or compromise any pending or threatened suit, action or claim relating to the transactions contemplated hereby; or (m)take, or agree in writing or otherwise to take, any of the actions described in (a) through (l) above or any action which would make any of the representations or warranties of Parent or Purchaser contained in the Merger Agreement untrue or incorrect as of the date when made. Directors. Following the Offer, Target has agreed to take all actions necessary to (i) increase the number of directors on Target's Board from five to seven, (ii) cause one of the existing directors to resign from Target's Board, and (iii) appoint to Target's Board three individuals selected by Parent, which designees will include Patrick Dupuy, the President and a director of Parent and Gilles Gibier, the Co-Director of Parent's holding company. Additionally, Target has agreed to cause Messrs. Dupuy and Gibier to become Co-Chairmen of Target's Board. Pursuant to the Merger Agreement, after the election of designees of Purchaser pursuant to the preceding paragraph and prior to the Effective Time, any amendment of the Merger Agreement or the Articles of Incorporation or By- laws of Target, any termination of the Merger Agreement by Target, any extension by Target of the time for the performance of any of the obligations or other acts of Purchaser or waiver of any of Target's rights under the Merger Agreement will require the concurrence of a majority of the directors of Target then in office who were not designated by Purchaser. No Solicitation. Target has agreed that it, its affiliates and their respective officers, directors, employees, representatives and agents (i) shall cease (and not reopen except as permitted by the Merger Agreement) any existing discussions or negotiations, if any, with any parties with respect to any acquisition (other than the transactions contemplated by the Merger Agreement) of all or any material portion of the assets of, or any equity interest in, Target or any of its subsidiaries or any business combination with Target or any of its subsidiaries and (ii) shall not, directly or indirectly, (A) solicit or initiate discussions, or, except with respect to a Superior Proposal (as defined below) received by Target, engage in negotiations with any person or, except with respect to a Superior Proposal received by Target, take any other action intended, designed or reasonably likely to facilitate the efforts of any person, other than Parent and Purchaser, relating to the possible acquisition of Target or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) of any material portion of its or their capital stock or assets, (B) except with respect to a Superior Proposal received by Target, and provided that Target has required the party submitting the Superior Proposal to execute a non-disclosure agreement comparable to the one executed by Parent in connection with the Merger Agreement, provide non-public information with respect to Target or any of its subsidiaries to any person, other than Parent and Purchaser, relating to the possible acquisition of Target or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or any material portion of its or their capital stock or assets, (C) enter into an agreement with any person, other than Parent and Purchaser, providing for the possible acquisition of Target or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or any material portion of its or their capital stock or assets, (D) except with respect to a Superior Proposal received by Target, make or authorize any statement, recommendation or solicitation in support of any possible acquisition of Target or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or any portion of its or their capital stock or assets by any person, other than by Parent and Purchaser or withdraw or modify the recommendation by Target's Board with respect to the Offer, the Merger Agreement, the Exchange Offer, the Acquisition of Purchaser and the Merger. Notwithstanding the foregoing, following the receipt of an offer or proposal that Target's Board, in the exercise of its reasonable good faith judgement, after consultation with its legal and financial advisors, deems to be a Superior Proposal, Target may terminate the Merger Agreement (subject to Target's obligations with respect to the payment of certain fees and expenses described further below) and accept such Superior Proposal, and Target's Board may approve or recommend (and, in connection therewith, withdraw or modify its approval and recommendation of the Offer, the Merger Agreement, the Axiohm Exchange, the Acquisition of Purchaser and the Merger). 7 A "Superior Proposal" means a written proposal that has not been solicited by Target following the date of the Merger Agreement relating to the possible acquisition of Target or any of the Target Subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or any material portion of its or their capital stock or assets by any person other than by Parent or Purchaser, which proposal is, in the reasonable good faith judgment of Target's Board, after consultation with its legal and financial advisors, on financial and other terms more favorable to the shareholders of Target than the terms of the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, collectively, and which is made by a party that can reasonably be expected to consummate the transaction on the terms proposed. The Merger Agreement also provides that if Target or any of its subsidiaries receives any offer or proposal to enter negotiations relating to any of the above, Target shall as promptly as practicable, notify Parent or Purchaser thereof, including information as to the identity of the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and provide Parent or Purchaser with the same information (if any) Target provides to the party making the Superior Proposal. Directors' and Officers' Indemnification. The Merger Agreement provides that all rights to indemnification for acts or omissions occurring prior to the Effective Time now existing in favor of the current or former directors or officers (the "Indemnified Parties") of Target and its subsidiaries as provided in their respective articles of incorporation or by-laws (or similar organizational documents) or existing indemnification contracts in the form filed with the Commission shall survive the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger and shall continue in full force and effect in accordance with their terms. Additionally, for six years from the Effective Time, Target shall use commercially reasonable efforts to maintain in effect Target's current directors' and officers' liability insurance covering those persons who are currently covered by Target's directors' and officers' liability insurance policy; provided, however, that in no event shall Target be required to expend in any one year an amount in excess of 150% of the annual premiums currently paid by Target for such insurance and provided, further, that if the annual premiums of such insurance coverage exceed such amount, Target shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount. The Merger Agreement also provides that Target shall pay all expenses, including attorney's fees, that may be incurred by any Indemnified Party in enforcing the indemnity described above and other obligations related thereto provided for in the Merger Agreement. Issuance of Target Warrants and Roll-Over Notes. The Merger Agreement provides that Target shall, in accordance with the Financing Letter, (A) upon the closing of the Offer and in accordance with the instructions of Parent, issue warrants, exercisable into an aggregate of 10% of the outstanding capital stock of Target (calculated after giving effect to the exercise of such warrants and all other outstanding warrants, options or other convertible securities) and containing such other terms and provisions as are contemplated in the Financing Letter, and to cause such warrants to be placed into an escrow account until such warrants are released to Lehman Brothers in accordance with the Financing Letter, and (B) at the Effective Date issue the Roll-over Notes contemplated by the Financing Letter, in exchange for the Interim Preferred Stock, if the Interim Purchasers so elect. See "The Offer-- Source and Amount of Funds" of the Offer to Purchase. Representations and Warranties. The Merger Agreement contains various customary representations and warranties of the parties thereto, including representations by Target and Parent and Purchaser as to the absence of certain changes or events concerning the such entity's corporate organization and qualification, capitalization, authority, filings with the Commission (if applicable) and other governmental authorities, financial statements, litigation, employee benefit matters, intellectual property, real property, taxes, insurance, environmental matters, material contracts and compliance with law. 8 Conditions to Consummation of the Axiohm Exchange. The Merger Agreement provides that the respective obligations of each party to effect the Axiohm Exchange shall be subject to the satisfaction at or prior to the Axiohm Exchange Closing of the following conditions: (a)No statute, rule, regulation, executive order, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) shall have been enacted, entered, promulgated or enforced by any U.S. federal or state court or governmental authority, or any French national or provincial court or governmental authority, as the case may be which prohibits, restrains, enjoins or restricts the consummation of the Axiohm Exchange; (b)Any waiting period applicable to the Axiohm Exchange under the HSR Act and French law, if applicable, shall have terminated or expired; (c)Purchaser shall own Shares representing at least the Minimum Condition (whether purchased pursuant to the Offer or otherwise acquired); and (d)Parent Holders owning at least a majority of the then outstanding Parent Shares shall have executed and delivered to Purchaser the Axiohm Purchase Agreements. Conditions to Consummation of the Acquisition of Purchaser. The Merger Agreement provides that the respective obligations of each party to effect the Acquisition of Purchaser shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a)No statute, rule, regulation, executive order, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) shall have been enacted, entered, promulgated or enforced by any U.S. federal or state court or governmental authority, or any French national or provincial court or governmental authority, as the case may be, which prohibits, restrains, enjoins or restricts the consummation of the Acquisition of Purchaser; (b)Any waiting period applicable to the Acquisition of Purchaser under the HSR Act and French law, if applicable, shall have terminated or expired; (c)Purchaser shall own Shares representing at least the Minimum Condition (whether purchased pursuant to the Offer or otherwise acquired), less the Exchange Shares; and (d)The Axiohm Exchange Closing shall have occurred. Conditions to Consummation of the Merger. The Merger Agreement provides that the respective obligations of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a)No statute, rule, regulation, executive order, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) shall have been enacted, entered, promulgated or enforced by any U.S. federal or state court or governmental authority, or any French national or provincial court or governmental authority, as the case may be which prohibits, restrains, enjoins or restricts the consummation of the Merger; (b)Any waiting period applicable to the Merger under the HSR Act, and French law, if applicable, shall have terminated or expired; (c)Purchaser shall own Shares representing at least the Minimum Condition (whether purchased pursuant to the Offer or otherwise acquired), less the Exchange Shares; (d)The Axiohm Exchange shall have been consummated; and (e)The Acquisition of Purchaser shall have occurred. Termination. The Merger Agreement may be terminated and the Axiohm Exchange, the Acquisition of Purchaser and the Merger may be abandoned at any time prior to the Effective Time, notwithstanding any approval thereof by the shareholders of Target: (a)By mutual written consent of Parent, Purchaser and Target; 9 (b)By Parent or Target if any court of competent jurisdiction or other governmental body located or having jurisdiction within the U.S., France or any country or economic region in which either Target or Parent, directly or indirectly, has material assets or operations, shall have issued a final order, decree or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger and such order, decree, ruling or other action is or shall have become final and nonappealable, except if the party relying on this clause (b) to terminate the Merger Agreement is in breach of any of its material obligations under the Merger Agreement; (c)By Parent if, (i) due to a failure of any of the Offer Conditions, Purchaser shall have (A) terminated the Offer or (B) failed to pay for Shares pursuant to the Offer within 60 days (or 90 days if there has been a second request under the HSR Act) following the date of the Merger Agreement, unless such termination or failure has been caused by or results from (x) a breach of any representation or warranty on the part of Parent or Purchaser contained in the Merger Agreement that has a Material Adverse Effect on Parent or Purchaser or (y) there shall have been any breach of any covenant or agreement on the part of Parent or Purchaser contained in the Merger Agreement that has a Material Adverse Effect on Parent or Purchaser or (ii) Target's Board shall have withdrawn or modified (including by amendment of the Schedule 14D-9) in a manner adverse to Purchaser its approval or recommendation of the Offer, the Merger Agreement, the Axiohm Exchange, the Acquisition of Purchaser or the Merger or shall have approved or recommended another offer or transaction, or shall have resolved to effect any of the foregoing; and (d)By Target (i) if Purchaser shall not have commenced the Offer within five days of the date on which Purchaser's intention to make the Offer is publicly announced; (ii) if the Offer shall not have been consummated within 60 days (or 90 days if there has been a second request under the HSR Act) following the date of the Merger Agreement; (iii) if due to a failure of any of the Offer Conditions, Purchaser shall have terminated the Offer, unless such termination has been caused by or results from (A) a breach of any representation or warranty on the part of Target contained in the Merger Agreement that has a Material Adverse Effect on Target or could reasonably be expected to materially adversely affect (or materially delay) the consummation of the Offer or (B) there shall have been any breach of any covenant or agreement on the part of Target contained in this Agreement that has a Material Adverse Effect on Target or could reasonably be expected to materially adversely affect (or materially delay) the consummation of the Offer; or (iv) in connection with its determination to pursue a Superior Proposal pursuant to the Merger Agreement; provided that such termination under clause (iv) shall not be effective until Target has made payment of the Initial Fee required by the Merger Agreement. Fees. The Merger Agreement provides that (i) in the event that the Merger Agreement is terminated pursuant to Section 8.1(d)(iv) thereof (item (d)(iv) above), Target shall pay to Parent, in same day funds, upon demand, an amount equal to $2.6 million (the "Initial Fee") and that (ii) in addition to the Initial Fee, in the event that (x) a proposal with respect to an Acquisition Transaction (as defined in the Merger Agreement) is commenced by Target, publicly proposed, publicly disclosed or communicated to Target or any representative or agent thereof after the date of the Merger Agreement and prior to the date of termination of the Merger Agreement, (y) the Merger Agreement is thereafter terminated pursuant to Section 8.1(c) or 8.1(d) (items (c) and (d) above), and (z) within six months following such termination, an Acquisition Transaction is consummated or Target enters into an agreement relating thereto, then, in any such event, Target shall pay Parent, in same day funds, promptly (but in no event later than one business day after the first of such events shall have occurred) an additional fee of $3.9 million (the "Subsequent Fee"). In the event that Target shall fail to pay either the Initial Fee or the Subsequent Fee, the terms "Initial Fee" and/or "Subsequent Fee" shall be deemed to include the costs and expenses actually incurred or accrued by Parent, Purchaser and their respective shareholders and affiliates (including, without limitation, fees and expenses of counsel) in connection with the collection under and enforcement of Section 8.3 of the Merger Agreement, together with interest on such unpaid Fee, commencing on the date that the applicable Fee became due. 10 The Merger Agreement also provides that, in the event that Parent or Purchaser shall have terminated the Offer due solely to a failure of the financing condition described in subsection (c) of Annex A to the Merger Agreement (See "The Offer--Certain Conditions of the Offer" of the Offer to Purchase) and the failure of such Offer Condition was not a result, directly or indirectly, of (i) any event or condition having a Material Adverse Effect on Target or (ii) any misrepresentation made by any of Parent, Purchaser or IPB to Lehman or its affiliates which was based upon information provided by Target to Parent, Purchaser or IPB then Parent shall reimburse Target for the out-of-pocket expenses incurred by Target in connection with the Merger Agreement and the transactions contemplated thereby, up to a maximum reimbursement of $300,000. Except as set forth above, all costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby shall be paid by the party incurring such expenses, whether or not any such transaction is consummated. Treatment of Target Options Pursuant to the Merger Agreement, Target's Board has agreed to take all actions necessary such that all Company Outstanding Options (as defined in the Merger Agreement) are treated as follows. Upon acceptance for payment of Shares by Purchaser pursuant to the Offer, all Vested Company Outstanding Options (as defined below), other than Company Outstanding Options held by certain individuals to be designated by Target, subject to the reasonable acceptance of Parent (the "Designated Optionees"), shall be cancelled and each holder thereof shall thereupon be paid by Target an amount, in cash, equal to the product of (i) the number of Shares subject to Vested Company Outstanding Options held by such holder and (ii) the Offer Price minus the exercise price applicable to such Vested Company Outstanding Options (the "Option Spread"), less applicable taxes. The Designated Optionees may elect, as to all or a portion of the individual's Vested Company Outstanding Options, to be covered under the preceding sentence or to receive the Option Spread on a deferred basis over a period not to exceed seven years following the Effective Time, subject to earlier distribution upon termination of the individual's employment for any reason. Target shall also pay a tax subsidy payment on the Option Spread consisting of (i) a payment to reflect the federal and state tax rate differential between long-term capital gains and ordinary income, and (ii) a payment to reimburse the individual for taxes due as a result of the rate differential payment, provided that such tax subsidy payments shall be limited so as to avoid triggering the golden parachute excise tax under Sections 280G and 4999 of the Internal Revenue Code. For purposes of the foregoing, Vested Company Outstanding Options shall mean: (i) all Company Outstanding Options that are vested as of the date of acceptance for payment of Shares by Purchaser pursuant to the Offer or that would have vested through September 6, 1997; (ii) one-half of Company Outstanding Options issued to Walter Sobon; and (iii) all warrants outstanding under Target's Director Warrant Plan (as defined in the Merger Agreement). All Company Outstanding Options other than Vested Company Outstanding Options ("Unvested Company Outstanding Options") shall remain outstanding and subject to the terms and conditions of the applicable Company option plan and option agreement, but shall be modified to provide for full vesting acceleration in the event the employee's employment is terminated (i) by Target other than for cause, or (ii) as the result of the employee's death or disability. Unvested Company Outstanding Options held by William Gibbs, Walter Sobon, David Ledwell and Janet Shanks shall also be modified to provide for acceleration upon a constructive termination of employment. In the event Target engages in a transaction prior to April 1, 2001, as a result of which Target's Common Stock is no longer registered under the Exchange Act, each holder of Unvested Company Outstanding Options shall be entitled to receive from Target a cash payment equal to the product of (i) the number of shares subject to Unvested Company Outstanding Options held by such holder and (ii) the Offer Price minus the exercise price applicable to such Unvested Company Outstanding Options, less applicable taxes. Employment Agreements In connection with the Merger Agreement and the transactions contemplated thereby, Target has entered into employment agreements with William Gibbs and Walter Sobon, executive officers of Target. Each of the agreements will take effect upon the consummation of the Offer. 11 The employment agreement with Mr. Gibbs (the "Gibbs Agreement") provides for Mr. Gibbs to be employed as Target's Chief Executive Officer at a base salary of no less than $225,000. Mr. Gibbs is also eligible to receive a minimum target bonus equal to 50% of his base salary to be awarded based on Target's financial performance and is entitled to a car allowance and to participate in other employee benefit plans and programs available to Target's other employees. The Gibbs Agreement also contemplates that he will be granted an option to purchase a number of shares of Target's Common Stock as determined by the compensation committee of Target's Board at an exercise price which shall be equal to the then fair market value of the Target Common Stock. The option shall vest as to 50% of the shares 24 months following the grant date and as to an additional 1/48th of the shares each month thereafter. In the event Mr. Gibbs' employment with Target terminates in an Involuntary Termination (as defined in the Gibbs Agreement), Mr. Gibbs shall receive a lump sum severance payment equal to two years' compensation if terminated in the first 12 months, 18 months compensation if terminated in the second 12 months and 12 months compensation if terminated thereafter. In addition, in the event Mr. Gibbs' employment is terminated as a result of an Involuntary Termination, disability or death, the vesting and exercisability of all outstanding stock options that were granted to Mr. Gibbs prior to the consummation of the Offer shall accelerate in full. The Gibbs Agreement supersedes the employment agreement between Target and Mr. Gibbs dated December 3, 1985. The employment agreement with Mr. Sobon (the "Sobon Agreement") provides for Mr. Sobon to be employed as Target's Chief Financial Officer at a base salary of no less than $160,000. Mr. Sobon is also eligible to receive a minimum target bonus of $50,000, to be awarded based on Target's financial performance and is entitled to a car allowance and to participate in other employee benefit plans and programs available to Target's other employees. The Sobon Agreement also contemplates that he will be granted an option to purchase a number of shares of Target's Common Stock as determined by the compensation committee of Target's Board at an exercise price which shall be equal to the then fair market value of the Target Common Stock. The option shall vest as to 50% of the shares 24 months following the grant date and as to an additional 25% of the shares each year thereafter. In the event Mr. Sobon's employment with Target terminates in an Involuntary Termination (as defined in the Sobon Agreement), Mr. Sobon shall receive a lump sum severance payment equal to 12 months compensation, except that (i) in the event that Mr. Gibbs' employment is terminated in the first 12 months following the consummation of the Offer and Sobon is terminated in the same 12 month period, Sobon shall receive a lump sum severance payment equal to 18 months compensation and (ii) in the event that Gibbs' employment is terminated in the second 12 months following the consummation of the Offer and Sobon is terminated in the same 12 month period, Sobon shall receive a lump sum severance payment equal to 15 months compensation. In addition, in the event Mr. Sobon's employment is terminated as a result of an Involuntary Termination, disability or death, the vesting and exercisability of all outstanding stock options that were granted to Mr. Sobon prior to the consummation of the Offer shall accelerate in full. The Sobon Agreement supersedes the employment arrangement between Target and Sobon as set forth in a letter from Target dated September 20, 1996 and amended September 30, 1996. In connection with the Merger Agreement and the transactions contemplated thereby, Target also intends to enter into employment arrangements with David Ledwell and Janet Shanks, executive officers of Target. Such agreements are expected to take effect upon the consummation of the Offer. The employment agreement with Mr. Ledwell (the "Ledwell Agreement") is expected to provide for Mr. Ledwell to be employed at a base salary of no less than $160,000. Mr. Ledwell will also be eligible to receive a minimum target bonus equal to $40,000, to be awarded based on Target's financial performance and will be entitled to participate in other employee benefit plans and programs available to Target's other employees. The Ledwell Agreement is also expected to contain language providing that, in the event that Mr. Ledwell's employment with Target terminates in an "involuntary termination," Mr. Ledwell shall receive a lump sum severance payment equal to 2 years compensation, if terminated in the first 24 months and 12 months salary if terminated thereafter. The employment agreement with Ms. Shanks (the "Shanks Agreement") is expected to provide for Ms. Shanks to be employed as Target's Chief Accounting Officer at a base salary of no less than $90,000. Ms. Shanks will also be eligible to receive a minimum target bonus equal to $20,000, to be awarded based on Target's financial performance and will be entitled to participate in other employee benefit plans and programs available to Target's other employees. 12 The Shanks Agreement is also expected to contain language providing that, in the event that Ms. Shanks' employment with Target terminates in an "involuntary termination," Ms. Shanks shall receive a lump sum severance payment equal to 12 months compensation, if terminated in the first 24 months and 6 months salary if terminated thereafter. The Ledwell Agreement and the Shanks Agreement are also expected to provide that Mr. Ledwell and Ms. Shanks, respectively, will be granted an option to purchase a number of shares of Target's Common Stock as determined by the compensation committee of Target's Board at an exercise price equal to the then fair market value of the Target Common Stock. The option shall vest as to 50% of the shares 24 months following the grant date and as to an additional 25% of the shares each year thereafter. In addition, each agreement is expected to provide that, in the event Mr. Ledwell's or Ms. Shanks' respective employment is terminated as a result of an "involuntary termination," disability or death, the vesting and exercisability of all outstanding stock options that each received prior to the Effective Time shall accelerate in full. Additional Agreements, Arrangements and Understandings The Company's Restated Articles of Incorporation contain provisions that eliminate the personal liability of its directors for monetary damages arising from a breach of their fiduciary duties in certain circumstances to the fullest extent permitted by law and authorize the Company to indemnify its directors and officers to the fullest extent permitted by law. Such limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission. The Company's By-laws provide that the Company shall indemnify its directors and officers to the fullest extent permitted by California law, including circumstances in which indemnification is otherwise discretionary under California law. The Company has entered into indemnification agreements with its officers and directors containing provisions which are in some respects broader than the specific indemnification provisions contained in the California Corporations Code, including advancement of expenses to the indemnitee, the indemnitee's right to select counsel and continuation of indemnification after indemnitee's separation from the Company. The indemnification agreements may require the Company, among other things, to indemnify such officers and directors against certain liabilities arising from willful misconduct of a culpable nature and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. Except as set forth in this Item 3(b) and Item 3(a) above, to the best of the Company's knowledge, there are no material contracts, agreements, arrangements or understandings or any actual or potential conflicts of interest between the Company or its affiliates and (i) the Company, its executive officers, directors or affiliates, or (ii) the Purchaser or Parent, or their respective executive officers, directors or affiliates. ITEM 4. THE SOLICITATION OR RECOMMENDATION (a) Recommendation. The Board of Directors of the Company (the "Board") at a special meeting held on July 13-14, 1997 unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger are fair to, and in the best interests of, the Company and its shareholders, and recommended that such shareholders accept and tender their Shares pursuant to the Offer and (if required by applicable law or otherwise) approve the Merger Agreement and the transactions contemplated thereby. A copy of the Company's letter to shareholders dated July 16, 1997 is filed as Exhibit (a)(5) to this statement and is incorporated herein by reference. (b) Background of the Offer; Reasons for the Board's Conclusions. Background of the Offer. On December 6, 1996, William H. Gibbs ("Gibbs") and Patrick Dupuy ("Dupuy"), a director and the President of Parent, had a telephone conversation which resulted in Dupuy meeting with Endre Varga, the General Manager of Target's Cognitive Solutions, Inc. facility located in Paso Robles, California (the "CSI Facility"), to tour the CSI Facility on December 12, 1996. On December 13, 1996, Gibbs and Dupuy met with 13 David Ledwell, Executive Vice President-Transaction Products of Target ("Ledwell"), to visit Target's plant located in Tijuana, Mexico (the "Mexico Facility"). On January 9, 1997, in Paris, Gibbs met with Dupuy and Gibier, where a decision was made by the representatives of Target and Parent to begin preparation of plans relating to a potential business combination of Target and Parent for presentation to their respective Boards of Directors. Between January 9, 1997 and March 10, 1997, Gibbs, Dupuy and Gibier participated in a series of conference telephone calls to discuss various business and accounting issues raised by a potential combination and to coordinate due diligence with respect to their respective businesses. On March 17, 1997, in Denver, Colorado, Gibier met with Gibbs to discuss the details of a potential combination. The Denver meeting was followed by Gibbs and Gibier touring Target's Stadia Print Facility located in Denver, Colorado, the CSI Facility and the Mexico Facility on March 18, 19 and 20, 1997, respectively. On April 2, 1997, at a meeting in New York City, representatives of Target and Parent continued to discuss the issues raised by alternative structures for a potential business combination. At this meeting, Gibbs and Walter Sobon ("Sobon"), Target's Chief Financial Officer, also presented Dupuy and Gibier with a draft confidentiality letter designed to ensure that certain proprietary information to be exchanged between Target and Parent would be held in confidence. Although no proprietary information was exchanged at the April 2, 1997 meeting, the parties discussed projected financial data which had been prepared by Lehman Brothers Inc. ("Lehman") which projections were based on publicly available financial data. At the April 3, 1997 meeting of Target's Board of Directors, Gibbs reported to Target's Board regarding the discussions between Target and Parent relating to a potential business combination and the results of the due diligence review of Parent's business. The report included a discussion of various approaches to, and structures of, a potential combination. On April 14, 15 and 16, 1997, in Paris, Sobon met with Dupuy to further develop a structure for a potential business combination and to discuss the financial projections relating to possible combined operations of Target and Parent. The meetings included a tour of Parent's Puiseaux manufacturing facility. At the April 24, 1997 meeting of Target's Board of Directors, Gibbs again reported to Target's Board about the nature of the discussions between Target and Parent relating to a potential combination and the results of the on-going due diligence. On April 25, 1997, at the offices of Lehman in New York City, Gibbs and Sobon met with Dupuy and Gibier, where options regarding the timing, financing alternatives and structural issues relating to a potential business combination were discussed. At the May 6 and 7, 1997 meeting of Target's Board of Directors, Gibbs again reported to Target's Board about the nature of the discussions between Target and Parent relating to a potential combination. A representative of Wilson Sonsini Goodrich & Rosati, P.C., Target's legal counsel, Dupuy and Gibier also attended the Board meeting. Representatives of Parent signed the confidentiality letter originally presented to Parent at the April 2, 1997 meeting in New York City and representatives of Target signed a confidentiality agreement presented to it by Parent. Dupuy and Gibier made a presentation to Target's Board outlining certain of the benefits and risks of a business combination and a potential transaction structure. Between May 7, 1997 and May 26, 1997, representatives of Target and Parent and their respective legal counsel participated in a series of conference telephone calls to discuss alternative transaction structures, due diligence matters and financing of the proposed combination. On May 23, 1997, Target engaged Prudential Securities Incorporated ("Prudential") to render a fairness opinion with respect to a proposed transaction with Parent. On May 27 and 28, 1997, Bernard Patry ("Patry"), a Director of Parent, met with Gibbs, Ledwell, Sobon, and Janet Shanks, Corporate Controller and Chief Accounting Officer of Target, to discuss Target's business 14 operations. From May 14 to June 5, 1997, the legal and accounting advisors of Target performed due diligence on the Parent at Parent's Ithaca, New York and Paris, France locations. From May 27 to June 5, 1997, the legal and accounting advisors of Parent performed due diligence on Target at Target's San Diego, California location. Target and Parent each continued their respective due diligence investigations during the month of June 1997. On June 4 and 5, Gibier, Dupuy, Gibbs and Sobon meet in New York to discuss issues related to a potential combination and discuss a draft merger agreement. Target's Board received updates from Gibbs and Sobon throughout the month as to the status of the negotiations and the results of the on-going due diligence. During the week of June 23, Gibier, Dupuy, Gibbs and Sobon and their respective legal counsel met in Chicago to discuss the details of a merger agreement and the financing related to a potential transaction. Additional meetings and telephone discussions were held during the weeks of June 30, 1997 and July 5, 1997. Telephone discussions continued until a formal proposal was presented to Target's Board on July 13, together with commitment letters with respect to financing for the transaction. In the past several months, Target has engaged in discussions with other parties relating to potential business combinations involving Target. During the course of such discussions, Target received one proposal to acquire all of the outstanding shares of Target in a tax free exchange for shares of the common stock of the other party. This particular proposal contained numerous contingencies including the undertaking of a satisfactory due diligence investigation of Target's operations by the other party. After careful consideration of this particular proposal, including the proposed exchange ratio, the fact that the exchange ratio was not subject to adjustment in the event of a decline in the other parties stock price, the due diligence and other contingencies and the other terms and conditions of this proposal, Target's Board rejected the proposal and terminated discussions with such party on July 14, 1997. On July 13-14, 1997, Target's Board met to discuss the proposed terms of the Merger Agreement and related documents and the financing commitment for the transaction and to receive a report on the ongoing due diligence review of Purchaser. Target's Board also received a written opinion from Prudential that the consideration to be received by the holders of shares of Target Common Stock (other than Parent and its affiliates), consisting of cash consideration to be received by such holders pursuant to the Offer and the shares of Target Common Stock to be retained by such holders following the consummation of the Axiohm Exchange, the Acquisition of Purchaser and the Merger, is fair to such holders from a financial point of view. The contacts described above resulted in the Merger Agreement, Axiohm Exchange, Acquisition of Purchaser and the Offer and related documents, which were approved and, in the case of the Offer recommended to Target's shareholders, at a meeting of the Board of Directors of Target held on July 13-14, 1997. Reasons for the Board's Conclusions. In reaching its determination described in paragraph (a) above, the Board considered a number of factors, including, without limitation, the following: (i) The financial condition, results of operations, business and strategic objectives of the Company, as well as the risks involved in achieving those objectives; (ii) The projected financial condition and results of operations of the Company; (iii) A review of the possible alternatives to the Offer and the Merger (including the possibility of continuing to operate the Company as an independent entity and the sale of the Company through a merger or other means to other potential buyers), the range of possible benefits to the Company's shareholders of such alternatives and the timing and the likelihood of actually accomplishing any of such alternatives; (iv) The detailed financial and valuation analysis presented to the Board by Prudential, including, among other things, market prices and financial data relating to other companies engaged in businesses considered comparable to the Company and the prices and premiums paid in recent selected acquisitions of companies engaged in businesses considered comparable to those of the Company; (v) The written opinion of Prudential, financial advisor to the Company, that the consideration to be received by the holders of shares of Target Common Stock (other than Parent and its affiliates), consisting 15 of cash consideration to be received by such holders pursuant to the Offer and the shares of Target Common Stock to be retained by such holders following the consummation of the Axiohm Exchange, the Acquisition of Purchaser and the Merger, is fair to such holders from a financial point of view. A copy of the written opinion of Prudential which sets forth the assumptions made, matters considered and basis of their review is attached as Annex A, and filed as Exhibit (a)(4) to this statement; (vi) The fact that the Company's shareholders will retain an equity interest in the surviving company following the Offer, the Merger and the transactions contemplated thereby and that a public trading market is expected to exist for such shares; (vii) The relationship of the Offer price to historical market prices of the Shares and to the Company's book value and net asset value per Share and the fact that the Offer price will be paid in cash; (viii) The terms and conditions of the Merger Agreement and related agreements; (ix) The likelihood that the Offer, the Merger and the transactions contemplated thereby will be consummated, including the experience, reputation and financial condition of the Purchaser, Purchaser's ability to finance such transaction and the risks to the Company if the acquisition were not consummated; and (x) The fact that pursuant to the Merger Agreement, the Company is not prohibited from responding to any unsolicited Superior Proposal (as defined in the Merger Agreement) to acquire the Company, and the Company may terminate the Merger Agreement and accept such Superior Proposal subject to the Company's obligation to pay the "break-up" fee described in the Merger Agreement. In view of the wide variety of factors considered in connection with its evaluation of the Offer and the Merger, the Board did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors considered in reaching its respective determinations. ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The Board's financial advisor in connection with the Offer and other matters arising in connection with the transaction with Purchaser is Prudential. Pursuant to an engagement letter dated May 23, 1997, the Company has agreed to pay Prudential certain fees in connection with its services as financial advisor to the Board and for rendering a fairness opinion. The Company paid a fee of $75,000 upon signing the engagement letter, will pay an additional $87,500 in connection with the delivery of the opinion, and will pay a fee of $87,500 upon the earlier of (a) any public reference to the opinion or (b) the consummation of the transaction. The Company also has agreed to reimburse Prudential for its out-of-pocket and incidental expenses, including the fees and expenses of legal counsel and those of any advisor retained by Prudential. The Company has also agreed to indemnify Prudential against certain liabilities, including liabilities under the federal securities laws or relating to or arising out of Prudential's engagement as financial advisor. A copy of the Prudential fairness opinion is attached as Annex A and filed as Exhibit (a)(4) to this statement. Shareholders are urged to read the fairness opinion in its entirety. Prudential is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, corporate restructurings, strategic alliances, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. The Board selected Prudential to act as its financial advisor based on its belief that Prudential is experienced and qualified in such matters. Other than as described in this Item 5, neither the Company nor any person acting on its behalf intends to employ, retain or compensate any other person to make solicitations or recommendations to Shareholders on its behalf concerning the Merger or the Offer. 16 ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES. (a) To the best of the Company's knowledge, no transaction in the shares of DH Common Stock has been effected during the past sixty (60) days by the Company or any executive officer, director, affiliate or subsidiary of the Company. (b) To the best of the Company's knowledge, all of its executive officers, directors and affiliates presently intend to tender to Purchaser, pursuant to the Offer, all shares of DH Common Stock which are held of record or are beneficially owned by such persons. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY. (a) Except as set forth in Item 3(b) of this statement, no negotiation is underway or is being undertaken by the Company in response to the Offer which relates to or would result in (1) an extraordinary transaction, such as a merger or reorganization, involving the Company or any of its subsidiaries; (2) a purchase, sale or transfer of a material amount of assets by the Company or any of its subsidiaries; (3) a tender offer for or other acquisition of securities by or of the Company; or (4) any material change in the present capitalization or dividend policy of the Company. (b) There is no transaction, board resolution, agreement in principle or signed contract in response to the Offer, other than as disclosed in Item 3(b) of this statement, which relates to or would result in (1) an extraordinary transaction, such as a merger or reorganization, involving the Company or any of its subsidiaries; (2) a purchase, sale or transfer of a material amount of assets by the Company or any of its subsidiaries; (3) a tender offer for or other acquisition of securities by or of the Company; or (4) any material change in the present capitalization or dividend policy of the Company. ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED None. ITEM 9. MATERIAL TO BE FILED AS EXHIBITS (a)(1) Offer to Purchase dated July 16, 1997.* (a)(2) Letter of Transmittal.* (a)(3) Press release issued by the Company, Parent and Pur- chaser on July 15, 1997. (a)(4)(/1/) Fairness Opinion of Prudential Securities Incorporated dated July 14, 1997.* (a)(5) Letter to Shareholders dated July 16, 1997.* (a)(6) News Release issued by the Company dated July 16, 1997. (a)(7) Summary Advertisement dated July 16, 1997. (c)(1) Agreement and Plan of Merger dated as of July 14, 1997, among the Company, Parent and Purchaser. (c)(2) Form of Indemnification Agreement. (c)(3)(/2/) Restated Articles of Incorporation of the Company, as amended. (c)(4)(/3/) Certificate of Amendment of Restated Articles of Incor- poration dated September 22, 1995. (c)(5)(/4/) Bylaws of the Company, as amended. (c)(6) Employment Agreement between the Company and William H. Gibbs dated July 14, 1997. (c)(7) Employment Agreement between the Company and Walter Sobon dated July 14, 1997. (c)(8) Form of Employment Agreement between the Company and Ja- net W. Shanks. (c)(9) Form of Employment Agreement between the Company and Da- vid T. Ledwell. (c)(10) Pages 2-7 of the Company's Proxy Statement, dated March 24, 1997, related to the Company's Annual Meeting of Shareholders held on April 24, 1997.
17 - -------- *Included in copies mailed to shareholders. (1)Attached hereto as Annex A. (2) Incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988. (3) Incorporated by reference to Exhibit 3.1(b) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. (4) Incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. 18 SIGNATURE After reasonable inquiry and to the best of its knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. DH Technology, Inc. /s/ William H. Gibbs By: _________________________________ William H. Gibbs Chairman of the Board Dated: July 16, 1997 19 EXHIBIT INDEX
PAGE EXHIBIT NO. EXHIBIT NAME NO. ----------- ------------ ---- (a)(1) Offer to Purchase dated July 16, 1997.* (a)(2) Letter of Transmittal.* (a)(3) Press release issued by the Company, Parent and Purchaser on July 15, 1997. (a)(4)(/1/) Fairness Opinion of Prudential Securities Incorporated dated July 14, 1997.* (a)(5) Letter to Shareholders dated July 16, 1997.* (a)(6) Form of News Release issued by the Company dated July 16, 1997. (a)(7) Form of Summary Advertisement dated July 16, 1997. (c)(1) Agreement and Plan of Merger dated as of July 14, 1997, among the Company, Parent and Purchaser. (c)(2) Form of Indemnification Agreement. (c)(3)(/2/) Restated Articles of Incorporation of the Company, as amended. (c)(4)(/3/) Certificate of Amendment of Restated Articles of Incorpora- tion dated September 22, 1995. (c)(5)(/4/) Bylaws of the Company, as amended. (c)(6) Employment Agreement between the Company and William H. Gibbs dated July 14, 1997. (c)(7) Employment Agreement between the Company and Walter Sobon dated July 14, 1997. (c)(8) Form of Employment Agreement between the Company and Janet W. Shanks. (c)(9) Form of Employment Agreement between the Company and David T. Ledwell (c)(10) Pages 2-7 of the Company's Proxy Statement, dated March 24, 1997, related to the Company's Annual Meeting of Sharehold- ers held on April 24, 1997.
- -------- * Included in copies mailed to shareholders. (1) Attached hereto as Annex A. (2) Incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988. (3) Incorporated by reference to Exhibit 3.1(b) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. (4) Incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. EX-99.(A)(1) 2 OFFER TO PURCHASE Exhibit (a)(1) OFFER TO PURCHASE FOR CASH UP TO 7,000,000 SHARES OF COMMON STOCK OF DH TECHNOLOGY, INC. AT $25 NET PER SHARE BY AX ACQUISITION CORPORATION AN INDIRECT WHOLLY OWNED SUBSIDIARY OF AXIOHM S.A. THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, AUGUST 12, 1997, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST 6,500,000 SHARES (REPRESENTING APPROXIMATELY 81% OF THE OUTSTANDING SHARES OF COMMON STOCK OF TARGET AS OF JULY 11, 1997) (THE "MINIMUM CONDITION") AND (II) THE EXPIRATION OR TERMINATION OF ANY APPLICABLE WAITING PERIOD UNDER THE HART- SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR ACT"), AND THE REGULATIONS THEREUNDER. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS WHICH ARE CONTAINED IN THIS OFFER TO PURCHASE. SEE "INTRODUCTION," "THE OFFER--TERMS OF THE OFFER, PRORATION AND EXPIRATION DATE" AND "THE OFFER--CERTAIN CONDITIONS OF THE OFFER." THE BOARD OF DIRECTORS OF TARGET ("TARGET'S BOARD") HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT (AS DEFINED HEREIN) AND DETERMINED THAT THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER, THE AXIOHM EXCHANGE (AS DEFINED HEREIN), THE ACQUISITION OF PURCHASER (AS DEFINED HEREIN) AND THE MERGER (AS DEFINED HEREIN) ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF TARGET, AND RECOMMENDS THAT THE SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. ---------------- IMPORTANT Any shareholder desiring to tender all or any portion of such shareholder's shares of Common Stock, without par value (the "Shares"), of Target pursuant to this Offer should either (i) complete and sign the enclosed Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal, have such shareholder's signature thereon guaranteed if required by Instruction 1 to the Letter of Transmittal, mail or deliver the Letter of Transmittal (or such facsimile) together with certificate(s) evidencing tendered Shares, and any other required documents, to The Bank of New York (the "Depositary") and either deliver the certificate(s) for such Shares to the Depositary along with the Letter of Transmittal (or facsimile) or deliver such Shares pursuant to the procedure for book-entry transfer set forth in "The Offer--Procedure for Tendering Shares" or (ii) request such shareholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such shareholder. A shareholder having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if such shareholder desires to tender the Shares held by the nominee. ANY SHAREHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATE(S) FOR SUCH SHARES ARE NOT IMMEDIATELY AVAILABLE, OR WHO CANNOT COMPLY IN A TIMELY MANNER WITH THE PROCEDURE FOR BOOK-ENTRY TRANSFER, OR WHO CANNOT DELIVER ALL REQUIRED DOCUMENTS TO THE DEPOSITARY PRIOR TO THE EXPIRATION OF THE OFFER, MAY TENDER SUCH SHARES BY FOLLOWING THE PROCEDURES FOR GUARANTEED DELIVERY SET FORTH IN "THE OFFER--PROCEDURE FOR TENDERING SHARES." Questions or requests for assistance may be directed to the Information Agent at its address and telephone numbers set forth on the back cover of this Offer to Purchase. Questions or requests for assistance may also be directed to the Dealer-Manager at its address set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. ---------------- THE DEALER-MANAGER FOR THE OFFER IS: LEHMAN BROTHERS July 16, 1997 TABLE OF CONTENTS
PAGE ---- INTRODUCTION............................................................. 3 THE OFFER................................................................ 5 1. Terms of the Offer, Proration and Expiration Date................. 5 2. Acceptance for Payment and Payment................................ 6 3. Procedure for Tendering Shares.................................... 8 4. Withdrawal Rights................................................. 10 5. Certain U.S. Federal Income Tax Consequences...................... 11 6. Price Range of the Shares and Dividends........................... 13 7. Effect of the Offer on the Market for Target's Common Stock, Stock Quotation, Exchange Act Registration and Margin Securities........ 14 8. Certain Information Concerning Target............................. 16 9. Certain Information Concerning Purchaser and Parent; Relation to Target............................................................ 20 10. Purpose of the Offer, the Axiohm Exchange, the Acquisition of Pur- chaser and the Merger............................................. 28 11. Operations after the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger....................................... 29 12. Source and Amount of Funds........................................ 37 13. Background of the Offer........................................... 44 14. The Merger Agreement.............................................. 45 15. Dividends and Distributions....................................... 55 16. Certain Conditions of the Offer................................... 56 17. Certain Legal Matters and Regulatory Approvals.................... 58 18. Fees and Expenses................................................. 60 19. Miscellaneous..................................................... 61 Annex A Directors and Executive Officers of Purchaser and Parent......... A-1 Annex B Consolidated Financial Information of Parent for the Years Ended December 31, 1996 and 1995....................................... B-1 Report of Price Waterhouse, Independent Accountants.............. B-1 Consolidated Balance Sheet as of December 31, 1996 and 1995...... B-2 Consolidated Statement of Income for the Years Ended December 31, 1996 and 1995...................................... B-3 Consolidated Statement of Cash Flow for the Years Ended December 31, 1996 and 1995...................................... B-4 Consolidated Statement of Shareholders' Equity For the Years Ended December 31, 1996 and 1995...................................... B-5 Notes to Consolidated Financial Statements....................... B-6
2 To the Holders of Common Stock of DH Technology, Inc. INTRODUCTION AX Acquisition Corporation, a newly formed California corporation (the "Purchaser") and an indirect wholly owned subsidiary of Axiohm S.A., a French corporation (the "Parent"), is offering to purchase not less than 6,500,000 (the "Minimum Condition") and up to 7,000,000 (the "Maximum Number") shares of Common Stock, without par value (the "Shares"), of DH Technology, Inc., a California corporation (the "Target"), which shares represented 87.6% of Target's Common Stock outstanding as of July 11, 1997, at a price of $25 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any supplements or amendments hereto or thereto collectively constitute the "Offer"). The Offer is being made pursuant to an Agreement and Plan of Merger dated as of July 14, 1997 (the "Merger Agreement") among Parent, Purchaser and Target. Pursuant to the Merger Agreement, Purchaser and Target will effect a series of transactions consisting of, among other things, the Offer, the Axiohm Exchange (defined below), the Acquisition of Purchaser (defined below) and the Merger (defined below). Following (or concurrently with) the Offer, Purchaser will attempt to enter into stock purchase agreements with the shareholders of Parent pursuant to which Purchaser will attempt to purchase from such shareholders up to all of the outstanding shares of the capital stock of Parent for an aggregate of 5,518,524 of the Shares which Purchaser is acquiring in this Offer (the "Exchange Shares") and an aggregate of $12,197,900 in cash (the "Axiohm Exchange") (or, if at the closing of the Axiohm Exchange, Purchaser has not obtained the financing necessary to pay the entire amount of such cash, an aggregate of 5,833,732 Exchange Shares and an aggregate of $4,317,700 in cash). The Axiohm Exchange will result in approximately 79% to 85% of Target's outstanding Common Stock being held by Parent shareholders after the completion of the Merger and the cancellation of the Shares owned by Purchaser (described below) (depending on the actual number of Shares purchased pursuant to the Offer and the actual number of Exchange Shares transferred by Purchaser in the Axiohm Exchange and assuming no exercise of outstanding options or warrants to purchase shares of Target's Common Stock). Simultaneously with the closing of the Axiohm Exchange, Parent will sell to Target, and Target will purchase from Parent (the "Acquisition of Purchaser"), all of the outstanding shares of the capital stock of Purchaser in exchange for Target's assumption, on a joint and several basis with Purchaser, of any and all obligations with respect to indebtedness incurred, or preferred stock issued, by Purchaser or Purchaser's shareholder in connection with the Offer and the Axiohm Exchange, which obligations shall not exceed $199.0 million. See "The Offer--Purpose of the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger" and "The Offer--Source and Amount of Funds." As a result of the Axiohm Exchange and the Acquisition of Purchaser, Parent will become a subsidiary of Purchaser and Purchaser will become a wholly owned subsidiary of Target. Following the Axiohm Exchange and the Acquisition of Purchaser, Purchaser will be merged with and into Target (the "Merger") and the Shares owned by Purchaser will be cancelled. In the Merger, the name of Target, as the surviving corporation in the Merger, will be changed to Axiohm Inc. Following the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, Parent will be a subsidiary of Target and Target will be approximately 79% to 85% owned by the former Parent shareholders and approximately 15% to 21% owned by the current shareholders of Target (depending on the actual number of Shares purchased pursuant to the Offer and the actual number of Exchange Shares transferred by Purchaser in the Axiohm Exchange and assuming no exercise of outstanding options or warrants to purchase shares of Target's Common Stock). Following such transactions, an aggregate of approximately 51% to 55% of the outstanding shares of Target's Common Stock will be beneficially owned by two principal shareholders and directors of Parent. See "The Offer--Certain Information Concerning Purchaser and Parent; Relation to Target." Target's Common Stock is expected to continue to be quoted on the Nasdaq National Market, however, following the change of Target's name in the Merger to Axiohm Inc., the Common Stock may be quoted under a different trading symbol and it is anticipated that Target will remain subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"). However, if the Maximum 3 Number is increased by Purchaser, the anticipated Nasdaq quotation and Exchange Act reporting treatment described above may be materially and adversely affected. See "The Offer--Effect of the Offer on the Market for Target's Common Stock, Stock Quotation, Exchange Act Registration and Margin Securities." Prudential Securities Incorporated ("Prudential"), Target's financial advisor, has delivered to Target its written opinion, dated as of July 14, 1997, that the consideration to be received by the holders of shares of Target Common Stock (other than Parent and its affiliates), consisting of cash consideration to be received by such holders pursuant to the Offer and the shares of Target Common Stock to be retained by such holders following the consummation of the Axiohm Exchange, the Acquisition of Purchaser and the Merger, is fair to such holders from a financial point of view. A copy of the opinion of Prudential is contained in Target's Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Commission pursuant to the Exchange Act in connection with the Offer, a copy of which is being furnished to the shareholders by Target. TARGET'S BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND DETERMINED THAT THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER, THE AXIOHM EXCHANGE, THE ACQUISITION OF PURCHASER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF TARGET, AND RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THE AMOUNT OF SHARES CONSTITUTING THE MINIMUM CONDITION AND (II) THE EXPIRATION OR TERMINATION OF ANY APPLICABLE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR ACT"), AND THE REGULATIONS THEREUNDER. THE CONSUMMATION OF THE OFFER, THE AXIOHM EXCHANGE, THE ACQUISITION OF PURCHASER AND THE MERGER ARE ALSO SUBJECT TO OTHER TERMS AND CONDITIONS WHICH ARE CONTAINED IN THE MERGER AGREEMENT AND DESCRIBED IN THIS OFFER TO PURCHASE. SEE "THE OFFER--TERMS OF THE OFFER, PRORATION AND EXPIRATION DATE," "THE OFFER--THE MERGER AGREEMENT" AND "THE OFFER--CERTAIN CONDITIONS OF THE OFFER." Target has advised Purchaser that as of July 11, 1997, there were 7,994,402 shares of Target's Common Stock outstanding (and 1,378,450 shares of Target's Common Stock issuable upon the exercise of all outstanding options, warrants, rights or any other security exercisable or convertible into shares of Target's Common Stock). As of the date of this Offer to Purchase, no shares of Target's Common Stock are beneficially owned by Purchaser or Parent. Pursuant to the Merger Agreement, outstanding options and warrants will either: if vested, be (i) cancelled in exchange for an amount in cash equal to the Offer Price minus the option exercise price for each share of Target's Common Stock subject to such option or (ii) cancelled in exchange for an arrangement whereby an amount in cash equal to the Offer Price minus the option exercise price for each share of Target's Common Stock subject to such option would be paid on a deferred basis, or if unvested, will remain outstanding with certain modifications. See "The Offer--Certain Information Concerning Target." Holders of vested options covering 730,410 shares of Target's Common Stock have agreed not to exercise their options until the Merger Agreement is either consummated or terminated. Subject to Purchaser's right to modify the number of Shares it is seeking to acquire in the Offer, the number of Shares to be purchased pursuant to this Offer is not less than 6,500,000 and not more than 7,000,000. Tendering shareholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by Purchaser pursuant to the Offer. Purchaser will pay all fees and expenses of Lehman Brothers Inc., which is acting as Dealer-Manager, Georgeson & Company Inc., which is acting as Information Agent and The Bank of New York, which is acting as the Depositary, incurred in connection with the Offer. See "The Offer--Fees and Expenses." The sale of Shares pursuant to the Offer will be a taxable transaction, the consequences of which will be determined under the stock redemption rules of Section 302 of the Internal Revenue Code of 1986, as amended (the "Code"). See "The Offer--Certain U.S. Federal Income Tax Consequences." THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 4 THE OFFER 1.TERMS OF THE OFFER, PRORATION AND EXPIRATION DATE Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Purchaser will accept for payment and pay for the Maximum Number of Shares validly tendered prior to the Expiration Date (as defined below) and not theretofore withdrawn in accordance with "The Offer--Withdrawal Rights." The term "Expiration Date" means 12:00 midnight, New York City time, on Tuesday August 12, 1997, unless and until Purchaser, in its sole discretion extends the period of time during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Purchaser, shall expire. If more than the Maximum Number of Shares are validly tendered prior to the Expiration Date and not properly withdrawn, Purchaser will, upon the terms and subject to the conditions of the Offer, accept for payment and pay for only the Maximum Number of Shares, on a pro rata basis, with adjustments to avoid purchases of fractional Shares, based upon the number of Shares validly tendered prior the Expiration Date and not properly withdrawn. Currently, the Maximum Number is 7,000,000 Shares. Purchaser expressly reserves the right, in its sole discretion, at any time or from time to time, to increase the Maximum Number and, if such action is required under the rules of the Commission, Purchaser will extend the Offer. Because of the difficulty of determining precisely the number of Shares validly tendered and not withdrawn, if proration is required, Purchaser would not expect to be able to announce the final results of the proration or pay for Shares until at least five Nasdaq National Market trading days after the Expiration Date. Preliminary results of proration will be announced by press release as promptly as practicable after the Expiration Date. Holders of Shares may obtain such preliminary information from the Dealer-Manager or the Depositary and may also be able to obtain such preliminary information from their brokers. Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, to extend the period during which the Offer is open for any reason, including the occurrence of any of the events specified in "The Offer--The Merger Agreement." Subject to the applicable rules and regulations of the Commission, Purchaser expressly reserves the right, in its sole discretion (but subject to the terms and conditions of the Merger Agreement) at any time and from time to time (i) to delay acceptance for payment of, or, regardless of whether such Shares were theretofore accepted for payment, payment for, any Shares pending receipt of any regulatory or governmental approval specified in "The Offer--Certain Legal Matters and Regulatory Approvals," (ii) to terminate the Offer and not accept for payment any Shares upon the occurrence of any of the conditions specified in "The Offer--Certain Conditions of the Offer" and (iii) to waive any condition or otherwise amend the Offer in any respect, in each case by giving oral or written notice of such delay, termination, waiver or amendment to the Depositary and by making a public announcement thereof; provided, however, that without the consent of Target, Purchaser will not (i) decrease the Offer Price, (ii) change the form of consideration payable in the Offer (other than by adding consideration), (iii) reduce the Maximum Number of Shares, (iv) change the Minimum Condition or (v) impose conditions to the Offer in addition to those set forth in the Merger Agreement which are adverse to the holders of shares of Target's Common Stock. Purchaser acknowledges that (x) Rule 14e-1(c) under the Exchange Act requires Purchaser to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of the Offer and (y) Purchaser may not delay acceptance for payment of, or payment for (except as provided in clause (i) of the first sentence of this paragraph), any Shares upon the occurrence of any of the conditions specified in "The Offer--Certain Conditions of the Offer" without extending the period of time during which the Offer is open. Any extension, delay, amendment, waiver or termination of the Offer will be followed as promptly as practicable by a public announcement. In the case of an extension, Rule 14e-1(d) under the Exchange Act requires that the announcement be made no later than 9:00 a.m., New York City time, on the next business day 5 after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rule 14d-4(c) under the Exchange Act. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material change in the information published, sent or given to shareholders in connection with the Offer be promptly disseminated to shareholders in a manner reasonably designed to inform shareholders of such change), and without limiting the manner in which Purchaser may choose to make any public announcements, Purchaser will not have any obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release to the Dow Jones News Service. If Purchaser makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer, then Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which the Offer must remain open following material changes in the terms of the Offer or information concerning the Offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances then existing, including the relative materiality of the changed terms or information. In the Commission's view, the Offer should remain open for a minimum of five business days from the date a material change is first published, sent or given to security holders, and if material changes are made with respect to information that approaches the significance of price and share levels, then a minimum of ten business days may be required to allow for adequate dissemination and investor response. Accordingly, if prior to the Expiration Date, Purchaser increases or decreases the Maximum Number of Shares or increases or decreases the consideration offered pursuant to the Offer, and if the Offer is scheduled to expire at any time earlier than the period ending on the tenth business day from the date that notice of such increase or decrease is first published, sent or given to the holders of Shares, the Offer will be extended at least until the expiration of such ten business day period. As used herein, a "business day" means any day other than a Saturday, Sunday or U.S. federal holiday and consists of the time period from 12:01 a.m. through midnight, New York City time. Target has provided Purchaser with Target's shareholder lists and security position listings for the purpose of disseminating the Offer to Target's shareholders. This Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed by Purchaser to record holders of Shares whose names appear on Target's shareholder list and will be furnished by Purchaser, for subsequent transmittal to beneficial owners of Shares, to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on such shareholder lists, or, if applicable, who are listed as participants in a clearing agency's security position listing. 2.ACCEPTANCE FOR PAYMENT AND PAYMENT Upon the terms and subject to the conditions of the Offer (including the Minimum Condition and, if the Offer is extended or amended, the terms and condition of any such extension or amendment), Purchaser will purchase, by accepting for payment, and will pay for, the Maximum Number of Shares which are validly tendered on or prior to the Expiration Date (and not properly withdrawn in accordance with "The Offer-- Withdrawal Rights") promptly after the latest to occur of (i) the Expiration Date, (ii) the expiration or termination of any applicable waiting periods under the HSR Act and (iii) the satisfaction or waiver of the conditions set forth in "The Offer--Certain Conditions of the Offer." Any determination concerning the satisfaction or waiver of such terms and conditions will be within the sole discretion of Purchaser, and such determination will be final and binding on all holders of Shares. See "The Offer--Terms of the Offer, Proration and Expiration Date" and "The Offer-- Procedure for Tendering Shares." Subject to applicable rules and regulations of the Commission, Purchaser expressly reserves the right, in its sole discretion, to delay acceptance for payment of or payment for Shares pending receipt of any regulatory approvals specified in "The Offer--Certain Legal Matters and Regulatory Approvals" or in order to comply in whole or in part with any applicable law. Any such delays will be effected in compliance with Purchaser's obligation under Rule 14e-1(c) under the Exchange Act to pay for or return tendered Shares promptly after the termination or withdrawal of the Offer. 6 In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or timely Book-Entry Confirmation, as defined herein, of the book-entry transfer of such Shares into the Depositary's account at a Book-Entry Transfer Facility, as defined herein, pursuant to the procedures set forth in "The Offer--Procedure for Tendering Shares"), (ii) a Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined below) in connection with a book-entry transfer and (iii) any other documents required by such Letter of Transmittal. Payment for Shares accepted for payment pursuant to the Offer may be delayed in the event of proration due to the difficulty of determining the number of Shares validly tendered and not withdrawn. See "The Offer--Terms of the Offer, Proration and Expiration Date." The term "Agent's Message" means a message transmitted by a Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of the Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgement from each participant in the Book-Entry Transfer Facility tendering the Shares which are the subject of such Book-Entry Confirmation that each participant has received the Letter of Transmittal and agrees to be bound by the terms of the Letter of Transmittal and that Purchaser may enforce such agreement against each participant. If, prior to the Expiration Date, Purchaser increases the consideration offered to the holders of Shares pursuant to the Offer, then Purchaser will pay such increased consideration for all Shares purchased pursuant to the Offer, whether or not such Shares were tendered prior to such increase in the consideration. On July 16, 1997, Parent filed with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division"), a Premerger Notification and Report Form under the HSR Act with respect to the Offer. Accordingly, it is anticipated that the waiting period under the HSR Act applicable to the Offer will expire at 11:59 p.m., New York City time, on July 31, 1997. Prior to the expiration or termination of such waiting period, the FTC or the Antitrust Division may extend such waiting period by requesting additional information from Parent with respect to the Offer. If such a request is made with respect to the purchase of Shares in the Offer, the waiting period will expire at 11:59 p.m., New York City time, on the tenth calendar day after substantial compliance by Parent with such a request. Thereafter, the waiting period may only be extended by court order. The waiting period under the HSR Act may be terminated prior to its expiration by the FTC and the Antitrust Division. Parent has requested early termination of the waiting period, although there can be no assurance that this request will be granted. See "The Offer--Certain Legal Matters and Regulatory Approvals" for additional information regarding the HSR Act. For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered to Purchaser and not withdrawn, if and when Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance for payment of such Shares. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering shareholders for the purpose of receiving payment from Purchaser and transmitting payment to validly tendering shareholders whose Shares have been accepted for payment. Under no circumstances will interest be paid by Purchaser on the Offer Price for the Shares tendered pursuant to the Offer, regardless of any extension of the Offer or any delay in making such payment. If any tendered Shares are not accepted for payment for any reason pursuant to the Offer or if certificates are submitted evidencing more Shares than are tendered, certificates for any such Shares will be returned, without expense, to the tendering shareholder (or, in the case of Shares delivered by book- entry transfer of such Shares into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedures set forth in "The Offer-- Procedure for Tendering Shares," such Shares will be credited to an account maintained at such Book-Entry Transfer Facility), as promptly as practicable after the expiration, termination or withdrawal of the Offer. 7 3.PROCEDURE FOR TENDERING SHARES Valid Tender. In order for a shareholder to validly tender Shares pursuant to the Offer, a properly completed and duly executed Letter of Transmittal (or facsimile thereof), together with any required signature guarantees or an Agent's Message in connection with a book-entry delivery of Shares, and any other required documents, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and either (i) certificates for tendered Shares must be received by the Depositary at one of such addresses or such Shares must be delivered pursuant to the procedures for book-entry transfer set forth below (and a Book-Entry Confirmation received by the Depositary), in each case on or prior to the Expiration Date or (ii) the tendering shareholder must comply with the guaranteed delivery procedures set forth below. THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND SOLE RISK OF THE TENDERING SHAREHOLDERS AND DELIVERY, INCLUDING ANY DELIVERY THROUGH A BOOK-ENTRY TRANSFER FACILITY, WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, THEN REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Book-Entry Delivery. The Depositary will make a request to establish an account with respect to the Shares at each of The Depository Trust Company and Philadelphia Depository Trust Company (each a "Book-Entry Transfer Facility") for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in a Book- Entry Transfer Facility may make book-entry delivery of Shares by causing the book-entry transfer system to transfer such Shares into the Depositary's account at a Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for such transfer. The confirmation of a book- entry transfer of Shares into the Depositary's account at a Book-Entry Transfer Facility as described above is referred to herein as a "Book-Entry Confirmation." Although delivery of Shares may be effected through book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees or an Agent's Message in connection with a book-entry transfer in lieu of the Letter of Transmittal, and any other required documents, must, in any case, be transmitted to, and received by, the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date, or the tendering shareholder must comply with the guaranteed delivery procedures described below. Delivery of documents to a Book-Entry Transfer Facility does not constitute delivery to the Depositary. Signature Guarantees. Signatures on all Letters of Transmittal must be guaranteed by a firm which is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Signature Guarantee Medallion Program or the Stock Exchange Medallion Program or by a commercial bank or trust company having an office or correspondent in the U.S. or by any other entity identified as an "eligible guarantor institution" as such term is defined in Rule 17Ad-15 under the Exchange Act (each an "Eligible Institution"). However, no signature guarantee is required on the Letter of Transmittal if (i) the Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this section, includes any participant in the Book-Entry Transfer Facility system whose name appears on a security position listing as the owner of the Shares) tendered therewith and such registered holder(s) has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on such Letter of Transmittal or (ii) such Shares are tendered for the account of an Eligible Institution. If the certificates for Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made or certificates for Shares not validly tendered or not accepted for payment or not purchased are to be issued or returned to a person other than the registered holder of the certificate(s) surrendered, the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name or names of the registered holder or holders appear on the certificates, with signatures on such certificates or stock powers guaranteed by an Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal. Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to the Offer and such shareholder's certificates for Shares are not immediately available or the procedures for book-entry transfer 8 cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary on or prior to the Expiration Date, such Shares may be tendered provided that all of the following guaranteed delivery procedures are duly complied with: (a)such tender is made by or through an Eligible Institution; (b)the Depositary receives (by hand, mail, telegram or facsimile transmission) on or prior to the Expiration Date, a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Purchaser; and (c)the certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to such Shares), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees (or in the case of book- entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal, are received by the Depositary within five trading days after the date of execution of such Notice of Guaranteed Delivery. A "trading day" is any day on which the Nasdaq National Market is open for business. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile transmission or by mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery made available by Purchaser. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer will, in all cases, be made only after timely receipt by the Depositary of (i) certificates for (or a timely Book-Entry Confirmation with respect to) such Shares, (ii) a Letter of Transmittal (or facsimile thereof) for such Shares, properly completed and duly executed, with any required signature guarantees (or in the case of book-entry transfer, an Agent's Message) and (iii) any other documents required by the Letter of Transmittal. Appointment. By executing a Letter of Transmittal as set forth above, the tendering shareholder irrevocably appoints designees of Purchaser as such shareholder's attorneys-in-fact and proxies in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of such shareholder's rights with respect to the Shares tendered by such shareholder and accepted for payment by Purchaser and with respect to any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after July 14, 1997. All such proxies shall be considered coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, Purchaser accepts for payment Shares tendered by such shareholder as provided herein. Upon such acceptance for payment, all prior powers of attorney and proxies given by such shareholder with respect to such Shares or other securities or rights will, without further action, be revoked and no subsequent powers of attorney and proxies may be given (and, if given, will not be deemed effective). The designees of Purchaser will thereby be empowered to exercise all voting and other rights with respect to such Shares or other securities or rights in respect of any annual, special or adjourned meeting of Target's shareholders, or otherwise, as the designees in their sole discretion deem proper. Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Purchaser's acceptance for payment of such Shares, Purchaser must be able to exercise full voting and other rights with respect to such Shares and other securities or rights, including, without limitation, voting at any meeting of shareholders then scheduled. Determination of Validity; Rejection of Shares; Waiver of Defects; No Obligation to Give Notice of Defects. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by Purchaser, in its sole discretion, whose determination will be final and binding. Purchaser reserves the absolute right to reject any or all tenders determined by it not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of Purchaser's counsel, be unlawful. Purchaser also reserves the absolute right to waive any of the conditions of the Offer or any defect or irregularity in any tender with respect to any particular Shares, or with respect to those Shares held by any particular shareholder whether or not similar conditions, defects or irregularities are waived in the case of other Shares. No tender of Shares will be deemed to have been validly made until all defects or irregularities relating thereto have been cured or waived. None of Purchaser, Parent, any of their respective affiliates or assigns, the 9 Depositary, the Dealer-Manager, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. Purchaser's acceptance for payment of Shares validly tendered pursuant to any of the procedures described above is intended to constitute a binding agreement between the tendering shareholder and Purchaser upon the terms and subject to the conditions of the Offer. Backup Withholding. In order to avoid backup withholding of U.S. federal income tax on payments of cash pursuant to the Offer, each shareholder surrendering Shares in the Offer must provide the Depositary with such shareholder's correct taxpayer identification number ("TIN") on a Substitute Form W-9 and certify under penalty of perjury that such TIN is correct and that such shareholder is not subject to backup withholding. Certain shareholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. If a shareholder does not provide its correct TIN or fails to provide the certification described above, under U.S. federal income tax laws, the Depositary will be required to withhold 31% of the amount of any payment made to such shareholder pursuant to the Offer. All shareholders tendering Shares pursuant to the Offer should complete and sign the Transmittal Letter and Substitute Form W-9 included as part of the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is provided in a manner satisfactory to Purchaser and the Depositary). Noncorporate foreign shareholders should complete and sign the Letter of Transmittal and a Form W- 8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See Instructions 9 and 10 to the Letter of Transmittal. Withholding for Foreign Shareholders. The Depositary will withhold U.S. federal income taxes equal to 30% of the gross payments payable to a foreign shareholder unless such foreign shareholder proves in a manner satisfactory to the Purchaser and the Depositary that either (i) the sale of its Shares pursuant to the Offer will qualify as a sale or exchange, rather than a dividend, for U.S. federal income tax purposes (as described in "The Offer-- Certain U.S. Federal Income Tax Consequences"), in which case no withholding is required, or (ii) the foreign shareholder is eligible for a reduced tax treaty rate with respect to dividend income, in which case the Depositary will withhold at the reduced treaty rate. For this purpose, a foreign shareholder is any shareholder that is not (i) an individual citizen or resident of the U.S., (ii) a corporation, partnership or other entity created or organized under the laws of the U.S. or any political subdivision thereof, (iii) any estate the income of which is subject to U.S. federal income taxation regardless of the source of such income, (iv) a trust which is subject to the supervision of a court within the U.S. or the control of a U.S. fiduciary or (v) a shareholder who establishes that dividends on the Shares held by such shareholder are effectively connected with a trade or business carried on by such shareholder within the United States. In order for the Depositary to determine whether the sale of Shares will qualify as a sale or exchange, all foreign shareholders must complete the Ownership Change Questionnaire attached as Annex A to the Letter of Transmittal. The Depositary will determine a shareholder's status as a foreign shareholder and eligibility for a tax treaty reduced rate of withholding by reference to the shareholder's address and to any outstanding certificates or statements concerning eligibility for a reduced rate of withholding unless facts and circumstances indicate that reliance is not warranted. A foreign shareholder who has not previously submitted the appropriate certificates or statements with respect to a reduced rate of withholding for which such shareholder may be eligible should consider doing so in order to avoid overwithholding. A foreign shareholder may be eligible to obtain from the U.S. Internal Revenue Service a refund of tax withheld if such shareholder meets one of the three tests for sale or exchange treatment described in "The Offer--Certain U.S. Federal Income Tax Consequences" or is otherwise able to establish that no tax or a reduced rate of tax was due. 4.WITHDRAWAL RIGHTS Except as otherwise provided in this Section, tenders of Shares made pursuant to the Offer are irrevocable, provided that Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth below at any time prior to the Expiration Date and, unless theretofore accepted for payment by Purchaser pursuant to the Offer, may also be withdrawn at any time after September 12, 1997. 10 If Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to accept Shares for payment pursuant to the Offer for any reason, then, without prejudice to Purchaser's rights under the Offer, the Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering shareholders are entitled to withdrawal rights as described in this Section. Any such delay will be by an extension of the Offer to the extent required by law. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn, and the name of the registered holder of the Shares to be withdrawn, if different from the name of the persons who tendered the Shares. If certificates for the Shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution, the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been delivered pursuant to the procedures for book-entry transfer as set forth in "The Offer--Procedure for Tendering Shares," any notice of withdrawal must also specify the name and number of the account at the appropriate financial institution that is a participant in a Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's procedures for such withdrawal, in which case a notice of withdrawal will be effective if delivered to the Depositary by any method of delivery described in the first sentence of this paragraph. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described above in "The Offer--Procedure for Tendering Shares" at any time on or prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by Purchaser, in its sole discretion, which determination will be final and binding. None of Purchaser, Parent, any of their respective affiliates or assigns, the Depositary, the Dealer-Manager, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. 5.CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES The discussion set forth below of the U.S. federal income tax consequences of participating in the Offer is for general information only and does not purport to consider all aspects of U.S. federal income taxation that may be relevant to shareholders. The consequences to any particular shareholder may differ depending upon that shareholder's own circumstances and tax position. In addition, certain types of shareholders (including financial institutions, tax- exempt organizations, foreign persons and persons who acquired their shares of Target Common Stock upon the exercise of employee stock options or otherwise as compensation) may be subject to special rules. This discussion does not consider the effect of any applicable foreign, state or local tax laws. EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO SUCH SHAREHOLDER, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS. For purposes of this discussion, shareholders are assumed to hold their Shares as capital assets. A shareholder who disposes of Shares pursuant to the Offer will generally recognize either (i) capital gain or loss ("Capital Gain Treatment") or (ii) dividend income ("Dividend Treatment") with respect to proceeds from the disposition, depending on whether the disposition of Shares is treated as a redemption of the Shares by the shareholder. As more fully described below, the disposition will be treated as a redemption under Section 302 of the Code (and therefore will qualify for Capital Gain Treatment) if (a) the disposition results in a "complete termination" of the shareholder's interest in Target, (b) the distribution of proceeds is "substantially disproportionate" with respect to the shareholder or (c) the distribution of proceeds is "not essentially equivalent to a dividend" (the foregoing (a), (b) and (c) collectively, the "Redemption Tests"). 11 If a shareholder satisfies one of the Redemption Tests so that the disposition is treated as a redemption, the shareholder will be subject to Capital Gain Treatment and will recognize gain or loss equal to the difference between the cash proceeds received for the Shares and the shareholder's tax basis for such Shares. Gain or loss must be determined separately for each block of Shares (i.e., Shares acquired at the same cost in a single transaction) disposed of pursuant to the Offer, although, under proposed legislation not yet effective, gain or loss would be determined based on the average tax basis of all Shares held by the beneficial owner. Such gain or loss will be capital gain or loss and will be long-term capital gain or loss if the beneficial owner held the Shares for more than one year as of the date of disposition. A long-term capital gain of individuals currently is taxed at a maximum rate of 28%. Various legislative proposals, including separate versions of the Revenue Reconciliation Bill of 1997 recently passed by the House of Representatives and the Senate (the "Bill") would reduce the long- term capital gains rates applicable to individuals. It is uncertain whether, in what form, and with what effective date any such legislation will be enacted. If a shareholder does not satisfy any of the Redemption Tests, the shareholder will be subject to Dividend Treatment and will recognize dividend income equal to the proceeds from the disposition to the extent of the shareholder's allocable share of Target's current or accumulated earnings and profits. Any excess will be treated first as a return of capital and will be applied against and reduce the adjusted basis of all of the Shares held by such shareholder (including those disposed of pursuant to the Offer). Any remaining amount after the shareholder's basis has been reduced to zero will be taxable as capital gain. In determining whether any of the Redemption Tests is satisfied, a shareholder must take into account both Shares actually owned by such shareholder and any Shares considered owned by such shareholder by reason of certain constructive ownership rules set forth in Section 318 of the Code. Under Section 318 of the Code, a shareholder generally will be considered to own Shares which such shareholder has the option to acquire and Shares owned (and, in some cases, constructively owned) by certain members of the shareholder's family and by certain entities (such as corporations, partnerships, trusts and estates) in which such shareholder has an interest. Following is a further description of the Redemption Tests: (a) A sale of Shares pursuant to the Offer will result in a "complete termination" of all of a shareholder's stock in Target if, pursuant to the Offer, Target purchases all of the Shares actually and constructively owned by the shareholder and the shareholder thereafter owns no other stock of Target. If the shareholder's sale of Shares pursuant to the Offer includes all Shares actually owned by the shareholder, but the shareholder continues to constructively own Shares held by family members, such shareholder may qualify for "complete redemption" treatment if he, she or it effectively waives the constructive ownership rules regarding attribution from family members. Shareholders in this position should consult their own tax advisors as to the availability of such a waiver. (b) The sale of Shares pursuant to the Offer will be "substantially disproportionate" with respect to a shareholder if, immediately after the Offer, such shareholder's actual and constructive percentage ownership of Shares then outstanding is less than 80% of the shareholder's actual and constructive percentage ownership of Shares outstanding immediately before the purchase of Shares pursuant to the Offer, and after the sale, the shareholder owns less than 50% of the total combined voting power of all classes of stock of Target entitled to vote. (c) Whether the sale of Shares pursuant to the Offer is "not essentially equivalent to a dividend" depends upon the individual shareholder's facts and circumstances, but in any case requires a "meaningful reduction" in the shareholder's proportionate interest in Target. The Internal Revenue Service has held in a published ruling that, under the particular facts of that ruling, a small reduction in the percentage ownership of a shareholder constituted a "meaningful reduction" when the shareholder owned an insignificant percentage of the corporation's stock before and after a redemption and did not exercise any control over corporate affairs. However, some reduction in a shareholder's interest is required. Shareholders intending to satisfy this test should consult their own tax advisors as to the application of this standard to their particular situations. 12 Shareholders should be aware that their ability to satisfy any of the foregoing tests may be affected by any proration pursuant to the Offer. In addition, it is likely that an acquisition or disposition of Shares (including market purchases and sales) by a shareholder substantially contemporaneously with the Offer will be taken into account in determining whether any of the Redemption Tests described above is satisfied. Further, it is possible that an acquisition or disposition of options to acquire Shares may also be taken into account in determining whether any of the Redemption Tests is satisfied. Shareholders should consult their own tax advisors as to any effect of such events on the application of these tests. Treatment of Dividend Income for Corporate Shareholders. Any income subject to Dividend Treatment pursuant to the rules described above will be eligible for the 70% dividends received deduction allowable to domestic corporate shareholders under Section 243 of the Code, subject to applicable limitations, including those relating to "debt-financed portfolio stock" under Section 246A of the Code and to the holding period requirements of Section 246 of the Code. Also, any amount treated as a dividend may constitute an "extraordinary dividend" subject to the provisions of Section 1059 of the Code. Under Section 1059, a corporate shareholder must reduce the tax basis of such shareholder's stock (but not below zero) by the portion of any "extraordinary dividend" which is deducted under the dividends received deduction, and, if such portion exceeds the shareholder's tax basis for the stock, must treat any such excess as additional gain on the subsequent sale or other disposition of such shares. In addition, the aggregation rules of Section 1059 might require that other dividends received by the shareholders on stock of Target be treated as part of the "extraordinary dividend." Corporate shareholders should consult their own tax advisors as to the application of Section 1059 to the Offer. The Bill, if enacted, would provide, among other things, that the non-taxed portion of any extraordinary dividend in excess of basis shall be treated as gain from the sale or exchange of such stock. This proposed modification, if enacted, would apply to all distributions after May 3, 1995. THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. EACH SHAREHOLDER IS URGED TO CONSULT SUCH SHAREHOLDER'S OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH SHAREHOLDER (INCLUDING THE APPLICABILITY AND EFFECT OF THE CONSTRUCTIVE OWNERSHIP RULES AND FOREIGN, STATE AND LOCAL TAX LAWS) OF THE SALE OF SHARES PURSUANT TO THE OFFER. 6.PRICE RANGE OF THE SHARES AND DIVIDENDS Target's Common Stock is included for quotation on the Nasdaq National Market under the symbol "DHTK." Following the change of Target's name in the Merger to Axiohm Inc., the Common Stock may be quoted on the Nasdaq National Market under a different trading symbol. The following table sets forth, for each of the periods indicated, the high and low reported sales prices per share for Target's Common Stock as reported by the Nasdaq National Market.
HIGH LOW ------ ------ 1995: First Quarter.................................................... $16.17 $13.83 Second Quarter................................................... 19.41 13.83 Third Quarter.................................................... 22.17 17.33 Fourth Quarter................................................... 24.75 19.00 1996: First Quarter.................................................... $24.50 $21.25 Second Quarter................................................... 27.75 22.00 Third Quarter.................................................... 26.50 22.50 Fourth Quarter................................................... 25.25 22.75 1997: First Quarter.................................................... $24.13 $15.00 Second Quarter................................................... 18.00 13.50 Third Quarter (through July 14, 1997)............................ 17.25 15.75
13 On July 14, 1997, the last full trading day before public announcement of the execution by Target, Purchaser and Parent of the Merger Agreement and of Purchaser's intention to commence the Offer, the last reported sale price of Target's Common Stock on the Nasdaq National Market was $15.875 per share. SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR TARGET'S COMMON STOCK. Target has never paid dividends on its Common Stock nor does it expect to pay dividends in the foreseeable future. 7. EFFECT OF THE OFFER ON THE MARKET FOR TARGET'S COMMON STOCK, STOCK QUOTATION, EXCHANGE ACT REGISTRATION AND MARGIN SECURITIES The purchase of Shares pursuant to the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger will likely decrease both the number of holders of shares of Target's Common Stock and the number of shares of Target's Common Stock that might otherwise trade publicly and could adversely affect the liquidity and market value of the remaining shares of Target's Common Stock. Based on the number of shares of Target Common Stock outstanding on July 11, 1997, if the Offer is consummated for the Maximum Number of Shares and the Axiohm Exchange is completed, the holders of Target Common Stock immediately prior to the Offer would own approximately 15% to 21% of the outstanding shares of Target Common Stock and the shareholders of Parent would own approximately 79% to 85% of the outstanding shares of Target Common Stock (depending on the actual number of Shares purchased pursuant to the Offer and the actual number of Exchange Shares transferred by Purchaser in the Axiohm Exchange and assuming no exercise of outstanding options or warrants to purchase shares of Target's Common Stock). Following such transactions, an aggregate of approximately 51% to 55% of the shares of Target's Common Stock will be beneficially owned by two principal shareholders and directors of Parent. See "The Offer--Certain Information Concerning Purchaser and Parent; Relation to Target." Nasdaq Registration. Target's Common Stock is currently included for quotation on the Nasdaq National Market. Based upon the Maximum Number of Shares to be purchased in the Offer, it is anticipated that, following the Offer, Target's Common Stock will continue to meet the requirements of the National Association of Securities Dealers, Inc. ("NASD") for continued inclusion in the Nasdaq National Market (the "Nasdaq National Market") (the top tier market of the Nasdaq Stock Market) which currently requires that an issuer have at least 200,000 publicly held shares, held by at least 400 shareholders or 300 shareholders of round lots, with a market value of $1,000,000, and have net tangible assets of at least either $1,000,000 or $4,000,000, depending on profitability levels during the issuer's four most recent fiscal years. However, if these standards are not met in the future, Target's Common Stock may no longer qualify for inclusion in the Nasdaq National Market, although Target's Common Stock might nevertheless continue to have quotations published in the Nasdaq "additional list" or in one of the "local lists," but if the number of holders of Target's Common Stock were to fall below 300, or if the number of publicly held shares of Target's Common Stock were to fall below 100,000 or there were not at least two registered and active market makers for Target's Common Stock, NASD rules provide that Target's Common Stock would no longer be "qualified" for Nasdaq reporting and Nasdaq would cease to provide any quotations. Shares of Target's Common Stock held directly or indirectly by any officer or director of Target, or by any beneficial owner of more than 10% of the outstanding shares of Target's Common Stock, ordinarily will not be considered publicly held for this purpose. Target has advised Purchaser that, as of July 11, 1997, there were approximately 454 holders of record of shares of Target's Common Stock and 7,994,402 shares of Target's Common Stock were outstanding (and 1,378,450 shares of Target's Common Stock were issuable upon exercise of all outstanding options, warrants, rights or any other security exercisable or convertible into shares of Target's Common Stock). If, after the purchase of Shares pursuant to the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, Target's Common Stock does not meet the requirements of the NASD for continued inclusion in the Nasdaq Stock Market or the Nasdaq National Market, as the case may be, the market for shares of Target's Common Stock would be likely be materially and adversely affected. 14 Pursuant to Section 19(b)(1) of the Exchange Act and Rule 19b-4 thereunder, on March 3, 1997, the NASD filed with the Commission a proposed rule change (the "Proposal") which would revise the listing standards for Nasdaq by, among other things, revising the net tangible asset tests, the public float requirement and the market value of public float requirement. The Proposal may have an effect upon whether Target's Common Stock continues to be listed on the Nasdaq National Market. Although certain companies, including Target, may not be able to meet the more stringent standards contained in the Proposal, companies not in compliance with such standards will have six months after the Proposal is approved by the Commission to comply with the new rules. In addition, for those companies who are unable to qualify under the new standards, an alternative is now available through such companies' eligibility for quotation in the OTC Bulletin Board ("OTCBB"). The OTCBB is a quotation medium used by NASD members to reflect quotations in non-Nasdaq securities. Securities quoted in the OTCBB are subject to real-time reporting. None of Target, Purchaser or Parent can predict whether Target or Target's Common Stock will meet the new requirements contained in the Proposal. Questions about the Proposal and the status of the Commission's approval process should be directed to the Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located in the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048 or may be obtained from the Commission's Internet site on the World Wide Web at http://www.sec.gov. Copies of the Proposal may also be obtained by mail, upon payment of the Commission's customary charges, by writing to the Commission's principal office at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Proposal may also be inspected at the Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006. In the event that Target's Common Stock no longer meets the requirements of the NASD for quotation through Nasdaq and Target's Common Stock is no longer included in the Nasdaq Stock Market, it is possible that Target's Common Stock would continue to trade in the over-the-counter market and that price quotations would be reported by other sources, such as OTCBB. The extent of the public market for Target's Common Stock and the availability of such quotations would, however, depend upon the number of holders of Target's Common Stock remaining at such time, the interest in maintaining a market in Target's Common Stock on the part of securities firms, the possible termination of registration of Target's Common Stock under the Exchange Act, as described below, and other factors. If, as a result of the purchase of the Shares in the Offer or otherwise, trading of Target's Common Stock on Nasdaq is discontinued, the liquidity of any market for Target's Common Stock would likely be materially and adversely affected. Purchaser cannot predict whether or the extent to which the reduction in the number of outstanding shares of Target's Common Stock that might otherwise trade publicly after the consummation of the Offer, coupled with the impact of the Axiohm Exchange, the Acquisition of Purchaser and the Merger, would have on the market price for or marketability of Target's Common Stock or whether it would cause future market prices to be greater or less than the Offer Price. Exchange Act Registration. Target's Common Stock is currently registered under the Exchange Act and, following the purchase of the Maximum Number of Shares in the Offer, and the consummation of the Axiohm Exchange, the Acquisition of Purchaser and the Merger, are intended to remain so registered. However, other possible factors (while not currently known or anticipated by Purchaser or Parent) may result in Target's Common Stock becoming eligible for deregistration under the Exchange Act. Registration of Target's Common Stock under the Exchange Act may be terminated upon application by Target to the Commission if such shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of Target's Common Stock under the Exchange Act would substantially reduce the information required to be furnished by Target to its shareholders and to the Commission or eliminate certain protection currently provided to shareholders by making certain provisions of the Exchange Act no longer applicable to Target, such as the short-swing profit recovery and reporting provisions of Section 16 of the Exchange Act, the requirement of furnishing a proxy statement pursuant to Section 14(a) of the Exchange Act in connection with shareholders' meetings, the related requirements of furnishing annual and transition reports to shareholders pursuant to Section 15(d) of the Exchange Act and the requirements of Rule 13e-3 under the Exchange Act with 15 respect to "going private" transactions. Furthermore, the ability of "affiliates" of Target and persons holding "restricted securities" of Target to dispose of such securities pursuant to Rule 144 or 144A promulgated under the Securities Act may be impaired or eliminated. Additionally, if registration of Target's Common Stock under the Exchange Act is terminated, then Target's Common Stock would no longer be considered "margin securities" or be eligible for listing on the Nasdaq National Market. Margin Securities. Shares of Target's Common Stock are currently "margin securities" under the regulations of the Board of Governors of the U.S. Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of shares of Target's Common Stock. Depending upon factors similar to those described above regarding listing and market quotations, it is expected that, following the purchase of the Maximum Number of Shares in the Offer, and following consummation of the Axiohm Exchange, the Acquisition of Purchaser and the Merger, Target's Common Stock should continue to constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board. However, if circumstances change in the future, Target's Common Stock may lose its status as "margin securities" and therefore could no longer be used as collateral for loans made by brokers. If registration of Target's Common Stock under the Exchange Act were terminated, then Target's Common Stock would no longer be considered "margin securities" or be eligible for Nasdaq trading. 8.CERTAIN INFORMATION CONCERNING TARGET Except as otherwise set forth herein, the information concerning Target contained in this Offer to Purchase, including financial information, has been furnished by Target or has been taken from or based upon publicly available documents and records on file with the Commission and other public sources. Neither Purchaser nor Parent assumes any responsibility for the accuracy or completeness of the information concerning Target furnished by Target or contained in such documents and records or for any failure by Target to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to Purchaser or Parent. General. Target is a California corporation with its principal executive offices located at 15070 Avenue of Science, San Diego, California 92128. Target designs, manufactures, and sells transaction printers and mechanisms, impact printheads and magnetic heads, bar code printers and related services and supplies, such as labels and ribbons. Target also offers printhead repair and replacement services. Target's products provide printing solutions for many diverse applications, including freight and bar code labels, retail point-of-sale transactions, gasoline vending receipts and airline ticketing. Other applications include banking and automated teller machine ("ATM") transactions, health care industry transactions, data processing reports, gaming tickets and multi-part forms. Financial Information. Set forth below is certain selected historical consolidated financial information with respect to Target and its subsidiaries for the fiscal years ended December 31, 1996, 1995 and 1994 and for the three month periods ended March 31, 1997 and 1996. This information has been excerpted or derived from the information contained in Target's audited financial statements contained in Target's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and the unaudited consolidated financial statements contained in Target's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. More comprehensive financial information is included in such reports and other documents filed by Target with the Commission, and the following information is qualified in its entirety by reference to such reports and such other documents and all the financial information (including any related notes) contained therein. Such reports and other documents may be inspected and copied in the manner set forth below under "Available Information." The selected historical consolidated financial information of Target as of March 31, 1997 and for the three month periods ended March 31, 1996 and 1997 have been derived from the unaudited financial statements of Target and, in the opinion of Target's management, reflects all adjustments necessary for the fair presentation of such unaudited interim financial information. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year or any other future period. 16 DH TECHNOLOGY, INC. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ------------------------ ---------------- 1996 1995 1994 1997 1996 -------- ------- ------- ------- ------- (UNAUDITED) INCOME STATEMENT DATA: Net sales............................ $115,784 $98,855 $77,918 $19,185 $28,196 Gross profit......................... 40,937 35,588 28,946 6,658 9,726 Income (loss) from operations........ 19,135 15,198 11,492 (10,046) 4,478 Income (loss) before income taxes.... 20,477 16,153 12,136 (9,665) 4,762 Net income (loss).................... 13,027 10,301 8,058 (7,883) 3,035 Net income (loss) per share.......... $ 1.56 $ 1.24 $ 1.00 $ (0.99) $ 0.36 Weighted average number of shares outstanding including common stock equivalents......................... 8,351 8,337 8,076 7,976 8,469
Target did not declare or pay any cash dividends on its Common Stock during the periods covered.
DECEMBER 31, ----------------------- MARCH 31, 1996 1995 1994 1997 ------- ------- ------- ----------- (UNAUDITED) BALANCE SHEET DATA: Current assets.............................. $75,247 $64,205 $49,429 $77,555 Total assets................................ 97,105 85,285 71,306 94,550 Current liabilities......................... 13,218 15,541 12,238 18,098 Long-term debt (less current maturities).... 1,635 2,115 2,992 2,367 Shareholders' equity........................ 82,252 67,480 55,848 74,085
Target has advised Parent and Purchaser that it expects to report net sales, net income and net income per share of approximately $25.5 million, $1.8 million and $0.22, respectively, for the quarter ended June 30, 1997, compared to $29.2 million, $3.3 million and $0.39, respectively, for the quarter ended June 30, 1996. Included in the net income for the period ended June 30, 1997 are expenses of $390,000 associated with the transactions described herein. Without these charges, net income and net income per share would have been $2.0 million and $0.25, respectively. Available Information. Target is subject to the reporting requirements of the Exchange Act and, in accordance therewith, is required to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Information as of particular dates concerning Target's directors and officers (including their remuneration and stock options granted to them), shares of Target's Common Stock held by them, the principal holders of Target's securities and any material interest of such persons in transactions with Target and certain other matters is required to be disclosed in proxy statements distributed to Target's shareholders and filed with the Commission. Such reports, proxy statements and other information may be inspected without charge at the Public Reference Room maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. In addition, upon request, such reports, proxy statements and other information will be made available for inspection and copying at the Commission's Public Reference Facilities located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such material can be obtained at prescribed rates upon request from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material may also be accessed electronically at the Commission's site on the World Wide Web located at http://\www.sec.gov. The Target's Common Stock is listed on the Nasdaq National Market, and such reports, proxy statement and other information concerning the Target may be inspected and copied at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington D.C. 20006. 17 Treatment of Target Options Pursuant to the Merger Agreement, Target's Board has agreed to take all actions necessary such that all Company Outstanding Options (as defined in the Merger Agreement) are treated as follows. Upon acceptance for payment of Shares by Purchaser pursuant to the Offer, all Vested Company Outstanding Options (as defined below), other than Company Outstanding Options held by certain individuals to be designated by Target, subject to the reasonable acceptance of Parent (the "Designated Optionees"), shall be cancelled and each holder thereof shall thereupon be paid by Target an amount, in cash, equal to the product of (i) the number of Shares subject to Vested Company Outstanding Options held by such holder and (ii) the Offer Price minus the exercise price applicable to such Vested Company Outstanding Options (the "Option Spread"), less applicable taxes. The Designated Optionees may elect, as to all or a portion of the individual's Vested Company Outstanding Options, to be covered under the preceding sentence or to receive the Option Spread on a deferred basis over a period not to exceed seven years following the Effective Time, subject to earlier distribution upon termination of the individual's employment for any reason. Target shall also pay a tax subsidy payment on the Option Spread consisting of (i) a payment to reflect the federal and state tax rate differential between long-term capital gains and ordinary income, and (ii) a payment to reimburse the individual for taxes due as a result of the rate differential payment, provided that such tax subsidy payments shall be limited so as to avoid triggering the golden parachute excise tax under Sections 280G and 4999 of the Internal Revenue Code. For purposes of the foregoing, Vested Company Outstanding Options shall mean: (i) all Company Outstanding Options that are vested as of the date of acceptance for payment of Shares by Purchaser pursuant to the Offer or that would have vested through September 6, 1997; (ii) one-half of Company Outstanding Options issued to Walter Sobon; and (iii) all warrants outstanding under Target's Director Warrant Plan (as defined in the Merger Agreement). All Company Outstanding Options other than Vested Company Outstanding Options ("Unvested Company Outstanding Options") shall remain outstanding and subject to the terms and conditions of the applicable Company option plan and option agreement, but shall be modified to provide for full vesting acceleration in the event the employee's employment is terminated (i) by Target other than for cause, or (ii) as the result of the employee's death or disability. Unvested Outstanding Company Options held by William Gibbs, Walter Sobon, David Ledwell and Janet Shanks shall also be modified to provide for acceleration upon a constructive termination of employment. In the event Target engages in a transaction prior to April 1, 2001, as a result of which Target's Common Stock is no longer registered under the Exchange Act, each holder of Unvested Company Outstanding Options shall be entitled to receive from Target a cash payment equal to the product of (i) the number of shares subject to Unvested Company Outstanding Options held by such holder and (ii) the Offer Price minus the exercise price applicable to such Unvested Company Outstanding Options, less applicable taxes. Employment Agreements In connection with the Merger Agreement and the transactions contemplated thereby, Target has entered into employment agreements with William Gibbs and Walter Sobon, executive officers of Target. Each of the agreements will take effect upon the consummation of the Offer. The employment agreement with Mr. Gibbs (the "Gibbs Agreement") provides for Mr. Gibbs to be employed as Target's Chief Executive Officer at a base salary of no less than $225,000. Mr. Gibbs is also eligible to receive a minimum target bonus equal to 50% of his base salary to be awarded based on Target's financial performance and is entitled to a car and a car allowance and to participate in other employee benefit plans and programs available to Target's other employees. The Gibbs Agreement also contemplates that he will be granted an option to purchase a number of shares of Target's Common Stock as determined by the compensation committee of Target's Board at an exercise price which shall be equal to the then fair market value of the Target Common Stock. The option shall vest as to 50% of the shares 24 months following the grant date and as to an additional 1/48th of the shares each month thereafter. In the event Mr. Gibbs' employment with Target terminates in an Involuntary Termination (as defined in the Gibbs Agreement), Mr. Gibbs shall receive a lump sum severance payment equal to two years compensation if terminated in the first 12 months, 18 months compensation if terminated in the second 12 months and 12 months compensation if terminated thereafter. In 18 addition, in the event Mr. Gibbs' employment is terminated as a result of an Involuntary Termination, disability or death, the vesting and exercisability of all outstanding stock options that were granted to Mr. Gibbs prior to the consummation of the Offer shall accelerate in full. The Gibbs Agreement supersedes the employment agreement between Target and Mr. Gibbs dated December 3, 1985. The employment agreement with Mr. Sobon (the "Sobon Agreement") provides for Mr. Sobon to be employed as Target's Chief Financial Officer at a base salary of no less than $160,000. Mr. Sobon is also eligible to receive a minimum target bonus of $50,000, to be awarded based on Target's financial performance and is entitled to a car allowance and to participate in other employee benefit plans and programs available to Target's other employees. The Sobon Agreement also contemplates that he will be granted an option to purchase a number of shares of Target's Common Stock as determined by the compensation committee of Target's Board at an exercise price which shall be equal to the then fair market value of the Target Common Stock. The option shall vest as to 50% of the shares 24 months following the grant date and as to an additional 25% of the shares each year thereafter. In the event Mr. Sobon's employment with Target terminates in an Involuntary Termination (as defined in the Sobon Agreement), Mr. Sobon shall receive a lump sum severance payment equal to 12 months compensation, except that (i) in the event that Mr. Gibbs' employment is terminated in the first 12 months following the consummation of the Offer and Sobon is terminated in the same 12 month period, Sobon shall receive a lump sum severance payment equal to 18 months compensation and (ii) in the event that Gibbs' employment is terminated in the second 12 months following the consummation of the Offer and Sobon is terminated in the same 12 month period, Sobon shall receive a lump sum severance payment equal to 15 months compensation. In addition, in the event Mr. Sobon's employment is terminated as a result of an Involuntary Termination, disability or death, the vesting and exercisability of all outstanding stock options that were granted to Mr. Sobon prior to the consummation of the Offer shall accelerate in full. The Sobon Agreement supersedes the employment arrangement between Target and Sobon as set forth in a letter from Target dated September 20, 1996 and amended September 30, 1996. In connection with the Merger Agreement and the transactions contemplated thereby, Target also intends to enter into employment arrangements with David Ledwell and Janet Shanks, executive officers of Target. Such agreements are expected to take effect upon the consummation of the Offer. The employment agreement with Mr. Ledwell (the "Ledwell Agreement") is expected to provide for Mr. Ledwell to be employed at a base salary of no less than $160,000. Mr. Ledwell will also be eligible to receive a minimum target bonus equal to $40,000, to be awarded based on Target's financial performance and will be entitled to participate in other employee benefit plans and programs available to Target's other employees. The Ledwell Agreement is also expected to contain language providing that, in the event that Mr. Ledwell's employment with Target terminates in an "involuntary termination," Mr. Ledwell shall receive a lump sum severance payment equal to 2 years compensation, if terminated in the first 24 months and 12 months salary if terminated thereafter. The employment agreement with Ms. Shanks (the "Shanks Agreement") is expected to provide for Ms. Shanks to be employed as Target's Chief Accounting Officer at a base salary of no less than $90,000. Ms. Shanks will also be eligible to receive a minimum target bonus equal to $20,000, to be awarded based on Target's financial performance and will be entitled to participate in other employee benefit plans and programs available to Target's other employees. The Shanks Agreement is also expected to contain language providing that, in the event that Ms. Shanks' employment with Target terminates in an "involuntary termination," Ms. Shanks shall receive a lump sum severance payment equal to 12 months compensation, if terminated in the first 24 months and 6 months salary if terminated thereafter. The Ledwell Agreement and the Shanks Agreement are also expected to provide that Mr. Ledwell and Ms. Shanks, respectively, will be granted an option to purchase a number of shares of Target's Common Stock as determined by the compensation committee of Target's Board at an exercise price equal to the then fair market value of the Target Common Stock. The option shall vest as to 50% of the shares 24 months following the grant date and as to an additional 25% of the shares each year thereafter. In addition, each agreement is expected to provide that, in the event Mr. Ledwell's or Ms. Shanks' respective employment is terminated as a result of an "involuntary termination," disability or death, the vesting and exercisability of all outstanding stock options that such received prior to the Effective Time shall accelerate in full. 19 9.CERTAIN INFORMATION CONCERNING PURCHASER AND PARENT; RELATION TO TARGET PURCHASER. Purchaser is a newly incorporated California corporation organized in connection with the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger and has not carried on any activities other than in connection with such transactions. The principal offices of Purchaser are located at 950 Danby Road, Ithaca, New York 14850. Purchaser is an indirect wholly owned subsidiary of Parent. Until immediately prior to the time that Purchaser will purchase Shares pursuant to the Offer, it is not anticipated that Purchaser will have any significant assets or liabilities or engage in activities other than those incident to its formation and capitalization and the transactions contemplated by the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger. Because Purchaser is newly formed and has minimal assets and capitalization, no meaningful financial information regarding Purchaser is available. PARENT. Parent was incorporated in France in 1988, as a result of the acquisition of a division of Schlumberger Industries S.A. by a group of former executives of that company. Parent's principal offices are located at BP 675-1 a 9, rue d'Arcueil, 92542 Montrouge Cedex, France. Parent's strategy has been (i) to grow revenue through aggressive geographic expansion into areas such as Japan and China, sales and marketing efforts aimed at satisfying customers' long-term, application specific needs, and research and development efforts focused on the timely introduction of new products and the creation of a broader offering of products; (ii) to reduce operating costs through the improvement of manufacturing processes and the allocation of manufacturing to cost effective locations; and (iii) to pursue consolidation opportunities within the specialty printer industry in order to achieve benefits such as economies of scale, rationalization of overhead expenses and greater product breadth and geographic scope within the specialty printer industry. BUSINESS Parent designs, manufactures and sells transaction printers and thermal printing mechanisms. Parent believes it is the only printer manufacturer, outside of Japan, with fully integrated thermal printhead manufacturing capability. Parent also offers repair and replacement services. Parent's products provide printing solutions for many diverse applications, including retail point-of-sale transactions, gasoline vending receipts, cash registers, banking and ATM transactions, couponing and gaming tickets. Parent's products are marketed and sold worldwide directly to original equipment manufacturers (OEMs) or via sales representatives, value-added resellers and distributors. Parent's sales offices are located in France, Germany, the U.S., Japan and Taiwan. Parent develops products that serve the application-specific needs of its customers as well as products focused on general requirements of the transaction printer and thermal printing mechanism market. To serve these markets and applications, Parent uses a broad range of printing techniques, including impact and thermal printing technologies and provides related supplies, services and repairs. Impact printing can form a variety of characters, graphics or bar codes by printing vertical columns of dots in combinations of patterns as the printhead sweeps horizontally across a page. Impact printing permits multiple fonts and multiple language characters to be intermingled under software control and also can be used to print bar codes and multi-part forms. Compared with non- impact printers, impact printers generally have the advantage of lower operating costs. Thermal printing is accomplished either directly or through thermal transfer. Direct thermal printing creates images directly on specially treated paper by transferring heat to the paper using a linear array of miniature heater elements. Thermal transfer printing uses a ribbon that transfers images onto untreated paper, using a linear array of miniature heater elements. PRODUCTS Parent's products are designed for precision, reliability and durability and, as such, operate using a full range of print speeds. 20 Thermal Printing Mechanisms. Thermal printing mechanisms are supplied to OEMs (exclusive of printer manufacturers) requiring a ticket printing capability such as gasoline pumps, weighing scales, credit card verifiers and cash registers. Thermal printing mechanisms are used in applications where speed, versatility, reliability, low noise level, low maintenance costs and relatively low costs are important factors. Transaction Printers. Parent's transaction printers utilize impact and thermal printing technology and consist of three product families: impact printers, thermal printers and related supplies and services. Applications for these products include bank teller transactions, ATM receipts and statement printing, point-of-sale receipts, money order printing, lottery tickets and label printing. MARKETING AND CUSTOMERS Parent's thermal printing mechanisms are sold primarily to OEMs. Parent's transaction printers are sold to OEMs, distributors and value-added resellers. Parent believes many of its customers rely on Parent as their sole source supplier but could modify their systems to utilize competitive products. Marketing efforts include advertisements in a number of trade journals, news releases covering new products and participation in certain industry trade shows in the U.S. and Europe. As of March 30, 1997, domestic and international sales were conducted directly to OEMs or via sales representatives, value-added resellers and distributors. In 1996, one client, NCR, accounted for 52% of Parent's total revenues, or approximately $49.5 million. No other customer accounted for more than 10% of Parent's revenues in 1996. Sales to NCR for the six months ended June 30, 1997 were approximately $26.7 million, compared to approximately $25.7 million for the six months ended June 30, 1996. An OEM Purchase Agreement, dated December 29, 1994 (the "OEM Agreement"), governs certain aspects of the relationship between Parent's wholly owned subsidiary, Axiohm IPB, Inc., a Delaware corporation ("IPB") and NCR. Pursuant to the terms and conditions of the OEM Agreement, IPB has agreed to sell specified products and parts (relating to thermal and contact printing) (the "Specified Products") to NCR. The initial term of the OEM Agreement commenced on December 29, 1994 and expires December 28, 1997, with automatic renewal unless notice of termination is provided by either party (the "Term"). IPB and NCR are currently negotiating a new agreement to take effect January 1, 1998. Under the OEM Agreement, NCR agreed to purchase (on the terms and conditions of the OEM Agreement) 75% of its requirements for the Specified Products during the Term of the OEM Agreement. NCR's obligation to purchase the Specified Products is subject to, among other things, IPB's ability to meet NCR's specifications and requirements for price, performance, quality and delivery of the Specified Products. Over the Term of the OEM Agreement, NCR agreed to use its best efforts to permit IPB to bid on the design, development and/or manufacture of new products similar (e.g. improvements, enhancements or products performing the same or similar function, etc.) to the Specified Products. However, NCR may, in its reasonable judgement, determine whether to accept any offer by IPB to provide such design, development or manufacturing services or to provide such parts. The OEM Agreement provides that prices for the Specified Products may not exceed the prices for such products charged to buyers other than NCR, provided such buyers are in a class similar to NCR (taking similarities in purchase quantity and terms into consideration). The OEM Agreement also contains provisions requiring IPB to provide warranties (including, without limitation, product repair, replacement and service warranties) and indemnities relating to the Specified Products. Parent's relationship with NCR is significant to its business, financial condition and results of operations. A significant reduction in sales to NCR may have a material adverse effect on Parent's future business, financial condition and results of operations. Parent's sales outside of France are made directly by Parent and by distributors and agents and are subject to certain risks common to all export activities such as governmental regulation and the risk of imposition of tariffs or other trade barriers. However, a majority of Parent's sales are denominated in U.S. Dollars and, thus, are not subject to the risk of currency fluctuations. Parent reviews potential foreign currency risks on an ongoing basis and uses forward foreign exchange contracts to minimize currency exposure. 21 BACKLOG Most of Parent's customers purchase products from Parent under purchase orders that specify prices for particular quantities and anticipated release dates ranging up to ten months. The total backlog under such purchase orders was approximately $26.0 million as of March 31, 1997, compared to approximately $25.2 million as of March 31, 1996. Parent's backlog is generally subject to cancellation or rescheduling by the customer on short notice with little or no penalty. Accordingly, Parent's backlog as of any particular date may not necessarily be indicative of actual sales for any future period. MANUFACTURING AND SUPPLIERS Parent manufactures all of its thermal printheads, and direct thermal mechanisms in Puiseaux, France. Parent manufactures substantially all of its transaction printers in Ithaca, New York. Manufacturing outside the country in which the customer is located is subject to certain risks, including transportation delays and interruptions, the imposition of tariffs and export control and changes in governmental policies. Parent manufactures its products in high volume and to exacting quality standards. Accordingly, Parent maintains an extensive quality assurance program, including computerized final testing of all printheads, transaction printers and mechanisms. At the end of 1995 and into 1996, Parent experienced severe disruption of its thermal head clean room output due to water damage caused by a subcontracting company performing routine maintenance work. In 1996, Parent received insurance proceeds of $1.0 million to compensate for the loss of revenue and commercial damage. There can be no assurance that incidents of this nature will not occur in the future or that such incidents will be adequately covered by insurance. Component parts used in the assembly of Parent's products, most of which use tooling designed and owned by Parent, are purchased primarily from suppliers in the U.S., the Far East and Europe. Although Parent has more than one vendor available for most parts, some parts are available only from a single vendor. Additionally, Parent will often initially rely on one single manufacturer for its supply of parts for newly developed products. If such a product becomes viable in the market, Parent then attempts to qualify additional vendors/manufacturers to supply such parts. An interruption in supply of a component part which is only available from a single vendor or manufacturer could temporarily result in Parent's inability to deliver products containing such a component part on a timely basis, which in turn could adversely affect Parent's results of operations. PATENTS AND LICENSES Parent holds various French, U.S. and other foreign patents on thermal printheads, transaction printers and printing mechanisms and has applied for additional domestic and foreign patents. The basic technology for Parent's products is based upon these patents and manufacturing expertise. There can be no assurance that any issued patents will provide Parent with competitive advantages or will not be challenged by third parties, or that the patents of other individuals or entities will not have an adverse effect on Parent's ability to do business, or that other individuals or entities will not independently develop similar products, duplicate Parent's products, engage in "reverse engineering" or otherwise design around the patents issued to Parent. COMPETITION Several thermal printing mechanism manufacturers compete directly with Parent in the high performance segment of the transaction printer and thermal printing mechanism market, and Parent's customers have the option of buying a competitor's thermal printheads or designing and manufacturing their own printers and printing mechanisms. The principal competitive factors in the transaction printer and thermal printing mechanism market are technological expertise and the ability to deliver reliable and cost-effective products on a timely basis. Parent believes that it successfully competes on each of these bases. 22 There are numerous small and large competitors in the transaction printing market. Large, typically Japanese, manufacturers dominate the low cost segment of the market. Parent believes it has been successful in the intermediate to high cost segment of the market due to Parent's ability to provide application- specific products for its customers within relatively short production and delivery schedules. PRODUCT DEVELOPMENT Parent believes it is a leader in the development of both printing mechanisms and thermal printing technology. Parent's product development activities are targeted at both existing and new applications. A variety of engineering skills are required in the development of Parent's products, and Parent maintains expertise in mechanical, electrical, hardware and software engineering disciplines relating to printing mechanisms and thermal printing. As of March 31, 1997, Parent employed 76 individuals dedicated to research and development. For the period ended March 31, 1997, and the years ended December 31, 1996 and 1995, Parent spent approximately $1.7 million, $6.6 million and $5.8 million, respectively, for research and development of new and existing products. EMPLOYEES As of March 31, 1997, Parent and its subsidiaries had 547 full-time employees. LITIGATION From time to time, Parent is involved in litigation incidental to its business. In the opinion of Parent, no litigation to which it is currently a party is likely to have a material adverse effect on Parent's business, financial condition, results of operations or cash flows. PROPERTIES Parent has two manufacturing plants in France with an aggregate total area of approximately 100,000 square feet. The Montrouge (a suburb of Paris) facility (approximately 25,000 square feet) serves as the corporate headquarters of Parent and is the center for Parent's research and development efforts. Parent has recently negotiated a new lease for the Montrouge facility. The term of the new lease will commence in July of 1997 and terminate in June of 2006. Consistent with French law, Parent has an opportunity to terminate the lease relating to the Montrouge facility at three year intervals from commencement of the term of the lease (i.e., in June of 2000, 2003 and 2006), with no penalty. The Puiseaux (80 kilometers south of Paris) facility (approximately 75,000 square feet) is the location of Parent's printer assembly lines. Parent occupies the Puiseaux facility pursuant to a capitalized lease. The Puiseaux facility also contains a "clean room" for printhead manufacturing. The term of the capitalized lease commenced in 1995 and will be fully paid in 2010. A wholly owned subsidiary of Parent, IPB, owns a manufacturing plant in the U.S. which is located on a 66 acre parcel of land in Ithaca, New York. The Ithaca facility includes two structures, a 265,000 square foot building which serves as both the manufacturing facility and an office building (the "Main Building") and a 5,000 square foot building used for storage and as an additional office building. The Main Building contains approximately 180,000 square feet of space dedicated to manufacturing and 85,000 square feet of space dedicated to use as offices. In addition, Parent has sales offices located in Baesweiler (Aachen, Germany), Taipei (Taiwan), Tokyo (Japan) and several locations in the U.S. Parent believes that its existing facilities are suitable and adequate for its current operations and future growth. 23 EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of Parent are as follows:
NAME AGE POSITION - ---- --- -------- Patrick Dupuy.......................... 44 Chairman and Director Gilles Gibier.......................... 43 Director Jean-George Huglin..................... 42 Chief Financial Officer and Director Bernard Patry.......................... 45 Vice President of Sales and Director Nicolas Dourassof...................... 42 Director Gonzague de Blignieres................. 41 Director
Mr. Dupuy has served as a director and the Chairman of Parent since 1988. Since 1988, Mr. Dupuy has also been a Co-Chairman and a fifty-percent shareholder of Dardel Technologies, S.A., a French holding company and a principal shareholder of Parent ("Dardel"). Mr. Dupuy is also a director and the President of Purchaser. Mr. Gibier has served as a director of Parent since 1988. Since 1988, Mr. Gibier has also been a Co-Chairman and a fifty-percent shareholder of Dardel. Mr. Gibier is also a director and the Secretary and Treasurer of Purchaser. Mr. Huglin has served as a director of Parent since 1988. Mr. Huglin is currently the Chief Financial Officer of Parent, a position he has held since June of 1995. Prior to joining Parent, Mr. Huglin held the position of Chief Financial Officer of Dardel since September 1992. Between May 1992 and September 1992, Mr. Huglin served as the Managing Director of Enerdis, S.A. ("Enerdis"), a manufacturer of measuring equipment which is owned by Dardel. Mr. Patry has served as a director of Parent since 1988. Mr. Patry is currently the Vice President of Sales of Parent, a position he has held since 1996. From 1991 to 1995, Mr. Patry was the Chief Executive Officer of Parent and from 1995 to 1996, he was Vice President of Marketing and Business Development of Parent. Mr. Dourassof has served as a director of Parent since 1996. Mr. Dourassof is currently a Managing Director of ABN AMRO Investissement, the investment subsidiary of ABN AMRO (a Dutch bank), a position he has held since 1996. Prior to joining ABN AMRO Investissement, Mr. Dourassof had served as the Director of the Acquisition Financing Department of Banque de Neuflize, Schlumberger Mallet (NSM), a subsidiary of ABN AMRO, since 1995. Prior to joining Banque de Neuflize, Mr. Dourassof commanded Alcyon, Commandant Jacques Cousteau's second ship, for which Mr. Dourassof served as designer and architect. Prior to 1995, Mr. Dourassof attended business school and served as a Naval architect. Mr. de Blignieres has served as a director of Parent since 1996. Mr. de Blignieres is currently the General Manager of Barclay's Capital Development, an investment subsidiary of Barclay's, a position he has held since 1992. Following the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, an aggregate of approximately 51% to 55% of Target's outstanding Common Stock will be beneficially owned by Messrs. Dupuy and Gibier and an aggregate of approximately 60% to 65% will be beneficially owned by Parents' executive officers and directors as a group (depending on the actual number of Shares purchased pursuant to the Offer and the actual number of Exchange Shares transferred by Purchaser in the Axiohm Exchange and assuming no exercise of outstanding options or warrants to purchase shares of Target's Common Stock). CERTAIN TRANSACTIONS Dardel, which is owned by Messrs. Dupuy and Gibier (officers and directors of Parent), owns approximately 44% of the voting stock of Parent. Dardel provides services to Parent, including insurance coverage, telecommunications and legal and management assistance. Parent paid an aggregate of $991,000 and $995,000 to Dardel for such services in 1996 and 1995, respectively. Dardel also subleases to Parent office space which Dardel leases from La Noire (defined below). Parent made an aggregate of $279,000 and $291,000 in sublease payments to Dardel in 1996 and 1995, respectively. Parent believes that the terms of such transactions approximate those of an arm's length transaction with an unrelated party. 24 SNC La Noire ("La Noire"), which is owned by Messrs. Dupuy, Gibier and Huglin (officers and directors of Parent), provides real estate and office management services to Parent. Parent paid an aggregate of $542,000 and $579,000 to La Noire for such services in 1996 and 1995, respectively. Parent believes that the terms of such transactions approximate those of an arm's length transaction with an unrelated party. In 1996, Parent participated in a cash pooling arrangement with Dardel which allowed each company to borrow or loan cash as considered necessary. At December 31, 1996, Parent had an outstanding loan to Dardel amounting to $1.8 million and bearing interest at 6.42%. This loan was repaid by Dardel in April 1997 and the cash pooling arrangement has been terminated. FINANCIAL STATEMENTS As a private company, Parent is not subject to the information reporting requirements of the Exchange Act, and, accordingly, does not file reports or other information with the Commission relating to its business, financial condition and other matters. As a result, such information has not generally been available to the public. Set forth below is certain selected historical consolidated financial data relating to Parent and its subsidiaries for the fiscal years ended December 31, 1996 and 1995. The historical consolidated financial data for the fiscal years ended December 31, 1996 and 1995 have been derived from Parent's audited financial statements and the notes thereto included as Annex B to this Offer to Purchase. The consolidated financial statements for the years ended December 31, 1996 and 1995 have been prepared in accordance with U.S. generally accepted accounting principles ("US GAAP"). The information set forth below should be read in conjunction with, and is qualified in its entirety by, Parent's Management's Discussion and Analysis of Financial Condition and Results of Operations and the Audited Consolidated Financial Statements and the Notes thereto appearing in Annex B to this Offer to Purchase. AXIOHM S.A. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED DECEMBER 31, ---------------- 1996 1995 (1) (1) ------- ------- INCOME STATEMENT DATA: Revenue....................................................... $95,302 $72,155 Costs and expenses Costs of products sold....................................... (66,390) (52,202) Selling, general and administrative.......................... (10,972) (8,807) Research and development..................................... (6,648) (5,836) Goodwill amortization........................................ (200) (161) ------- ------- Income from operations........................................ 11,092 5,149 Interest expense, net......................................... (874) (1,731) Other income (expenses), net.................................. 992 (393) ------- ------- Income before income taxes.................................... 11,210 3,025 Provision for income taxes.................................... (4,406) (1,095) Net income.................................................... 6,804 1,930
DECEMBER 31, --------------- 1996 1995 ------- ------- BALANCE SHEET DATA (2): Current assets................................................. $29,577 $26,277 Total assets................................................... 43,978 40,184 Current liabilities............................................ 15,505 13,564 Long-term debt (less current maturities)....................... 8,210 17,349 Shareholders' equity........................................... 16,433 5,977
- -------- (1) Derived from Parent's audited Consolidated Financial Statements prepared in accordance with US GAAP. (2) Derived from Parent's audited Consolidated Financial Statements prepared in accordance with US GAAP, by adding the following captions of the Consolidated Balance Sheet: long-term debt, capital lease and financial obligations and Government grant obligations. 25 Parent's Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto of Parent attached as Annex B to this Offer to Purchase. The following discussion and analysis is based on the financial condition and results of operations of Parent and its subsidiaries on a stand-alone basis. Following the consummation of the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, Parent will be a subsidiary of Target and therefore the historical information relating to Parent may not be indicative of the future financial condition or results of operations of Parent. See "The Offer--Operations after the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger". Certain statements contained in this Offer to Purchase, such as those concerning Parent's business strategy, capital requirements and other statements regarding matters that are not historical facts are forward-looking statements (as such term is defined under the Securities Act). Because such forward-looking statements include risks and uncertainties, actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those discussed below and in "The Offer-- Certain Information Concerning Purchaser and Parent; Relation to Target" and "The Offer--Operations after the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger". Results of Operations. The following table sets forth income statement and other data as a percentage of Parent's revenue for the fiscal years ended December 31, 1996 and 1995.
1996 1995 ----- ----- Revenue........................................................... 100.0% 100.0% Cost of products sold............................................. 69.7 72.3 Selling, general and administrative expenses...................... 11.5 12.2 Research and development expenses................................. 7.0 8.1 Income from operations............................................ 11.6 7.1 Income before income taxes........................................ 11.8 4.2 Provision for income taxes........................................ 4.6 1.5 Net income........................................................ 7.1 2.7
1996 compared to 1995 In 1996, revenue increased to $95.3 million, a 32% increase over 1995 revenue of $72.2 million. Sales of thermal mechanisms increased to $29.0 million in 1996 from $22.1 million in 1995, primarily in the U.S. Sales of transaction printers increased to $66.3 million in 1996 from $50.1 million in 1995, with NCR Corp. ("NCR") accounting for $49.5 million and $46.3 million of such sales in 1996 and 1995, respectively. Gross margin increased to 30.3% of revenue in 1996 from 27.7% in 1995. In 1995, cost of products sold included a non-recurring provision for inventory obsolescence of approximately $1.0 million related to the 1995 write-off of components and products dedicated to a customer who filed for bankruptcy protection. If this provision were excluded, gross margin in 1995 would have been 29.0% of revenue. The remaining increase in gross margin resulted primarily from the favorable fluctuation of currency exchange rates on the cost of products sold through Parent's French operations and a change in the mix of products sold from 1995 to 1996. Selling expenses increased to $5.3 million in 1996 from $3.6 million in 1995, primarily as a result of the reinforcement of IPB's sales force after the acquisition of IPB by Parent. General and administrative expenses increased to $5.6 million in 1996 from $5.2 million in 1995. In addition, Parent incurred non-recurring charges of $0.3 million in 1996 and $0.6 million in 1995 in connection with the transfer of its manufacturing facility to Puiseaux in France. 26 Research and development expenses increased to $6.6 million in 1996 from $5.8 million in 1995. Parent believes that the timely development of new products and enhancements to its existing products are essential to maintaining its competitive position. Accordingly, Parent anticipates that such expenses will continue to increase in absolute dollars. As a part of its long-term development strategy, Parent maintains on-going policies of fundamental research to continually improve the basic functions of its printers and application research to respond to customer requirements and market opportunities. Income from operations as a percentage of revenue increased to 11.6% in 1996 from 7.1% in 1995, as a result of the factors described above. Other income, net of expenses, increased to $1.0 million in 1996 compared to $0.4 million in net expenses in 1995, as a result of insurance proceeds of $1.0 million received as compensation for the loss of revenue and commercial damage caused by water in the thermal head clean room of the Puiseaux facility. Net interest expense decreased to $0.9 million in 1996 compared to $1.7 million in 1995, as a result of lower interest rate 1996 compared to 1995 and the partial repayment of $8.4 million of long-term bank debt. Income taxes as a percentage of income before taxes increased to 39.3% for 1996 from 36.2% for 1995, principally due to the reduced benefits from the French research and development tax credit, partially offset by the impact of non-utilized loss carry forwards in overseas subsidiaries. See Note 12 of Notes to Consolidated Financial Statements of Parent, included as Annex B to this Offer to Purchase. Liquidity and Capital Resources As of December 31, 1996, Parent had $1.8 million in cash and cash equivalents, compared to $0.6 million at December 31, 1995. Working capital increased to $1.7 million at December 31, 1996, from $0.8 million at December 31, 1995. As of December 31, 1996, Parent had outstanding long-term debt of $10.5 million, including current maturities of $2.3 million. This compares with outstanding long-term debt of $19.5 million, including current maturities of $2.2 million, at December 31, 1995. The net decrease of $9.0 million primarily arose from net repayments of maturing obligations and early repayments of (i) a $4.3 million bank loan which had been secured by IPB shares, (ii) a $3.0 million bank loan which had been secured by U.S. assets and (iii) five business loans, totaling $0.5 million. For 1996, the $1.2 million increase in cash and cash equivalents resulted primarily from $11.7 million generated from operating activities, the use of $3.0 million from investing activities and the use of $7.7 million from financing activities. The $11.7 million of cash generated by operating activities arose primarily from $6.8 million of net income, $2.9 million in depreciation and amortization charges, $0.8 million in working capital and $2.7 million of other non-cash items. The $3.0 million of cash used in investing activities arose primarily from the purchase of property and equipment for production and research activities and the purchase of a MIS system for IPB. The $7.7 million of cash used in financing activities arose primarily from the repayment of long-term debt amounting to $8.4 million and a loan repayment to a related party of $1.9 million, offset by the net proceeds of an issuance of common stock received from two institutional investors and an employee of Parent. In 1995, Parent negotiated a $1.6 million grant (the "Grant") from various agencies of the French government to subsidize the purchase and improvement of certain properties in France. The agreement is structured as a sale/leaseback transaction in which title to the purchased property was sold to a French government agency in exchange for a cash payment of $3.2 million and subsequently leased back to Parent for a fifteen year period. At December 31, 1996, Parent had a contingent liability to repay, in whole or in part, an 27 aggregate of $1.6 million received under the Grant in the event that Parent does not meet the requirements of the Grant, which include minimum employment levels through 1997, minimum capital expenditures and continued use of the building throughout the lease term. In connection with the 1994 acquisition of IPB, Parent remains contingently liable to the seller for up to $5.0 million annually through 1997, based upon IPB achieving certain sales levels with the seller. Any additional consideration paid will be treated by Parent as additional acquisition cost. Foreign Currency Parent's financial results have been reported in U.S. dollars. The functional currencies of Parent's subsidiaries are the local currencies where the subsidiaries operate. Fluctuations in the value of the currencies in which Parent conducts its business relative to the U.S. Dollar have caused, and will continue to cause, translated amounts to change in comparison with previous periods. The French operations of Parent incur a majority of Parent's expenses in French Francs, while a substantial majority of Parent's revenues are in U.S. Dollars. Any appreciation in the French Franc relative to the U.S. Dollar would, absent any effects associated with hedging or currency trading transactions, detrimentally affect Parent's financial performance. Parent attempts to limit its exposure to French Franc currency fluctuation compared to the U.S. Dollar by entering into various financial instruments, including forward exchange contracts, to offset its French Franc denominated expenses with associated U.S. Dollar denominated revenue, if, in the opinion of Parent, to do so would mitigate foreign exchange losses. Parent does not hold or issue derivative financial instruments for trading purposes. Unrealized gains and losses on forward contracts to hedge specific future currency transactions are deferred and recognized against the matching losses and gains on the specific transactions. Parent cannot predict the effect of exchange rate fluctuations upon future operating results. Seasonality Parent's results of operations may fluctuate from year to year or quarter to quarter due to a variety of factors. Parent expects lower levels of sales and profitability during the period from mid-November to the end of December, impacting the last quarter of each fiscal year. Parent believes that this seasonality is caused by the fact that most POS providers do not install new systems in their stores between Thanksgiving and Christmas, so as not to disturb their sales flow during this heavy selling period. Relation to Target Except as set forth in this Offer to Purchase and the Merger Agreement, (a) there have not been any contracts, transactions or negotiations between Purchaser, Parent, their respective subsidiaries or, to the best knowledge of Purchaser or Parent, any of the persons listed in Annex A to this Offer to Purchase, on the one hand, and Target, Target's affiliate corporations or any of Target's directors, officers or affiliates, on the other hand, that are required to be disclosed pursuant to the rules and regulations of the Commission and (b) none of Purchaser or Parent or, to the best knowledge of Purchaser and Parent, any of the persons listed in Annex A, has any contract, arrangement, understanding or relationship with any person with respect to any securities of Target. Except as otherwise stated in this Offer to Purchase, to the best of Purchaser's or Parent's knowledge, none of Purchaser's or Parent's directors, executive officers or subsidiaries beneficially owns any equity security of Target, and except as otherwise stated in this Offer to Purchase, neither Parent nor Purchaser nor, to the best of Purchaser's or Parent's knowledge, any of the directors, executive officers or subsidiaries of Purchaser or Parent has effected any transaction in any equity security of Target during the past 60 days. 10.PURPOSE OF THE OFFER, THE AXIOHM EXCHANGE, THE ACQUISITION OF PURCHASER AND THE MERGER The purpose of the Offer and the Axiohm Exchange is for Parent's shareholders to acquire control of, and own an approximately 79% to 85% aggregate equity interest in Target and for Parent to become a subsidiary of Purchaser. The purpose of the Acquisition of Purchaser is for Purchaser to become a wholly owned subsidiary of 28 Target. The purpose of the Merger is to consolidate Purchaser and Target and cause Parent to become a subsidiary of Target. The Offer is being made pursuant to the Merger Agreement. Following completion of the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, Target intends to conduct a detailed review of itself and Parent and their respective businesses, assets, corporate structure, certificate of incorporation and bylaws (or equivalent organizational documents), capitalization, operations, properties, policies, management and personnel and to consider if any changes would be desirable in light of the circumstances then existing. Target reserves the right to take such actions or effect such changes as it deems desirable. 11.OPERATIONS AFTER THE OFFER, THE AXIOHM EXCHANGE, THE ACQUISITION OF PURCHASER AND THE MERGER Plans for Target. Following the completion of the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, an aggregate of approximately 51% to 55% of Target's outstanding Common Stock will be beneficially owned by Messrs. Dupuy and Gibier, principal shareholders and directors of Parent, and an aggregate of approximately 60% to 65% will be beneficially owned by Parent's executive officers and directors as a group (depending on the actual number of Shares purchased pursuant to the Offer and the actual number of Exchange Shares transferred by Purchaser in the Axiohm Exchange and assuming no exercise of outstanding options or warrants to purchase shares of Target's Common Stock). It is expected that, initially following the completion of the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, the business and operations of Target and Parent will, except as set forth in this Offer to Purchase, be continued by Target and Parent substantially as they are currently being conducted. However, Parent will continue to evaluate the business and operations of Target during the pendency of the Offer and after the consummation of the Offer, the Exchange Offer, the Acquisition of Purchaser and the Merger, and will take such actions as it deems appropriate under the circumstances then existing. Parent intends to seek additional information about Target during this period. Thereafter, Parent intends to review such information as part of a comprehensive review of Target's business, operations, capitalization and management with a view to optimizing exploitation of Target's potential in conjunction with Parent's businesses. Management of Parent has developed a strategy designed to, among other things, consolidate the businesses of Parent and Target in a manner that it is anticipated will enable the Surviving Corporation (as defined herein) to offer its customers a wider range of products and better service and selection at a lower cost, thereby attempting to improve its competitive position. Management of Parent hopes to be able to generate revenue and cost benefits as a result of the Merger. However, neither Purchaser, Parent nor Target can predict whether, or to what extent, the anticipated consolidation will result in any such revenue or cost benefits. Except as indicated in this Offer to Purchase, Parent does not have any present plans or proposals which relate to or will result in an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving Target or any subsidiary of Target, a sale or transfer of a material amount of assets of Target or any subsidiary or any material change in Target's capitalization or dividend policy or any other material changes in Target's corporate structure or business. Other than as described herein, Parent does not have any present plans or proposals which would result in any material changes in Target's management. See "The Offer--Certain Information Concerning Target" for a description of new employment agreements which have been entered into between Target and each of William H. Gibbs, Target's President, Chief Executive Officer and Chairman, and Walter S. Sobon, Target's Chief Financial Officer, and a description of employment agreements which Target expects to enter into with Janet Shanks, Target's Corporate Controller and Chief Accounting Officer, and David Ledwell, Target's Executive Vice President--Transaction Products, all in connection with the transactions described in this Offer to Purchase. Following the Offer, Target has agreed to take all actions necessary to (i) increase the number of directors on the Target Board from five to seven, (ii) cause one of the existing directors to resign from the Target Board and (iii) appoint to the Target Board three individuals selected by Parent, which designees will include Patrick Dupuy, the President and a director of Parent, and Gilles Gibier, a director of Parent. Additionally, Target has agreed to cause Messrs. Dupuy and Gibier to become Co-Chairmen of the Target Board. Following the completion of the 29 Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, Messrs. Dupuy and Gibier will own an aggregate of approximately 51% to 55% of Target's outstanding Common Stock (depending on the actual number of Shares purchased pursuant to the Offer and the actual number of Exchange Shares transferred by Purchaser in the Axiohm Exchange and assuming no exercise of outstanding options or warrants to purchase shares of Target's Common Stock). Pro Forma Information. The accompanying Unaudited Pro Forma Combined Financial Statements are based on the historical financial statements of Target and Parent after giving effect to the purchase method of accounting and other Merger related adjustments relating to the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger as described herein. The Unaudited Pro Forma Combined Balance Sheet is presented giving effect to the Offer, the Axiohm Exchange, the Acquisition of Purchaser and Merger as if each had been consummated on March 31, 1997. The Unaudited Pro Forma Combined Statements of Income for the year ended December 31, 1996 and the three months ended March 31, 1997 are presented giving effect to the Offer, the Axiohm Exchange, the Acquisition of Purchaser and Merger as if each had been consummated on January 1, 1996. Although Target will be the surviving legal entity as a result of the Merger, the transaction will be treated as a reverse acquisition for accounting purposes with Parent as the acquiring entity and Target as the acquired entity. The Unaudited Pro Forma Combined Balance Sheet combines Target with Parent as of March 31, 1997 and Unaudited Pro Forma Combined Statements of Income for the year ended December 31, 1996 and the three months ended March 31, 1997 combines Target with Parent as of January 1, 1996 and January 1, 1997, respectively. The Unaudited Pro Forma Combined Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements, including the notes thereto, of Target in its Annual Report on Form 10-K for the year ended December 31, 1996 and Parent's Audited Consolidated Financial Statements included as Annex B to this Offer to Purchase, for the year ended December 31, 1996 and the Unaudited Consolidated Financial Statements, including the notes thereto, of Target in its Quarterly Report on Form 10-Q for the period ended March 31, 1997. The Unaudited Pro Forma Combined Financial Statements are intended for informational purposes only and are not necessarily indicative of the future financial position or future results of operations of the combined company that would have actually occurred had the Merger been in effect as of the date or the periods presented. 30 DH TECHNOLOGY, INC. AND AXIOHM S.A. UNAUDITED PRO FORMA COMBINED BALANCE SHEET MARCH 31, 1997 (IN THOUSANDS OF U.S. DOLLARS)
DH TECHNOLOGY, AXIOHM INC. S.A. PROFORMA PROFORMA HISTORICAL HISTORICAL ADJUSTMENTS COMBINED ----------- ---------- ----------- -------- ASSETS Current assets: Cash and cash equivalents (in- cluding short-term investment securities held to maturity)... $48,812 $ 1,388 $ (50,200)a $ 0 Accounts receivable, net ....... 12,534 12,978 -- 25,512 Inventories..................... 13,101 15,083 -- 28,184 Other........................... 3,108 1,545 -- 4,653 ------- ------- --------- -------- Total current assets........... 77,555 30,994 (50,200) 58,349 Property, plant and equipment, net............................. 8,615 11,459 -- 20,074 Intangible assets................ 5,080 2,555 88,052 b 95,687 Other assets..................... 3,300 521 6,000 a 9,821 ------- ------- --------- -------- Total assets................... $94,550 $45,529 $ 43,852 $183,931 ======= ======= ========= ======== LIABILITIES AND SHAREHOLDERS' EQ- UITY Current liabilities: Accounts payable................ $ 4,332 $ 7,096 -- $ 11,428 Current portion of long-term debt and other long-term obligations.................... 5,420 2,318 -- 7,738 Accrued payroll................. 2,545 -- -- 2,545 Other accrued expenses.......... 3,472 5,598 -- 9,070 Income taxes payable............ 2,329 -- -- 2,329 ------- ------- --------- -------- Total current liabilities...... 18,098 15,012 -- 33,110 Long-term debt and other long- term obligations................ 2,367 11,424 157,275 c 171,066 Deferred taxes................... -- 1,351 -- 1,351 ------- ------- --------- -------- Total liabilities.............. 20,465 27,787 157,275 205,527 ------- ------- --------- -------- Shareholders' equity (deficit): Common stock.................... 13,188 3,841 (13,188)d 3,841 Additional paid in capital...... -- 346 24,860 d 25,206 Retained earnings (deficit)..... 60,808 13,702 (125,006)d (50,496) Foreign currency translation ad- justment....................... 89 (147) (89)d (147) ------- ------- --------- -------- Total shareholders' equity (deficit)..................... 74,085 17,742 (113,423) (21,596) ------- ------- --------- -------- Total liabilities and share- holders' equity (deficit)..... $94,550 $45,529 $ 43,852 $183,931 ======= ======= ========= ========
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements 31 DH TECHNOLOGY, INC. AND AXIOHM S.A. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
DH TECHNOLOGY, AXIOHM INC. S.A. PROFORMA PROFORMA HISTORICAL HISTORICAL ADJUSTMENTS COMBINED ----------- ---------- ----------- --------- Net sales........................ $ 115,784 $95,302 -- $ 211,086 Costs and expenses: Cost of net sales............... 74,847 66,390 -- 141,237 Selling, general and administra- tive........................... 15,997 11,172 29,351 e 56,520 Research and development........ 5,805 6,648 12,453 --------- ------- -------- --------- Total costs and expenses......... 96,649 84,210 29,351 210,210 Income (loss) from operations.... 19,135 11,092 (29,351) 876 Interest income.................. 1,491 992 (2,483)f -- Interest expense................. (149) (874) (15,734)g (16,757) --------- ------- -------- --------- Net interest income (expense).... 1,342 118 (18,217) (16,757) Income (loss) before income tax- es.............................. 20,477 11,210 (47,568) (15,881) Income taxes (benefit)........... 7,450 4,406 (6,740)h 5,116 --------- ------- -------- --------- Net income (loss)................ $ 13,027 $ 6,804 $(40,828) $ (20,997) ========= ======= ======== ========= Net income (loss) per share...... $ 1.56 $ (3.22) ========= ========= Weighted average shares used in calculation..................... 8,351,000 6,513,000 ========= =========
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements 32 DH TECHNOLOGY, INC. AND AXIOHM S.A. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME THREE MONTHS ENDED MARCH 31, 1997 (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
DH TECHNOLOGY, AXIOHM INC. S.A. PROFORMA PROFORMA HISTORICAL HISTORICAL ADJUSTMENTS COMBINED ----------- ---------- ----------- --------- Net sales........................ $ 19,185 $24,902 -- $ 44,087 Costs and expenses: Cost of net sales............... 12,527 17,330 29,857 Selling, general and administra- tive........................... 3,963 2,860 $ 7,338 e 14,161 In process technology, acquisi- tion and other charges......... 11,290 -- -- 11,290 Research and development........ 1,451 1,740 -- 3,191 --------- ------- -------- --------- Total costs and expenses......... 29,231 21,930 7,338 58,499 Income (loss) from operations.... (10,046) 2,972 (7,338) (14,412) Interest income.................. 421 15 (436)f -- Interest expense................. (40) (273) (3,933)g (4,246) --------- ------- -------- --------- Net interest income (expense).... 381 (258) (4,369) (4,246) Income (loss) before income tax- es.............................. (9,665) 2,714 (11,707) (18,658) Income taxes (benefit)........... (1,782) 1,135 (1,617)h (2,264) --------- ------- -------- --------- Net income (loss)................ (7,883) 1,579 (10,090) (16,394) ========= ======= ======== ========= Net income (loss) per share...... $ (0.99) $ (2.52) ========= ========= Weighted average shares used in calculation..................... 7,976,000 6,513,000 ========= =========
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements 33 NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED) The Unaudited Pro Forma Combined Financial Statements have been prepared using the following assumptions: (1) Purchaser acquires 7.0 million shares (87.6%) of Target's outstanding common stock for $25 per share for approximately $175.0 million. (2) Target acquires approximately 877,000 outstanding Target options for an aggregate consideration of $12.3 million. (3) The purchase price for Target, including the ownership in the Surviving Corporation represented by the non-tendered shares, based on a per share price of $25 per share and the cost of acquiring Target employee options, plus transaction costs of $2.0 million is approximately $214.1 million. The purchase price has been preliminarily allocated to the net assets (tangible and intangible) and in-process technology of Target based on the estimated fair values at the date of acquisition with the excess of cost over fair value of the identifiable tangible and intangible assets and in-process technology allocated to goodwill. Goodwill is amortized over three years and the value of in-process technology will be written off immediately subsequent to consummation of the Merger. (4) Following the Offer, Purchaser will effect the Axiohm Exchange in which it will purchase all of the outstanding capital stock of Parent from the Parent shareholders in exchange for an aggregate of 5,518,524 of the Shares which Purchaser is acquiring in this Offer and an aggregate of $12.2 million in cash. Simultaneously with the closing of the Axiohm Exchange, Parent, IPB and Target will effect the Acquisition of Purchaser in which Parent will cause IPB to sell to Target, and Target will purchase from IPB, all of the outstanding shares of the capital stock of Purchaser in exchange for Target's assumption, on a joint and several basis with Purchaser, of any and all obligations with respect to indebtedness incurred, or preferred stock issued, by Purchaser or IPB in connection with the Offer and the Axiohm Exchange. Following the Axiohm Exchange and the Acquisition of Purchaser, Target will effect the Merger in which Purchaser will be merged with and into Target and the Target Shares owned by Purchaser (which have not been transferred in the Axiohm Exchange) will be cancelled. A reconciliation of the outstanding shares of Target from immediately preceding the Offer to immediately following the Merger follows:
(IN THOUSANDS) -------------- Target shares outstand- ing immediately preced- ing the Offer.......... 7,994 Shares cancelled in the Merger................. (1,481) ------ Shares outstanding imme- diately after the Merg- er..................... 6,513 ======
(5) The allocation of the purchase price of Target to the fair market value of net assets acquired is based on preliminary estimates and may change based on the completion of additional analysis. Specifically, the allocation of the purchase price to the in-process technology as well as the potential allocations to other intangible assets and property, plant and equipment will ultimately be based on a valuation performed by an independent third party and is very preliminary in nature. In addition, the estimated life of the resulting goodwill is also preliminary and based upon further analysis, may also change. Management of Target anticipates that such analysis will be finalized within three months following the consummation of the Merger. Based on the preliminary analysis performed to date, Management expects that the final purchase price allocation for in-process technology and goodwill will range from $45.0 million to $55.0 million and $85.0 million to $95.0 million, respectively. The Unaudited Pro Forma Combined Statements of Income do not reflect the write-off of the anticipated $52.0 million of in-process technology which will be recorded in the financial statements of the combined company immediately following the consummation of the Merger. 34 (6) Income taxes have been provided for all applicable adjustments at an assumed rate of 37% and the amortization of goodwill is not deductible for tax purposes. (7) The weighted average shares used in the calculation of the Unaudited Pro Forma Combined Net Loss per share does not reflect any common stock equivalents outstanding due to their anti-dilutive effect. (8)Parent's debt in the amount of $10.0 million will be repaid as a part of the transaction. Pro forma adjustments reflect estimates which will be refined as additional information is obtained. Pro forma adjustments have been made to the Unaudited Pro Forma Combined Balance Sheet to reflect the following: (a)Net adjustment to cash:
(DOLLARS IN THOUSANDS) ----------- Sources of cash: Proceeds from issuance of Senior Debt......................... $ 67,275 Proceeds from issuance of Senior Subordinated Notes........... 100,000 -------- Total sources of cash........................................ $167,275 -------- Uses of cash: Tender Target shares and retire options....................... $187,277 Debt issuance costs........................................... 6,000 Transactions costs............................................ 2,000 Cash payment to Parent shareholders in Axiohm Exchange........ 12,198 Repay existing current and long-term debt of Parent........... 10,000 -------- Total uses of cash........................................... $217,475 -------- Pro Forma adjustment to cash................................... (50,200) Combined Target and Parent cash prior to Merger............... 50,200 -------- Pro forma cash................................................ $ 0 ========
35 (b) Excess of the purchase price over the fair value of net assets acquired, which will be recorded as goodwill to be amortized over three years as follows:
(DOLLARS IN THOUSANDS) ----------- Cash tendered for Target shares.............................. $175,000 Cash tendered for Target options............................. 12,277 Cash paid for transaction costs.............................. 2,000 Fair value of non-tendered shares............................ 24,860 -------- Total purchase price.......................................... 214,137 Less fair value of net assets acquired........................ (74,085) Less estimated purchase price allocated to in-process technol- ogy.......................................................... (52,000) -------- Goodwill...................................................... $ 88,052 ======== (c) Adjustment to long-term debt: (DOLLARS IN THOUSANDS) ----------- Issuance of new Senior Debt.................................. $ 67,275 Issuance of new Senior Subordinated Debt..................... 100,000 Repay existing current and long-term debt of Parent.......... (10,000) -------- Pro forma adjustment......................................... $157,275 ========
(d) Elimination of Target Common Stock, historical retained earnings (including the write-off of the portion of the purchase price allocated to in-process technology of $52.0 million) and foreign currency translation equity adjustment, recording of $12.2 million cash payment to Parent shareholders in the Axiohm Exchange and the non-cash portion of the purchase price. Pro Forma adjustments have been made to the Unaudited Pro Forma Combined Statements of Income to reflect the following (in thousands): (e) Amortization of goodwill calculated on a straight line basis over three years. (f) Since a portion of the acquisition is to be funded by existing cash, a pro forma adjustment is required to adjust for the interest income lost. Interest income not earned as a result of the use of cash to partially fund the transaction was approximately $436,000 and $2.5 million for the three months ended March 31, 1997 and the year ended December 31, 1996, respectively. (g) Adjustment to interest expense:
(DOLLARS IN THOUSANDS) ------------- For the year ended December 31, 1996: Interest expense on historical Parent debt repaid in the Merger.. $ (750) Interest on the Senior Debt and Senior Subordinated Notes (at an assumed weighted average interest rate of 9.3%)................. 15,584 Amortization of deferred debt issuance costs..................... 900 ------- Pro forma total adjustment....................................... $15,734 ======= For the three months ended March 31, 1997: Interest expense on historical Parent debt repaid in the Merger.. $ (188) Interest on Senior Debt and Senior Subordinated Notes............ 3,896 Amortization of deferred debt issuance costs..................... 225 ------- Pro forma total adjustment....................................... $ 3,933 =======
A 0.125% increase or decrease in the assumed weighted average interest rate would change the pro forma interest expense by $209,000. The pro forma net income would change by $132,000 and pro forma net income per share would change by $0.02. (h) Income tax effects of pro forma adjustments. 36 12.SOURCE AND AMOUNT OF FUNDS Parent estimates that the total amount of funds required by Purchaser, Parent and Target to consummate the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger; to refinance Parent, Purchaser and Target indebtedness; to retire existing Target stock options; and to pay related fees and expenses will be $218.6 million. Purchaser and Parent have agreed to pay the costs and expenses associated with the preparation, execution and delivery of the Tender Loan Commitment Letter and the Interim Preferred Stock Commitment Letter (as each such term is defined herein) and the definitive agreements relating thereto and to indemnify Lehman and certain of its affiliates (and their respective officers, directors and employees) against certain liabilities in connection with the Offer Financing and Merger Financing (as each such term is defined herein). In connection with the issuance of the commitment letters described herein and the consummation of the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, Parent has agreed to pay Lehman and certain of its affiliates customary fees. See "The Offer--Fees and Expenses." The following arrangements have been made to borrow money for the Offer and finance or repay such borrowings. Senior Secured Term Loan Facility. Pursuant to the Tender Loan Commitment Letter, a $175.0 million Senior Secured Term Loan Facility (the "Tender Facility") by and among Purchaser, as borrower, Parent and each of its direct and indirect subsidiaries, as guarantors, Lehman Commercial Paper Inc., as advisor and arranger ("LCPI") and a to be determined financial institution (selected by the advisor), as administrative agent will provide the funds to purchase Shares pursuant to the Offer. Funds under the Tender Facility will be available in an initial draw on the date (in no event later than September 16, 1997) on which Purchaser accepts for payment (pursuant to the terms and conditions of the Offer) at least 6,500,000 Shares (the "Closing Date") and in one additional draw of not less than $5.0 million prior to the maturity date. The loan (the "Tender Loan") under the Tender Facility is repayable on the earlier of (i) the Effective Time of the Merger (as defined in the Merger Agreement) or (ii) 45 days after the Closing Date. Purchaser may elect that all (or any portion) of the Tender Loan bear an interest rate per annum equal to either the Base Rate (defined below) plus the Applicable Margin (defined below) or the Eurodollar Rate (defined below) plus the Applicable Margin. "Applicable Margin" means (a) with respect to an election of the Base Rate Option, 2.00% and (b) with respect to an election of the Eurodollar Option, 3.00%. "Base Rate" means the highest of (i) the rate of interest publicly announced by Citibank, N.A. as its prime rate in effect at its principal office in New York City (the "Prime Rate"), (ii) the secondary market rate for certificates of deposit (grossed up for maximum statutory reserve requirements) plus 1% and (iii) the U.S. federal funds effective rate from time to time plus 0.50%. "Eurodollar Rate" means the rate (grossed-up for maximum statutory reserve requirements for eurocurrency liabilities) at which eurodollar deposits for one month are offered in the interbank eurodollar market. The obligations of Borrower and Guarantors under the Tender Facility will be secured by a perfected first priority security interest in substantially all tangible and intangible assets of each such party, including, without limitation (a) all of the capital stock of Purchaser and all Shares owned by Purchaser or any affiliate or designee thereof, whether acquired in the Offer or otherwise and (b) certain capital stock of all existing subsidiaries of Parent. It is currently anticipated that portions of the total commitment under the Tender Facility may be sold to various participating lenders. It is also anticipated that documentation relating to the Tender Facility shall contain representations, warranties, covenants and events of default customary for financings of this type. The availability of the Tender Facility is subject to certain conditions, one of which being that Purchaser shall have received $24.0 million in cash as equity, constituting the proceeds of $24.0 million in liquidation preference of Cumulative Redeemable Exchangeable Preferred Stock (the "Interim Preferred Stock") issued and sold by IPB. 37 Interim Preferred Stock. Pursuant to the Interim Preferred Stock Commitment Letter, LB I Group Inc. and one or more of its affiliates (the "Interim Purchasers") have committed to purchase $24.0 million in liquidation preference of the Interim Preferred Stock. The Interim Preferred Stock Commitment Letter provides that the commitments of the Interim Purchasers will terminate upon the earlier of (i) the termination of the Merger Agreement, (ii) the consummation of the Tender Offer without the issuance of any Interim Preferred Stock or (iii) September 16, 1997, or if additional information is requested for compliance under the HSR Act, October 16, 1997. Funding pursuant to the Interim Preferred Stock Commitment Letter is subject to certain conditions precedent, including but not limited to: (i) the definitive financing documentation shall have been executed with respect to the Tender Facility; (ii) the Board of Directors of Target shall have approved and recommended the Tender to the shareholders, and such approval and recommendation shall not have been withdrawn; (iii) Purchaser shall have the ability to acquire the Minimum Condition concurrently with the purchase of the Interim Preferred Stock; (iv) no material adverse change shall have occurred in the consolidated financial condition, results of operations, business, assets, liabilities, management or value of Parent, IPB, Purchaser, Target or Surviving Corporation; (v) William Gibbs and Walter Sobon shall have committed to certain employment arrangements; (vi) an opinion from an independent firm reasonably satisfactory to the Interim Purchasers attesting to the solvency of the Parent, Purchaser and the Surviving Corporation shall have been received and (vii) all material governmental and third party approvals necessary in connection with the Tender Offer, Axiohm Exchange, Acquisition of Purchaser and Merger shall have been obtained. The Interim Preferred Stock is scheduled to be redeemed 180 days from the date of issuance (the "Scheduled Redemption Date"). IPB shall redeem the Interim Preferred Stock, however, on the earlier of (a) the Scheduled Redemption Date or (b) the Closing Date of the Merger. If the Interim Preferred Stock is not redeemed upon consummation of the Merger, the Interim Purchasers shall elect either of the following: require the redemption of the Interim Preferred Stock or exchange the Interim Preferred Stock for Senior Subordinated Rollover Notes due 2005 (the "Rollover Notes") in an aggregate principal amount equal to the liquidation preference plus all accumulated and unpaid dividends of the Interim Preferred Stock so exchanged. The Interim Preferred Stock Commitment Letter also provides for the issuance, under certain circumstances of certain warrants to acquire up to 10% of IPB Common Stock, Parent Common Stock or the Target Common Stock. Dividends on the Interim Preferred Stock shall accrue at a rate per annum equal to 11.0% of the liquidation preference thereof and shall be payable, in cash, quarterly in arrears. All dividends will be cumulative, whether or not earned or declared, on a daily basis from the date of issuance of the Interim Preferred Stock. Senior Subordinated Notes. The Target intends to issue $100.0 million in aggregate principal amount of Senior Subordinated Notes (as defined in the Interim Preferred Stock Commitment Letter) with a maturity date of ten years from the date of issuance at a fixed interest rate to be determined to refinance a portion of the Tender Facility and the Interim Preferred Stock. The Senior Subordinated Notes will be general unsecured obligations of the Target and will be subordinated in right of payment to all current and future Senior Debt. The Senior Subordinated Notes will be guaranteed (the "Subsidiary Guarantees") on a senior subordinated basis by certain of the Target's Subsidiaries (the "Guarantors"). The Subsidiary Guarantee of each Guarantor will be subordinated in prior payment in full of all Senior Debt of such Guarantor. The Senior Subordinated Notes and the indenture under which the Senior Subordinated Notes will be issued are expected to contain customary covenants, events of default, optional redemption and repurchase and other provisions, which provisions will be negotiated based on prevailing market conditions at the time of the offering. The Senior Subordinated Notes are expected to be offered in a private placement offering that will not be registered under the Securities Act. The Senior Subordinated Notes may not be offered or sold in the United States absent registration and applicable exemption from the registration requirements of the Securities Act. This Offer to Purchase does not constitute an offer to sell or a solicitation of an offer to buy any of the Senior Subordinated Notes. 38 The Offer. Parent estimates that the total amount of funds required to consummate the Offer, refinance certain existing indebtedness of the Parent, and pay related fees and expenses will be approximately $188.7 million. Parent has a commitment from Lehman to finance (i) the purchase of Shares pursuant to the Offer and (ii) the refinancing of approximately $5.0 million of indebtedness of Parent and its subsidiaries upon the consummation of the Offer in an aggregate amount of up to $175.0 million to be obtained under the Tender Facility and up to $24.0 million to be obtained through the issuance of the Interim Preferred Stock (collectively the "Offer Financing"). The Axiohm Exchange, Acquisition of Purchaser and Merger. Parent estimates that the total amount of funds required to consummate the Axiohm Exchange, Acquisition of Purchaser and Merger, refinance the Offer Financing and certain existing indebtedness of Purchaser, Parent and Target, retire existing Target stock options and pay any related fees and expenses to be approximately $218.6 million. Parent will have the funds available to consummate the transactions described above through the Offer Financing, which is permitted to continue as the permanent financing, and the cash of Target, but expects to have in place a Term Loan Facility of up to $70.0 million and a Revolving Credit Facility of $35.0 million (undrawn at closing) and to have completed a $100.0 million offering of Senior Subordinated Notes (collectively, the "Merger Financing"). The availability of the Tender Facility is conditioned upon satisfaction of the following conditions precedent and other conditions precedent customary in transactions of this kind (which shall occur no later than September 16, 1997, if there is no second request for information under the HSR Act, or October 16, 1997, if there is a second request): (a) the execution of satisfactory definitive financing documentation, (b) the Offer shall have been made in accordance with applicable law and the price per Share offered thereunder shall not be greater than $25 per share, (c) Target's Board (consisting of a majority of the directors holding office as of the date hereof) shall have approved the Offer and shall have recommended to the shareholders of Target the acceptance of the Offer, which recommendation shall not have been withdrawn, (d) the Merger Agreement shall have been entered into and not modified without LCPI's consent, (e) Purchaser shall have acquired not less than 6,500,000 and not more than 7,000,000 Shares of Target and there shall not have been any material change in the number of outstanding shares of Target, (f) documents filed publicly by Parent, Purchaser and Target in connection with the Offer and the Merger shall be reasonably satisfactory to LCPI, (g) Purchaser shall have received $24.0 million in cash from the proceeds of such amount of Interim Preferred Stock issued and sold by IPB, (h) there shall be no outstanding indebtedness or liens except as permitted, (i) the lenders, the administrative agent and LCPI shall have received all fees and expenses required to be paid, (j) all governmental approvals shall have been obtained, (k) all actions to perfect liens shall have been taken, (l) the lenders shall be satisfied that the Offer and the financing thereof complies with Regulations G, T, U and X of the Board of Governors the Federal Reserve System, (m) the lenders shall have received satisfactory projected pro forma balance sheets and certain financial statements, (n) satisfactory lien search results shall have been received, (o) a satisfactory independent opinion shall have been received regarding the solvency of the Parent, Purchaser and Target taken as a whole, (p) Purchaser shall have entered into stock purchase agreements with the direct and indirect owners of Parent for exchange of 90% of the outstanding shares of Parent in accordance with the Exchange Offer, (q) Walter Sobon and William Gibbs shall have entered into arrangements with Target consistent with Annex B of the Merger Agreement and (r) satisfactory opinions of legal counsel shall have been delivered. The making of each extension of credit is conditioned upon all representations and warranties remaining correct, including that there has been no material adverse change in the business, assets, property or condition of Parent and its subsidiaries taken as a whole. Alternative A Merger Facilities. Upon consummation of the Merger and assuming the issuance of $100.0 million of Senior Subordinated Notes described above, LCPI has committed to make available: (a) a five year term loan facility (the "Tranche A Facility") in an aggregate principal amount of $50.0 million, (b) a six year term loan facility (the "Tranche B Facility" and, collectively with the Tranche A Facility, the "Term Loan Facilities") in an aggregate principal amount of $20.0 million and (c) a revolving credit facility (the "Revolving Credit Facility" and together with the Term Loan Facilities, the "Alternative A Merger Facilities") in an 39 aggregate principal amount of $35.0 million, with a $7.5 million sublimit available for issuance of letters of credit. Up to $10.0 million of the Tranche A Facility may be borrowed by Dardel. LCPI has advised Parent and Target that LCPI expects to syndicate the Alternative A Merger Facilities to a group of banks and financial institutions. The proceeds from the Term Loan Facilities, together with the proceeds of the Senior Subordinated Notes, will be used by Target to (i) refinance all outstanding loans under the Tender Facility and (ii) fund other costs of the Offer and the Merger payable on the Merger Date. The proceeds from the Revolving Credit Facility will be used to finance part of the on-going working capital requirements and other general corporate purposes of Target. Amounts outstanding under the Tranche A Facility will be repaid in 20 quarterly installments, the first four of which (each in the principal amount of $1.0 million) to be due on the last day of each of the first four calendar quarters after the Merger Date. Subsequent quarterly payments under the Term Loan Facilities are each in the amount of $2.625 million during the second and third years after the Merger Date and $3.125 million during the fourth and fifth years after the Merger Date. Amounts outstanding under the Tranche B Facility will be repaid in 24 quarterly installments, the first twenty of which (in the principal amount of $125,000 each) to be due on the last day of each of the first twenty calendar quarters after the Merger Date. The final four installments, each in the principal amount of $4.375 million, will be due on the last day of each quarter during the sixth year after the Merger Date. The Revolving Credit Facility will mature on the fifth anniversary of the Merger Date. Loans under the Term Loan Facilities will be subject to certain mandatory prepayments including (i) 75% of net proceeds received from any issuance of Target equity and 100% of the net proceeds of any incurrence of indebtedness by Target or any of its subsidiaries after the Merger Date, with certain exceptions, (ii) 100% of proceeds from certain asset sales and (iii) 75% (when the ratio of Total Debt, as defined, to EBITDA, as defined, is greater than or equal to 3.00 to 1.00) and 50% (when such ratio is less than 3.00 to 1.00) of Target's Excess Cash Flow. Mandatory prepayments will be applied first, pro rata to loans outstanding under the Tranche A Facility and the Tranche B Facility (pro rata), except that holders of Tranche B Term Loans have the right to refuse up to 50% of any optional prepayment if Tranche A remains outstanding, in which event the prepayment shall be allocated to the Tranche A Term Loans. The loans outstanding under the Alternative A Merger Facilities will bear interest, at the Target's option, equal to (i) the Base Rate plus the Applicable Margin or the Eurodollar Rate (which have the same definitions given to them in the Tender Facility except that the Eurodollar rate shall be based on one, two, three or six month periods) plus the Applicable Margin. The Applicable Margin under the Alternative A Facility means, with respect to Base Rate Loans, 1.50% in the case of Revolving Credit Loans and Tranche A Term Loans and 2.00% in the case of Tranche B Term Loans; and, with respect to Eurodollar Loans, 2.50% in the case of Revolving Credit Loans and Tranche A Term Loans and 3.00% in the case of Tranche B Term Loans, provided that the Applicable Margin in respect of Tranche A Loans and Revolving Credit Loans is subject to downward adjustment from and after the date which is one year after the Merger Date. A commitment fee of 0.375% is payable on any portion of the Alternative A Merger Facilities which remain unutilized. The amount of the Alternative A Merger Facilities allocated among the Tranche Facilities and the interest rates are subject to change under certain specified circumstances. The Alternative A Merger Facilities will be guaranteed, on a joint and several basis, by all of Target's direct and indirect subsidiaries (except non-U.S. subsidiaries) and will be secured by a first priority security interest in, and lien upon, 100% of the capital stock of such subsidiaries (other than non-U.S. subsidiaries, as to which only 65% of the capital stock will be pledged) and all tangible and intangible assets of Target and any Guarantor, except for assets where LCPI determines that the costs of obtaining the security are disproportionate to the value of the security. Loans to Dardel will be secured and guaranteed by Target in the above-described manner. The documentation relating to the Alternative A Merger Facilities will include representations and warranties, affirmative and negative covenants and events of default customary in similar financing situations and other terms deemed appropriate by LCPI. 40 The availability of the Alternative A Merger Facility is conditioned upon satisfaction of the following conditions precedent and other conditions precedent customary in similar financing situations (which satisfaction shall occur no later than October 16, 1997, if there is no second request for information made under the HSR Act, or November 16, 1997, if there is a second request): (a) the execution of definitive financing documentation, (b) the issuance and sale of $100.0 million of the Senior Subordinated Notes on terms and conditions satisfactory to LCPI, (c) all obligations of Purchaser and Target under the Tender Facility shall have been refinanced with the proceeds of the Alternative A Senior Facilities and the Senior Subordinated Notes, (d) the Merger shall have been consummated, (e) there shall be no outstanding indebtedness or liens except as permitted, (f) the Exchange Offer shall have been consummated and after giving effect to the Exchange Offer and the Merger Target owns directly or indirectly at least 90% of the stock of Parent, (g) documents filed publicly by Parent, Purchaser and Target in connection with the Offer and the Merger shall be reasonably satisfactory to LCPI, (h) the lenders, the administrative agent and LCPI shall have received all fees and expenses required to be paid (i) all governmental approvals shall have been obtained, (j) all actions to perfect liens shall have been taken, (k) satisfactory insurance is in place, and (l) satisfactory opinions of legal counsel shall have been delivered. Each extension of credit (including later draws on the Revolving Credit Facility) is conditioned upon all representations and warranties being true as of the date of each such extension, including that there has been no material adverse change in the business, assets, property or condition of Target and its subsidiaries taken as a whole. Alternative B Merger Facilities. If the $100.0 million of Senior Subordinated Notes described below are not issued, upon consummation of the Merger LCPI has committed to provide the following financing: (a) a five year term loan facility (the "Tranche A Facility") in an aggregate principal amount of $50.0 million, (b) a six year term loan facility in the aggregate amount of $20.0 million (the "Tranche B Facility"), (c) a seven year term loan facility in the aggregate principal amount $70.0 million (the "Tranche C Facility," and together with the Tranche A Facility and the Tranche B Facility, the "Term Loan Facilities") and (d) a revolving credit facility (the "Revolving Credit Facility" and together with the Term Loan Facilities, the "Alternative B Merger Facilities") in an aggregate principal amount of $35.0 million, with a $7.50 million sublimit available for issuance of letters of credit. Up to $10.0 million of the Term Loan Facility may be borrowed by Dardel. LCPI has advised Parent and Target that LCPI expects to syndicate the Alternative B Merger Facilities to a group of banks and financial institutions. The proceeds from the Term Loan Facilities of the Alternative B Merger Facilities will be used by the Target to (i) refinance all outstanding loans under the Tender Facility and (ii) fund other costs of the Offer and the Merger payable on the Merger Date. The proceeds from the Revolving Credit Facility will be used to finance part of the ongoing working capital requirements and other general corporate purposes of the Target. Amounts outstanding under the Tranche A Facility will be repaid in 20 quarterly installments, the first four of which (each in the principal amount of $1.25 million) to be due on the last day of each of the first four calendar quarters after the Merger Date. Subsequent quarterly payments under the Term Loan Facility are each in the amount of $2.5 million during the second and third years after the Merger Date and $3.125 million for calendar quarters during the fourth and fifth years after the Merger Date. Amounts outstanding under the Tranche B Facility will be repaid in 24 quarterly installments, the first twenty of which (in the principal amount of $125,000 each) are due and payable on the last day of each of the first twenty quarters after the Merger Date. The remaining four installments, each in the principal amount of $4.375 million, will be due on the last day of each calendar quarter during the sixth year after the Merger Date. Amounts outstanding under the Tranche C Facility will be repaid in 28 quarterly installments, the first twenty-four of which (in the principal amount of $125,000 each) are due and payable on the last day of each of the first twenty calendar quarters after the Merger Date. The remaining four installments, each in the principal amount of $16.75 million, will be due on the last day of each calendar quarter during the seventh year after the Merger Date. The Revolving Credit Facility will mature on the fifth anniversary of the Merger Date. 41 Loans under the Term Loan Facilities will be subject to certain mandatory prepayments including (i) 100% of net proceeds received from any issuance of Target equity or any incurrence of indebtedness by Target or any of its subsidiaries after the Merger Date, except for certain exceptions including the issuance of equity or subordinated debt to repay the Rollover Notes described below (ii) 100% of proceeds from certain asset sales and (iii) 75% Target's Excess Cash Flow (to be determined in a mutually satisfactory manner). Mandatory prepayments will be applied first, pro rata to loans outstanding under the Tranche A Facility, the Tranche B Facility and the Tranche C Facility (pro rata), except that holders of Tranche B Term Loans and Tranche C Term Loans have the right to refuse up to 50% of any optional prepayment if Tranche A remains outstanding, in which event the prepayment shall be allocated to Tranche A Term Loans. The loans outstanding under the Alternative B Merger Facilities will bear interest, at the Target's option, equal to (i) the Base Rate plus the Applicable Margin or the Eurodollar Rate (which have the same definitions given to them in the Tender Offer Facility except that the Eurodollar rate shall be based on one, two, three or six month periods) plus the Applicable Margin. The Applicable Margin under the Alternative B Merger Facility means, with respect to Base Rate Loans, 2.00% in the case of Revolving Credit Loans and Tranche A Term Loans, 2.25% in the case of Tranche B Term Loans and 2.50% in the case of Tranche C Term Loans; and, with respect to Eurodollar Loans, 3.00% in the case of Revolving Credit Loans and Tranche A Term Loans, 3.25% in the case of Tranche B Term Loans and 3.50% in the case of Tranche C Terms loans. A commitment fee of 0.375% is payable on any portion of the Alternative B Merger Facilities which remains unutilized. The amount of the Alternative B Merger Facilities allocated among the Tranche Facilities and the interest rates are subject to change under certain specified circumstances. The Alternative B Merger Facilities will be guaranteed, on a joint and several basis, by all of Target's direct and indirect subsidiaries (except non- U.S. subsidiaries) and will be secured by a first priority security interest in, and lien upon, 100% of the capital stock of such subsidiaries (other than non-U.S. subsidiaries, as to which only 65% of the capital stock will be pledged) and all tangible and intangible assets of Target and any Guarantor, except for assets where LCPI determines that the costs of obtaining the security are disproportionate to the value of the security. Loans to Dardel will be secured and guaranteed by Target in the above-described manner. The documentation relating to the Alternative B Merger Facilities will include representations and warranties, affirmative and negative covenants and events of default customary in similar financing situations and other terms deemed appropriate by LCPI. The availability of the Alternative B Merger Facilities is conditioned upon satisfaction of the following conditions precedent and other conditions precedent customary in similar financing situations (which satisfaction shall occur no later than October 16, 1997, if there is no second request for information made under the HSR Act, or November 16, 1997, if there is a second request): (a) the execution of definitive financing documentation, (b) all obligations of the Purchaser and Target under the Tender Facility shall have been refinanced with the proceeds of the Alternative A Senior Facilities and the Senior Subordinated Notes, (c) the Merger shall have been consummated, (d) there shall be no outstanding indebtedness or liens except as permitted, (e) the Exchange Offer shall have been consummated and after giving effect to the Exchange Offer and the Merger Target owns directly or indirectly at least 90% of the stock of Parent, (f) documents filed publicly by Parent, Purchaser and Target in connection with the Offer and the Merger shall be reasonably satisfactory to LCPI, (g) the lenders, the administrative agent and LCPI shall have received all fees and expenses required to be paid, (h) all governmental approvals shall have been obtained, (i) all actions to perfect liens shall have been taken, (j) satisfactory insurance is in place and (k) satisfactory opinions of legal counsel shall have been delivered. Each extension of credit (including later draws on the Revolving Credit Facility) is conditioned upon all representations and warranties being true as of the date of each such extension, including that there has been no material adverse change in the business, assets, property or condition of Target and its subsidiaries taken as a whole. 42 The following tables have been prepared by Parent after discussions with management of Target and set forth the approximate amounts and proposed sources and uses of funds necessary to consummate the Transactions, assuming that the Offer closes on August 12, 1997 and the Merger closes on or about September 18, 1997: THE OFFER (IN MILLIONS) SOURCES: Tender Offer Loan Facilities........................................... $164.7 Interim Preferred Stock................................................ 24.0 ------ Total Sources......................................................... $188.7 ====== USES (2): Purchase Shares (1).................................................... $175.0 Pre-funded Interest.................................................... 3.2 Refinance Existing Purchaser Debt...................................... 5.0 Estimated Fees and Expenses............................................ 5.6 ------ Total Uses............................................................ $188.7 ====== THE AXIOHM EXCHANGE, ACQUISITION OF PURCHASER AND MERGER (IN MILLIONS) SOURCES (2): Cash of Target......................................................... $ 45.9 Refund of Prepaid Interest............................................. 2.6 Term Loan Facilities................................................... 70.0 Senior Subordinated Notes.............................................. 100.0 ------ Total Sources......................................................... $218.6 ====== USES (2): Refinance Tender Offer Loan Facilities................................. $164.7 Refinance Interim Preferred Stock...................................... 24.0 Refinance Target Debt.................................................. 2.9 Cashout Target Options................................................. 12.3 Purchaser Share Purchase............................................... 12.2 Estimated Fees and Expenses (3)........................................ 2.4 ------ Total Uses............................................................ $218.6 ======
- -------- (1) Assumes that the Maximum Number of Shares is tendered in the Offer. (2) Sources and Uses totals do not sum due to rounding. (3) Aggregate estimated fees and costs for the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger are $8.0 million. See "The Offer-- Fees and Expenses." 43 13.BACKGROUND OF THE OFFER On December 6, 1996, William H. Gibbs ("Gibbs") and Patrick Dupuy ("Dupuy"), a director and the President of Parent had a telephone conversation which resulted in Dupuy meeting with Endre Varga, the General Manager of Target's Cognitive Solutions, Inc. facility located in Paso Robles, California (the "CSI Facility"), to tour the CSI Facility on December 12, 1996. On December 13, 1996, Gibbs and Dupuy met with David Ledwell, Executive Vice President- Transaction Products of Target ("Ledwell"), to visit Target's plant located in Tijuana, Mexico (the "Mexico Facility"). On January 9, 1997, in Paris, Gibbs met with Dupuy and Gilles Gibier, a director of Parent ("Gibier"), where a decision was made by the representatives of Target and Parent to begin preparation of plans relating to a potential business combination of Target and Parent for presentation to their respective Boards of Directors. Between January 9, 1997 and March 10, 1997, Gibbs, Dupuy and Gibier participated in a series of conference telephone calls to discuss various business and accounting issues raised by a potential combination and to coordinate due diligence with respect to their respective businesses. On March 17, 1997, in Denver, Colorado, Gibier met with Gibbs to discuss the details of a potential combination. The Denver meeting was followed by Gibbs and Gibier touring Target's Stadia Print Facility located in Denver, Colorado, the CSI Facility and the Mexico Facility on March 18, 19 and 20, 1997, respectively. On April 2, 1997, at a meeting in New York City, representatives of Target and Parent continued to discuss the issues raised by alternative structures for a potential business combination. At this meeting, Gibbs and Walter Sobon ("Sobon"), Target's Chief Financial Officer, also presented Dupuy and Gibier with a draft confidentiality letter designed to ensure that certain proprietary information to be exchanged between Target and Parent would be held in confidence. Although no proprietary information was exchanged at the April 2, 1997 meeting, the parties discussed projected financial data which had been prepared by Lehman which projections were based on publicly available financial data. At the April 3, 1997 meeting of Target's Board of Directors, Gibbs reported to Target's Board regarding the discussions between Target and Parent relating to a potential business combination and the results of the due diligence review of Parent's business. The report included a discussion of various approaches to, and structures of, a potential combination. On April 14, 15 and 16, 1997, in Paris, Sobon met with Dupuy to further develop a structure for a potential business combination and to discuss the financial projections relating to possible combined operations of Target and Parent. The meetings included a tour of Parent's Puiseaux manufacturing facility. At the April 24, 1997 meeting of Target's Board of Directors, Gibbs again reported to Target's Board about the nature of the discussions between Target and Parent relating to a potential combination and the results of the on-going due diligence. On April 25, 1997, at the offices of Lehman in New York City, Gibbs and Sobon met with Dupuy and Gibier, where options regarding the timing, financing alternatives and structural issues relating to a potential business combination were discussed. At the May 6 and 7, 1997 meeting of Target's Board of Directors, Gibbs again reported to Target's Board about the nature of the discussions between Target and Parent relating to a potential combination. A representative of Wilson Sonsini Goodrich & Rosati, P.C., Target's legal counsel, Dupuy and Gibier also attended the Board meeting. Representatives of Parent signed the confidentiality letter originally presented to Parent at the April 2, 1997 meeting in New York City and representatives of Target signed a confidentiality agreement presented to it by Parent. Dupuy and Gibier made a presentation to Target's Board outlining certain of the benefits and risks of a business combination and a potential transaction structure. Between May 7, 1997 and May 26, 1997, representatives of Target and Parent and their respective legal counsel participated in a series of conference telephone calls to discuss alternative transaction structures, due diligence matters and financing of the proposed combination. 44 On May 23, 1997, Target engaged Prudential to render a fairness opinion with respect to a proposed transaction with Parent. On May 27 and 28, 1997, Bernard Patry ("Patry"), a Director of Parent, met with Gibbs, Ledwell, Sobon, and Janet Shanks, Corporate Controller and Chief Accounting Officer of Target, to discuss Target's business operations. From May 14 to June 5, 1997, the legal and accounting advisors of Target performed due diligence on the Parent at Parent's Ithaca, New York and Paris, France locations. From May 27 to June 5, 1997, the legal and accounting advisors of Parent performed due diligence on Target at Target's San Diego, California location. Target and Parent each continued their respective due diligence investigations during the month of June 1997. On June 4 and 5, Gibier, Dupuy, Gibbs and Sobon meet in New York to discuss issues related to a potential combination and discuss a draft merger agreement. Target's Board received updates from Gibbs and Sobon throughout the month as to the status of the negotiations and the results of the on-going due diligence. During the week of June 23, Gibier, Dupuy, Gibbs and Sobon and their respective legal counsel met in Chicago to discuss the details of a merger agreement and the financing related to a potential transaction. Additional meetings and telephone discussions were held during the weeks of June 30, 1997 and July 5, 1997. Telephone discussions continued until a formal proposal was presented to Target's Board on July 13, together with commitment letters with respect to financing for the transaction. On July 13-14, 1997, Target's Board met to discuss the proposed terms of the Merger Agreement and related documents and the financing commitment for the transaction and to receive a report on the ongoing due diligence review of Purchaser. Target's Board also received a written opinion from Prudential that the consideration to be received by the holders of shares of Target's Common Stock (other than Parent and its affiliates), consisting of cash consideration to be received by such holders pursuant to the Offer and the shares of Target Common Stock to be retained by such holders following the consummation of the Axiohm Exchange, the Acquisition of Purchaser and the Merger, is fair to such holders from a financial point of view. A copy of the opinion of Prudential is contained in Target's Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Commission pursuant to the Exchange Act in connection with the Offer, a copy of which is being furnished to the shareholders by Target. The contacts described above resulted in the Merger Agreement, Axiohm Exchange, Acquisition of Purchaser and the Offer and related documents, which were approved and, in the case of the Offer recommended to Target's shareholders, at a meeting of the Board of Directors of Target held on July 13-14, 1997. 14.THE MERGER AGREEMENT A copy of the Merger Agreement is filed as an Exhibit to the Schedule 14D-1 and is incorporated by reference in this Offer to Purchase. Following is a summary of the Merger Agreement which summary is qualified in its entirety by reference to the Merger Agreement. For purposes of this Section, all capitalized terms not defined in this Offer to Purchase shall have the definitions assigned to them in the Merger Agreement. The Offer. The Merger Agreement provides for the commencement of the Offer as promptly as practicable, but in no event later than five business days after the initial public announcement of Purchaser's intention to commence the Offer. The obligation of Purchaser to accept for payment and pay for the Shares tendered pursuant to the Offer is subject to the satisfaction of (i) the Minimum Condition prior to the expiration of the Offer and (ii) certain other conditions described in "The Offer--Certain Conditions of the Offer." Purchaser expressly reserves the right, in its sole discretion, to increase the Maximum Number and waive any Offer Condition and make any other changes in the terms and conditions of the Offer, provided, however that, unless previously approved by Target in writing, no change may be made which decreases the Offer Price, changes the form of consideration payable in the Offer (other than by adding consideration), reduces the Maximum Number, changes the Minimum Condition, or imposes conditions to the Offer in addition to those set forth in the Merger Agreement which are adverse to holders of the Shares. Purchaser may, without the consent of Target, (i) extend the Offer beyond the scheduled expiration date (the initial scheduled expiration date 45 August 12, 1997, if, at the scheduled expiration date of the Offer, any of the conditions to Purchaser's obligation to accept for payment, and to pay for, the Shares, shall not be satisfied or waived, (ii) extend the Offer for any period required by any rule, regulation or interpretation of the Commission or the staff thereof applicable to the Offer, or (iii) extend the Offer for an aggregate period of not more than 10 business days beyond the latest applicable date that would otherwise be permitted under clause (i) or (ii) of this sentence, if as of such date, all of the conditions to Purchaser's obligations to accept for payment, and to pay for, the Shares are satisfied or waived, but the number of Shares validly tendered and not withdrawn pursuant to the Offer equals at least the Minimum Condition but less than the Maximum Number of the outstanding Shares; provided, however, that if, on the initial scheduled expiration date of the Offer, the sole condition remaining unsatisfied is the failure of the waiting period under the HSR Act, to have expired or been terminated, then, in either case, Purchaser shall extend the Offer from time to time until five business days after the expiration or termination of the applicable waiting period under the HSR Act. The Axiohm Exchange. Pursuant to the Merger Agreement, as soon as practicable after the date of the Merger Agreement, Purchaser shall commence the Axiohm Exchange by seeking to enter into stock purchase agreements ("Axiohm Purchase Agreements") with all holders of Parent Shares (the "Parent Holders"). Pursuant to the Axiohm Purchase Agreements, Purchaser shall attempt to purchase from the Parent Holders all Parent Shares held by such Parent Holders for an aggregate of 5,518,524 Shares of Target Common Stock purchased by Purchaser in the Offer (the "Exchange Shares") plus an aggregate of $12,197,900 in cash (the "Exchange Cash") (the Exchange Shares and the Exchange Cash are hereinafter referred to collectively as the "Exchange Consideration"). The aggregate value of the Exchange Consideration to be paid by Purchaser to each Parent Holder shall be in proportion to the percentage of outstanding Parent Shares which are held by such Parent Holder, provided, however, that Purchaser reserves the right to vary the relative amount of Exchange Shares and Exchange Cash to be received by each Parent Holder as a part of such Exchange Consideration. In the event that at the Axiohm Exchange Closing (as defined below) Purchaser does not have available the financing necessary to pay the entire amount of the Exchange Cash to the Parent Holders, then the aggregate Exchange Cash to be paid by Purchaser shall be reduced to $4,317,700 and the number of Exchange Shares to be transferred by Purchaser to the Parent Holders in the Axiohm Exchange shall be increased to an aggregate of 5,833,732 Shares. The Merger Agreement provides that, within 45 days after the satisfaction or waiver of the conditions set forth in the Merger Agreement and immediately prior to the consummation of the Merger, Purchaser shall cause the Axiohm Exchange to be consummated. The Merger Agreement also provides that, as soon as practicable following the closing of the Axiohm Exchange, Target shall file with the Commission a registration statement on Form S-3 under the Securities Act relating to the resale by the Parent Holders of the Exchange Shares and will cause such registration statement to be continuously effective for a period of not less than two years. The Acquisition of Purchaser. Pursuant to the Merger Agreement, simultaneously with the closing of the Axiohm Exchange, Parent, IPB and Target shall effect the Acquisition of Purchaser. In such transaction, Target shall purchase from IPB and Parent shall cause IPB to sell to Target, all of the outstanding shares of capital stock of Purchaser in exchange for the assumption by Target, on a joint and several basis with Purchaser, of any and all obligations with respect to indebtedness incurred, or preferred stock issued, by Purchaser or IPB in connection with the Offer and the Axiohm Exchange, which obligations shall not exceed $199.0 million. The Merger. The Merger Agreement provides that, upon the terms and subject to the conditions of the Merger Agreement and in accordance with California law, at the Effective Time, Purchaser shall be merged with and into Target. As a result of the Merger, the separate corporate existence of Purchaser shall cease and Target shall continue as the surviving corporation of the Merger (the "Surviving Corporation"). In the Merger, the name of Target, as the Surviving Corporation will be changed to Axiohm Inc. At the Effective Time, by virtue of the Merger and without any action on the part of Purchaser, Target or the holders of any of the following securities, (i) each share of Target Common Stock issued and outstanding 46 immediately prior to the Effective Time (other than any shares to be cancelled pursuant to (ii) below) shall remain outstanding; (ii) each share of Target Common Stock owned by Parent, Purchaser or any other direct or indirect wholly owned subsidiary of Parent, in each case immediately prior to the Effective Time but after the consummation of the Axiohm Exchange, shall be cancelled and retired without any conversion thereof and no payment or distribution shall be made with respect thereto; and (iii) each share of common, preferred or other capital stock of Purchaser issued and outstanding immediately prior to the Effective Time, shall be cancelled, since such shares will, immediately prior to the Effective Time, be owned by Target. The Merger Agreement provides that, at the Effective Time, the Articles of Incorporation of Target will be amended to change the name of the Target to Axiohm Inc. and, as so amended, will be the Articles of Incorporation of the Surviving Corporation. The Merger Agreement also provides that the By-laws of Target, as in effect immediately prior to the Effective Time, will be the By- laws of the Surviving Corporation. Pursuant to the Merger Agreement, the directors of Target immediately prior to the Effective Time (which includes three directors designated by Parent) will be the initial directors of the Surviving Corporation and the officers of Target immediately prior to the Effective Time (which include Messrs. Dupuy and Gibier as Co-Chairmen) will be the initial officers of the Surviving Corporation. See "The Offer--Certain Information Concerning Target" for a description of new employment agreements which have been entered into between Target and each of William H. Gibbs, Target's President, Chief Executive Officer and Chairman, and Walter S. Sobon, Target's Chief Financial Officer and a description of employment agreements which Target expects to enter into with Janet Shanks, Target's Corporate Controller and Chief Accounting Officer, and David Ledwell, Target's Executive Vice President--Transaction Products, all in connection with the transactions described in this Offer to Purchase. Conduct of Target's Business. Pursuant to the Merger Agreement, Target has covenanted and agreed that, during the period from the date of the Merger Agreement to the earlier of termination of the Merger Agreement or the Effective Time, Target will conduct its business and that of its subsidiaries only in the ordinary course of business consistent with past practice and will use all reasonable efforts consistent with past practices and policies to preserve intact its present business organization (including the services of its existing employees) and preserve its relationships with customers, suppliers and others having business dealings with it, to the end that its goodwill and on-going business shall be unimpaired at the Effective Date. By way of amplification and not limitation, the Merger Agreement provides that neither Target nor any of its subsidiaries will, without the prior written consent of the Purchaser: (a)amend or propose to amend its Articles of Incorporation or By-laws; (b)(i) authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any other securities or equity equivalents (including, without limitation, any stock options or stock appreciation rights) except shares of Target Common Stock issuable upon exercise of Company Outstanding Options (as defined in the Merger Agreement) or (ii) amend any of the terms of any such securities or agreements outstanding as of the date of the Merger Agreement, except as specifically contemplated by the Merger Agreement; (c)split, combine or reclassify any shares of its capital stock, declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem or otherwise acquire any of its securities or any securities of Target's subsidiaries; (d)(i) incur or assume any long-term or short-term debt or issue any debt securities except for borrowings under existing lines of credit in the ordinary course of business; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person or entity except in the ordinary course of business consistent with past practice, and except for obligations of its wholly owned subsidiaries; (iii) make any loans, advances or capital contributions to, or investments in, any other person or entity (other than to its wholly owned subsidiaries or advances to employees in the ordinary course of business consistent with past practice and in amounts not material to the maker of such loan or advance); (iv) pledge or otherwise encumber shares of its capital stock or any of its subsidiaries; or (v) mortgage or pledge any of its material assets, tangible or intangible, or create or suffer to exist any material lien thereupon; 47 (e)except as may be required by law or as contemplated by the Merger Agreement or described on Target's Disclosure Schedule accompanying the Merger Agreement (the "Target Disclosure Schedule"), enter into, adopt or amend or terminate any bonus, profit sharing, compensation, severance, termination, stock option, stock appreciation right, restricted stock, performance unit, stock equivalent, stock purchase agreement, pension, retirement, deferred compensation, employment, severance or other employee benefit agreement, trust, plan, fund or other arrangement for the benefit or welfare of any director, officer, employee or former employee or independent contractor in any manner, or (except for normal increases in the ordinary course of business consistent with past practice that, in the aggregate, do not result in a material increase in benefits or compensation expense to it and as required under existing agreements) increase in any manner the compensation or fringe benefits of any director, officer or employee or pay any benefit not required by any plan and arrangement as in effect as of the date of the Merger Agreement (including, without limitation, the granting of stock appreciation rights or performance units); (f)acquire, sell, lease, license to others or dispose of any assets outside the ordinary course of business which individually or in the aggregate are material to Target or enter into any commitment or transaction outside the ordinary course of business consistent with past practice which would be material to Target; (g)except as may be required as a result of a change in law or in US GAAP, change any of the accounting principles or practices used by it; (h)revalue in any material respect any of its assets, including, without limitation, writing down the value of inventory or writing-off notes or accounts receivable other than in the ordinary course of business; (i)(i) acquire or agree to acquire (by merger, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership or other business organization or division thereof or any equity interest therein, other than as specifically described on the Target Disclosure Schedule; (ii) enter into any contract or agreement other than in the ordinary course of business consistent with past practice which would be material to it; (iii) authorize any new capital expenditure or expenditures which, individually, is in excess of $250,000 or, in the aggregate, are in excess of $2,500,000; or (iv) enter into or amend any contract, agreement, commitment or arrangement providing for the taking of any action that would be prohibited hereunder; (j)make any tax election or settle or compromise any income tax liability material to Target; (k)pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in, or contemplated by Company Financial Statements and Company Subsidiaries or incurred in the ordinary course of business consistent with past practice or customary fees and expenses relating to the transactions contemplated by the Merger Agreement; (l)settle or compromise any pending or threatened suit, action or claim relating to the transactions contemplated hereby; or (m)take, or agree in writing or otherwise to take, any of the actions described in (a) through (l) above or any action which would make any of the representations or warranties of Target contained in the Merger Agreement untrue or incorrect as of the date when made. Maintenance of Cash by Target. Pursuant to the Merger Agreement, Target has agreed, from the date of the Merger Agreement until the consummation of the Offer, to cause approximately $45.0 million to be maintained in its existing investments and, upon maturity of such investments, to invest such sums in municipal instruments with a rating of BBB or better (together, the "Target Investments"). From the consummation of the Offer until the Effective Time, Target agreed to cause approximately $33.0 million to be maintained in Target Investments. Conduct of Parent's Business. The Merger Agreement includes Parent's covenant that, except as contemplated by the Merger Agreement, during the period from the date of the Merger Agreement to the earlier 48 of termination of the Merger Agreement or the Effective Time, Parent has agreed to conduct its business and that of its subsidiaries only in the ordinary course of business consistent with past practice and to use all reasonable efforts consistent with past practices and policies to preserve intact its present business organization (including the services of its existing employees) and preserve its relationships with customers, suppliers and others having business dealings with it, to the end that its goodwill and ongoing business shall be unimpaired at the Effective Date. Without limiting the generality of the foregoing, and except as otherwise expressly provided in the Merger Agreement, neither Parent nor any of its subsidiaries will, without the prior written consent of Target: (a)amend or propose to amend its Articles of Incorporation or By-laws (or equivalent organizational documents), provided, however, that IPB may amend its Articles of Incorporation or By-laws in any manner as may be necessary in connection with the transactions contemplated by the Merger Agreement and the Financing Letter; (b)except as contemplated in connection with the Financing, (i) authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any other securities or equity equivalents (including, without limitation, any stock options or stock appreciation rights) except shares of Common Stock of the Parent issuable upon exercise of the Parent Outstanding Options or (ii) amend any of the terms of any such securities or agreements outstanding as of the date of the Merger Agreement, except as specifically contemplated by the Merger Agreement; (c)split, combine or reclassify any shares of its capital stock, declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem or otherwise acquire any of its securities or any securities of Parent's subsidiaries, except as otherwise contemplated in the Financing Letter; (d)except for the Financing contemplated by the Financing Letter, (i) incur or assume any long-term or short-term debt or issue any debt securities except for borrowings under existing lines of credit in the ordinary course of business; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person or entity except in the ordinary course of business consistent with past practice, and except for obligations of its wholly owned subsidiaries; (iii) make any loans, advances or capital contributions to, or investments in, any other person or entity (other than to its wholly owned subsidiaries or advances to employees in the ordinary course of business consistent with past practice and in amounts not material to the maker of such loan or advance); (iv) pledge or otherwise encumber shares of its capital stock or any of its subsidiaries; or (v) mortgage or pledge any of its material assets, tangible or intangible, or create or suffer to exist any material lien thereupon; (e)except as may be required by law or as contemplated by the Merger Agreement or described on the Parent Disclosure Schedule, enter into, adopt or amend or terminate any bonus, profit sharing, compensation, severance, termination, stock option, stock appreciation right, restricted stock, performance unit, stock equivalent, stock purchase agreement, pension, retirement, deferred compensation, employment, severance or other employee benefit agreement, trust, plan, fund or other arrangement for the benefit or welfare of any director, officer, employee or former employee or independent contractor in any manner, or (except for normal increases in the ordinary course of business consistent with past practice that, in the aggregate, do not result in a material increase in benefits or compensation expense to it and as required under existing agreements) increase in any manner the compensation or fringe benefits of any director, officer or employee or payany benefit not required by any plan and arrangement as in effect as of the date hereof (including, without limitation, the granting of stock appreciation rights or performance units); (f)acquire, sell, lease, license to others or dispose of any assets outside the ordinary course of business which individually or in the aggregate are material to Parent, or enter into any commitment or transaction outside the ordinary course of business consistent with past practice which would be material to Parent; 49 (g)except as may be required as a result of a change in law or in US GAAP, change any of the accounting principles or practices used by it; (h)revalue in any material respect any of its assets, including, without limitation, writing down the value of inventory or writing-off notes or accounts receivable other than in the ordinary course of business; (i)(i) acquire or agree to acquire (by merger, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership or other business organization or division thereof or any equity interest therein, other than as specifically described on the Parent Disclosure Schedule; (ii) enter into any contract or agreement other than in the ordinary course of business consistent with past practice which would be material to it; (iii) authorize any new capital expenditure or expenditures which, individually, is in excess of $250,000 or, in the aggregate, are in excess of $2,500,000; or (iv) enter into or amend any contract, agreement, commitment or arrangement providing for the taking of any action that would be prohibited hereunder; (j)make any tax election or settle or compromise any income tax liability material to Parent; (k)except as contemplated in the Financing Letter and the engagement letter between Parent, Purchaser, IPB, and Lehman, pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in, or contemplated by the Parent Financial Statements or incurred in the ordinary course of business consistent with past practice or customary fees and expenses relating to the transactions contemplated by the Merger Agreement; (l)settle or compromise any pending or threatened suit, action or claim relating to the transactions contemplated hereby; or (m)take, or agree in writing or otherwise to take, any of the actions described in (a) through (l) above or any action which would make any of the representations or warranties of Parent or Purchaser contained in the Merger Agreement untrue or incorrect as of the date when made. Directors. Following the Offer, Target has agreed to take all actions necessary to (i) increase the number of directors on Target's Board from five to seven, (ii) cause one of the existing directors to resign from Target's Board, and (iii) appoint to Target's Board three individuals selected by Parent, which designees will include Patrick Dupuy, the President and a director of Parent and Gilles Gibier, the Co-Director of Parent's holding company. Additionally, Target has agreed to cause Messrs. Dupuy and Gibier to become Co-Chairmen of Target's Board. Pursuant to the Merger Agreement, after the election of designees of Purchaser pursuant to the preceding paragraph and prior to the Effective Time, any amendment of the Merger Agreement or the Articles of Incorporation or By- laws of Target, any termination of the Merger Agreement by Target, any extension by Target of the time for the performance of any of the obligations or other acts of Purchaser or waiver of any of Target's rights under the Merger Agreement will require the concurrence of a majority of the directors of Target then in office who were not designated by Purchaser. No Solicitation. Target has agreed that it, its affiliates and their respective officers, directors, employees, representatives and agents (i) shall cease (and not reopen except as permitted by the Merger Agreement) any existing discussions or negotiations, if any, with any parties with respect to any acquisition (other than the transactions contemplated by the Merger Agreement) of all or any material portion of the assets of, or any equity interest in, Target or any of its subsidiaries or any business combination with Target or any of its subsidiaries and (ii) shall not, directly or indirectly, (A) solicit or initiate discussions, or, except with respect to a Superior Proposal (as defined below) received by Target, engage in negotiations with any person or, except with respect to a Superior Proposal received by Target, take any other action intended, designed or reasonably likely to facilitate the efforts of any person, other than Parent and Purchaser, relating to the possible acquisition of Target or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) 50 of any material portion of its or their capital stock or assets, (B) except with respect to a Superior Proposal received by Target, and provided that Target has required the party submitting the Superior Proposal to execute a non-disclosure agreement comparable to the one executed by Parent in connection with the Merger Agreement, provide non-public information with respect to Target or any of its subsidiaries to any person, other than Parent and Purchaser, relating to the possible acquisition of Target or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or any material portion of its or their capital stock or assets, (C) enter into an agreement with any person, other than Parent and Purchaser, providing for the possible acquisition of Target or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or any material portion of its or their capital stock or assets, (D) except with respect to a Superior Proposal received by Target, make or authorize any statement, recommendation or solicitation in support of any possible acquisition of Target or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or any portion of its or their capital stock or assets by any person, other than by Parent and Purchaser or withdraw or modify the recommendation by Target's Board with respect to the Offer, the Merger Agreement, the Exchange Offer, the Acquisition of Purchaser and the Merger. Notwithstanding the foregoing, following the receipt of an offer or proposal that Target's Board, in the exercise of its reasonable good faith judgement, after consultation with its legal and financial advisors, deems to be a Superior Proposal, Target may terminate the Merger Agreement (subject to Target's obligations with respect to the payment of certain fees and expenses described further below) and accept such Superior Proposal, and Target's Board may approve or recommend (and, in connection therewith, withdraw or modify its approval and recommendation of the Offer, the Merger Agreement, the Axiohm Exchange, the Acquisition of Purchaser and the Merger). A "Superior Proposal" means a written proposal that has not been solicited by Target following the date of the Merger Agreement relating to the possible acquisition of Target or any of the Target Subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or any material portion of its or their capital stock or assets by any person other than by Parent or Purchaser, which proposal is, in the reasonable good faith judgment of Target's Board, after consultation with its legal and financial advisors, on financial and other terms more favorable to the shareholders of Target than the terms of the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, collectively, and which is made by a party that can reasonably be expected to consummate the transaction on the terms proposed. The Merger Agreement also provides that if Target or any of its subsidiaries receives any offer or proposal to enter negotiations relating to any of the above, Target shall as promptly as practicable, notify Parent or Purchaser thereof, including information as to the identity of the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and provide Parent or Purchaser with the same information (if any) Target provides to the party making the Superior Proposal. Target Stock Options. The Merger Agreement provides that the parties will take all actions with respect to the Company Outstanding Options such that the Options are treated as follows. Upon acceptance for payment of Shares by Purchaser pursuant to the Offer, all Vested Company Outstanding Options (as defined below), other than Company Outstanding Options held by certain individuals to be designated by Target, subject to the reasonable acceptance of Parent (the "Designated Optionees"), shall be cancelled and each holder thereof shall thereupon be paid by Target an amount, in cash, equal to the product of (i) the number of Shares subject to Vested Company Outstanding Options held by such holder and (ii) the Offer Price minus the exercise price applicable to such Vested Company Outstanding Options (the "Option Spread"), less applicable taxes. The Designated Optionees may elect, as to all or a portion of the individual's Vested Company Outstanding Options, to be covered under the preceding sentence or to receive the Option Spread on a deferred basis over a period not to exceed seven years following the Effective Time, subject to earlier distribution upon termination of the individual'semployment for any reason. Target shall also pay a tax subsidy payment on the Option Spread consisting of (i) a payment to reflect the federal and state tax rate differential between long-term capital gains and ordinary income, and (ii) a payment to reimburse the individual for taxes due as a result of the rate differential payment, provided that tax subsidy payments shall be limited so as to avoid triggering the golden 51 parachute excise tax under Sections 280G and 4999 of the Internal Revenue Code. For purposes of the foregoing, Vested Company Outstanding Options shall mean: (i) all Company Outstanding Options that are vested as of the date of acceptance for payment of Shares by Purchaser pursuant to the Offer or that would have vested through September 6, 1997; (ii) one-half of Company Outstanding Options issued to Walter Sobon; and (iii) all warrants outstanding under Target's Director Warrant Plan. All Company Outstanding Options other than Vested Company Outstanding Options ("Unvested Company Outstanding Options") shall remain outstanding and subject to the terms and conditions of the applicable Target option plan and option agreement, but shall be modified to provide for full vesting acceleration in the event the employee's employment is terminated (i) by Target other than for cause, or (ii) as the result of the employee's death or disability. Unvested Outstanding Company Options held by William Gibbs, Walter Sobon, David Ledwell and Janet Shanks shall also be modified to provide for acceleration upon a constructive termination of employment. In the event Target engages in a transaction prior to April 1, 2001, as a result of which Target's Common Stock is no longer registered under the Exchange Act, each holder of Unvested Company Outstanding Options shall be entitled to receive from the Company a cash payment equal to the product of (i) the number of Shares subject to Unvested Company Outstanding Options held by such holder and (ii) the Offer Price minus the exercise price applicable to such Unvested Company Outstanding Options, less applicable taxes. Directors' and Officers' Indemnification. The Merger Agreement provides that all rights to indemnification for acts or omissions occurring prior to the Effective Time now existing in favor of the current or former directors or officers (the "Indemnified Parties") of Target and its subsidiaries as provided in their respective articles of incorporation or By-laws (or similar organizational documents) or existing indemnification contracts in the form filed with the Commission shall survive the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger and shall continue in full force and effect in accordance with their terms. Additionally, for six years from the Effective Time, Target shall use commercially reasonable efforts to maintain in effect Target's current directors' and officers' liability insurance covering those persons who are currently covered by Target's directors' and officers' liability insurance policy; provided, however, that in no event shall Target be required to expend in any one year an amount in excess of 150% of the annual premiums currently paid by Target for such insurance and provided, further, that if the annual premiums of such insurance coverage exceed such amount, Target shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount. The Merger Agreement also provides that the Surviving Corporation shall pay all expenses, including attorney's fees, that may be incurred by any Indemnified Party in enforcing the indemnity described above and other obligations related thereto provided for in the Merger Agreement. Issuance of Target Warrants and Roll-Over Notes. The Merger Agreement provides that Target shall, in accordance with the Financing Letter, (A) upon the closing of the Offer and in accordance with the instructions of Parent, issue warrants, exercisable into an aggregate of 10% of the outstanding capital stock of Target (calculated after giving effect to the exercise of such warrants and all other outstanding warrants, options or other convertible securities) and containing such other terms and provisions as are contemplated in the Financing Letter, and to cause such warrants to be placed into an escrow account until such warrants are released to Lehman Brothers in accordance with the Financing Letter, and (B) at the Effective Date issue the Roll-Over Notes contemplated by the Financing Letter, in exchange for the Interim Preferred Stock, if the Interim Purchasers so elect. See "The Offer-- Source and Amount of Funds." Representations and Warranties. The Merger Agreement contains various customary representations and warranties of the parties thereto, including representations by Target and Parent and Purchaser as to the absence of certain changes or events concerning the such entity's corporate organization and qualification, capitalization, authority, filings with the Commission (if applicable) and other governmental authorities, financial statements, litigation, employee benefit matters, intellectual property, real property, taxes, insurance, environmental matters, material contracts and compliance with law. 52 Conditions to Consummation of the Axiohm Exchange. The Merger Agreement provides that the respective obligations of each party to effect the Axiohm Exchange shall be subject to the satisfaction at or prior to the Axiohm Exchange Closing of the following conditions: (a)No statute, rule, regulation, executive order, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) shall have been enacted, entered, promulgated or enforced by any U.S. federal or state court or governmental authority, or any French national or provincial court or governmental authority, as the case may be which prohibits, restrains, enjoins or restricts the consummation of the Axiohm Exchange; (b)Any waiting period applicable to the Axiohm Exchange under the HSR Act and French law, if applicable, shall have terminated or expired; (c)Purchaser shall own Shares representing at least the Minimum Condition (whether purchased pursuant to the Offer or otherwise acquired); and (d)Parent Holders owning at least a majority of the then outstanding Parent Shares shall have executed and delivered to Purchaser the Axiohm Purchase Agreements. Conditions to Consummation of the Acquisition of Purchaser. The Merger Agreement provides that the respective obligations of each party to effect the Acquisition of Purchaser shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a)No statute, rule, regulation, executive order, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) shall have been enacted, entered, promulgated or enforced by any U.S. federal or state court or governmental authority, or any French national or provincial court or governmental authority, as the case may be, which prohibits, restrains, enjoins or restricts the consummation of the Acquisition of Purchaser; (b)Any waiting period applicable to the Acquisition of Purchaser under the HSR Act and French law, if applicable, shall have terminated or expired; (c)Purchaser shall own Shares representing at least the Minimum Condition (whether purchased pursuant to the Offer or otherwise acquired), less the Exchange Shares; and (d)The Axiohm Exchange Closing shall have occurred. Conditions to Consummation of the Merger. The Merger Agreement provides that the respective obligations of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a)No statute, rule, regulation, executive order, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) shall have been enacted, entered, promulgated or enforced by any U.S. federal or state court or governmental authority, or any French national or provincial court or governmental authority, as the case may be which prohibits, restrains, enjoins or restricts the consummation of the Merger; (b)Any waiting period applicable to the Merger under the HSR Act, and French law, if applicable, shall have terminated or expired; (c)Purchaser shall own Shares representing at least the Minimum Condition (whether purchased pursuant to the Offer or otherwise acquired), less the Exchange Shares; (d)The Axiohm Exchange shall have been consummated; and (e)The Acquisition of Purchaser shall have occurred. 53 Termination. The Merger Agreement may be terminated and the Axiohm Exchange, the Acquisition of Purchaser and the Merger may be abandoned at any time prior to the Effective Time, notwithstanding any approval thereof by the shareholders of Target: (a)By mutual written consent of Parent, Purchaser and Target; (b)By Parent or Target if any court of competent jurisdiction or other governmental body located or having jurisdiction within the U.S., France or any country or economic region in which either Target or Parent, directly or indirectly, has material assets or operations, shall have issued a final order, decree or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger and such order, decree, ruling or other action is or shall have become final and nonappealable, except if the party relying on this clause (b) to terminate the Merger Agreement is in breach of any of its material obligations under the Merger Agreement; (c)By Parent if, (i) due to a failure of any of the Offer Conditions, Purchaser shall have (A) terminated the Offer or (B) failed to pay for Shares pursuant to the Offer within 60 days (or 90 days if there has been a second request under the HSR Act) following the date of the Merger Agreement, unless such termination or failure has been caused by or results from (x) a breach of any representation or warranty on the part of Parent or Purchaser contained in the Merger Agreement that has a Material Adverse Effect on Parent or Purchaser or (y) there shall have been any breach of any covenant or agreement on the part of Parent or Purchaser contained in the Merger Agreement that has a Material Adverse Effect on Parent or Purchaser or (ii) Target's Board shall have withdrawn or modified (including by amendment of the Schedule 14D-9) in a manner adverse to Purchaser its approval or recommendation of the Offer, the Merger Agreement, the Axiohm Exchange, the Acquisition of Purchaser or the Merger or shall have approved or recommended another offer or transaction, or shall have resolved to effect any of the foregoing; and (d)By Target (i) if Purchaser shall not have commenced the Offer within five days of the date on which Purchaser's intention to make the Offer is publicly announced; (ii) if the Offer shall not have been consummated within 60 days (or 90 days if there has been a second request under the HSR Act) following the date of the Merger Agreement; (iii) if due to a failure of any of the Offer Conditions, Purchaser shall have terminated the Offer, unless such termination has been caused by or results from (A) a breach of any representation or warranty on the part of Target contained in the Merger Agreement that has a Material Adverse Effect on Target or could reasonably be expected to materially adversely affect (or materially delay) the consummation of the Offer or (B) there shall have been any breach of any covenant or agreement on the part of Target contained in this Agreement that has a Material Adverse Effect on Target or could reasonably be expected to materially adversely affect (or materially delay) the consummation of the Offer; or (iv) in connection with its determination to pursue a Superior Proposal pursuant to the Merger Agreement; provided that such termination under clause (iv) shall not be effective until Target has made payment of the Initial Fee required by the Merger Agreement. Fees. The Merger Agreement provides that (i) in the event that the Merger Agreement is terminated pursuant to Section 8.1(d)(iv) thereof (item (d)(iv) above), Target shall pay to Parent, in same day funds, upon demand, an amount equal to $2.6 million (the "Initial Fee") and that (ii) in addition to the Initial Fee, in the event that (x) a proposal with respect to an Acquisition Transaction (as defined in the Merger Agreement) is commenced by Target, publicly proposed, publicly disclosed or communicated to Target or any representative or agent thereof after the date of the Merger Agreement and prior to the date of termination of the Merger Agreement, (y) the Merger Agreement is thereafter terminated pursuant to Section 8.1(c) or 8.1(d) (items (c) and (d) above), and (z) within six months following such termination, an Acquisition Transaction is consummated or Target enters into an agreement relating thereto, then, in any such event, Target shall pay Parent, in same day funds, promptly (but in no event later than one business day after the first of such events shall have occurred) an additional fee of $3.9 million (the "Subsequent Fee"). In the event that Target shall fail to pay either the Initial Fee or the Subsequent Fee, the terms "Initial Fee" and/or "Subsequent Fee" shall be deemed to include the costs and expenses actually incurred or accrued by 54 Parent, Purchaser and their respective shareholders and affiliates (including, without limitation, fees and expenses of counsel) in connection with the collection under and enforcement of Section 8.3 of the Merger Agreement, together with interest on such unpaid Fee, commencing on the date that the applicable Fee became due. The Merger Agreement also provides that, in the event that Parent or Purchaser shall have terminated the Offer due solely to a failure of the financing condition described in subsection (c) of Annex A to the Merger Agreement (See "The Offer--Certain Conditions of the Offer") and the failure of such Offer Condition was not a result, directly or indirectly, of (i) any event or condition having a Material Adverse Effect on Target or (ii) any misrepresentation made by any of Parent, Purchaser or IPB to Lehman or its affiliates which was based upon information provided by Target to Parent, Purchaser or IPB then Parent shall reimburse Target for the out-of-pocket expenses incurred by Target in connection with the Merger Agreement and the transactions contemplated thereby, up to a maximum reimbursement of $1.0 million. Except as set forth above, all costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby shall be paid by the party incurring such expenses, whether or not any such transaction is consummated. 15.DIVIDENDS AND DISTRIBUTIONS The Merger Agreement provides that Target shall not, between the date of the Merger Agreement and the Effective Time, without the prior written consent of Parent, (a) authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any other securities or equity equivalents (including, without limitation, any stock options or stock appreciation rights) and (except shares of Target Common Stock issuable upon exercise of outstanding stock options on the date of the Merger Agreement) or amend any of the terms of any such securities or agreements outstanding as of the date of the Merger Agreement, except as specifically contemplated by the Merger Agreement or (b) split, combine or reclassify any shares of its capital stock, declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem or otherwise acquire any of its securities or any securities of Target's subsidiaries. If on or after the date of the Merger Agreement, Target should (a) split, combine or otherwise change its Common Stock or its capitalization, (b) acquire shares of its Common Stock or otherwise cause a reduction in the number of outstanding shares of its Common Stock, (c) issue or sell additional shares of its Common Stock (other than shares of its Common Stock issued or sold upon the exercise of employee stock options outstanding on the date of the Merger Agreement in accordance with their terms) or shares of its Common Stock of any other class of capital stock, other voting securities or any securities convertible into, or rights, warrants or options, conditional or otherwise, to acquire, any of the foregoing, or (d) disclose that it has taken any such action, then without prejudice to Purchaser's rights under the provisions of "The Offer--Terms of the Offer, Proration and Expiration Date" and "The Offer--Certain Conditions of the Offer," Purchaser, in its sole discretion, may (subject to the provisions of the Merger Agreement) make such adjustments as it deems appropriate in the Offer Price and other terms of the Offer, including, without limitation, the number or type of securities offered to be purchased. If, on or after the date of the Merger Agreement, Target should declare or pay any cash dividend on the shares of its Common Stock or make any other distribution on such shares, or issue with respect to such shares of its Common Stock any additional shares of its Common Stock, shares of any other class of capital stock, other voting securities or any securities convertible into, or rights, warrants or options, conditional or otherwise, to acquire, any of the foregoing, payable or distributable to shareholders of record on a date prior to the transfer of the shares of its Common Stock purchased pursuant to the Offer to Purchaser or its nominee or transferee on Target's stock transfer records, then, subject to the provisions of "The Offer--Terms of the Offer, Proration and Expiration Date" and "The Offer--Certain Conditions of the Offer" below, (a) the Offer Price may (subject to the terms of the Merger Agreement), in the sole discretion of Purchaser, be reduced by the amount of any such 55 cash dividend or cash distribution and (b) the whole of any such noncash dividend, distribution or issuance to be received by the tendering shareholders will (i) be received and held by the tendering shareholders for the account of Purchaser and will be required to be promptly remitted and transferred by each tendering shareholder to the Depositary for the account of Purchaser, accompanied by appropriate documentation of transfer, or (ii) at the direction of Purchaser, be exercised for the benefit of Purchaser, in which case the proceeds of such exercise will promptly be remitted to Purchaser. Pending such remittance and subject to applicable law, Purchaser will be entitled to all rights and privileges as owner of any such noncash dividend, distribution, issuance, proceeds or rights and may withhold the entire Offer Price or deduct from the Offer Price the amount of value thereof, as determined by Purchaser in its sole discretion. Target has never paid dividends on its Common Stock nor does it expect to pay dividends in the foreseeable future. 16.CERTAIN CONDITIONS OF THE OFFER Notwithstanding any other provision of the Offer, Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, including Rule 14e-l(c) under the Exchange Act (relating to Purchaser's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for any Shares tendered pursuant to the Offer, and may postpone the acceptance for payment or, subject to the rules and regulations of the Commission, payment for any Shares tendered pursuant to the Offer, and may amend or terminate the Offer in accordance with the Merger Agreement if, prior to the expiration of the Offer, (i) at least 6.5 million Shares shall not have been validly tendered and not properly withdrawn prior to the expiration of the Offer or (ii) at any time on or after the date hereof and prior to the acceptance for payment of or payment for Shares, any one or more of the following conditions occurs or has occurred: (a)there shall have been instituted or pending any action or proceeding brought by any governmental authority before any federal or state court, or any order or preliminary or permanent injunction entered in any action or proceeding before any federal or state court or governmental, administrative or regulatory authority or agency, or any other action taken, or statute, rule, regulation, legislation, interpretation, judgment or order enacted, entered, enforced, promulgated, amended, issued or deemed applicable to Parent, Purchaser, Target or any subsidiary or affiliate of Purchaser or Target or the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger, by any legislative body, court, government or governmental, administrative or regulatory authority or agency that would reasonably be expected to have the effect of: (i) making illegal, materially delaying or otherwise directly or indirectly restraining or prohibiting the making of the Offer, the acceptance for payment of, or payment for, some of or all the Shares by Purchaser or any of its affiliates or the consummation of any of the transactions contemplated by the Merger Agreement or materially delaying the Axiohm Exchange, the Acquisition of Purchaser or the Merger; (ii) prohibiting or materially limiting the ownership or operation by Target or any of its subsidiaries or Parent, Purchaser or any of Parent's affiliates of all or any material portion of the business or assets of Target or any of its subsidiaries or Parent, or any of its affiliates, or compelling Parent, Purchaser or any of Parent's affiliates to dispose of or hold separate all or any material portion of the business or assets of Target or any of its subsidiaries or Parent, or any of its affiliates, as a result of the transactions contemplated by the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger Agreement; (iii) imposing or confirming limitations on the ability of Parent, Purchaser or any of Parent's affiliates or shareholders effectively to acquire or hold or to exercise full rights of ownership of Shares, including without limitation the right to vote any Shares acquired or owned by Parent or Purchaser or any of its affiliates or shareholders on all matters properly presented to the shareholders of Target, including without limitation the adoption and approval of the Merger Agreement, the Axiohm Exchange, the Acquisition of Purchaser and the Merger or the right to vote any shares of capital stock of any subsidiary directly or indirectly owned by Target; or (iv) requiring divestiture by Parent or Purchaser or any of their affiliates of any Shares; provided, that Parent and Purchaser shall have used all reasonable efforts to cause any such judgment, order or injunction to be vacated or lifted; 56 (b)there shall have occurred any event that is reasonably likely to have a Material Adverse Effect on the Purchaser; (c)Purchaser shall not have received financing sufficient to acquire the Maximum Number of the Shares tendered in the Offer (as amended pursuant to the Merger Agreement) and to pay the anticipated expenses in connection therewith and with the Axiohm Exchange, the Acquisition of Purchaser and the Merger; (d)the Company shall not have taken all actions with respect to the Company Outstanding Options contemplated by Annex B to the Merger Agreement or the Executives (as defined in the Merger Agreement) shall not have executed Option Agreements (as defined in the Merger Agreement); (e)there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the U.S., (ii) a material disruption of or material adverse change in financial, banking or capital market conditions in the U.S. or France or a declaration of a banking moratorium by French, U.S. or New York State banking officials, (iii) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly materially adversely affecting (or materially delaying) the consummation of the Offer or (iv) in the case of any of the foregoing existing at the time of commencement of the Offer, a material acceleration or worsening thereof; (f)(i) it shall have been publicly disclosed or Purchaser shall have otherwise learned that beneficial ownership (determined for the purposes of this paragraph as set forth in Rule 13d-3 promulgated under the Exchange Act) of more than 20% of the outstanding Shares has been acquired by any corporation (including Target or any of its subsidiaries or affiliates), partnership, person or other entity or group (as defined in Section 13(d)(3) of the Exchange Act), other than Parent or any of its affiliates, or (ii) (A) Target's Board or any committee thereof shall have withdrawn or modified in a manner adverse to Parent or Purchaser the approval or recommendation of the Offer, the Axiohm Exchange, the Acquisition of Purchaser, the Merger or the Merger Agreement, or approved or recommended any takeover proposal or any other acquisition of more than 5% of the outstanding Shares other than the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, (B) any corporation, partnership, person or other entity or group shall have entered into a definitive agreement or an agreement in principle with Target with respect to a tender offer or exchange, offer for any Shares or a merger, consolidation or other business combination with or involving Target or any of its subsidiaries, or (C) Target's Board or any committee thereof shall have resolved to do any of the foregoing; (g)any of the representations and warranties of Target set forth in the Merger Agreement shall not be true and correct, as if such representations and warranties were made at the time of such determination, and the failure of all such representations and warranties, together in their entirety, to be true and correct has a Material Adverse Effect on Target; (h)Target shall have failed to perform in any material respect any obligation or to comply in any material respect with any agreement or covenant of Target to be performed or complied with by it under the Merger Agreement, and (i) Target fails to cure any such failure within ten business days after written notice from the Purchaser and (ii) the failure to comply with such agreement or covenant has a Material Adverse Effect on Target; (i)the Merger Agreement shall have been terminated in accordance with its terms or the Offer shall have been terminated with the consent of Target; or (j)any waiting periods under the HSR Act applicable to the purchase of Shares pursuant to the Offer shall not have expired or been terminated, or any material approval, permit, authorization or consent of any domestic or foreign governmental, administrative or regulatory agency (federal, state, local, provincial or otherwise) shall not have been obtained on terms satisfactory to the Parent in its reasonable discretion and the failure to obtain such approval, permit, authorization or consent has a Material Adverse Effect on Target. 57 The foregoing conditions are for the sole benefit of Purchaser and may be asserted by Purchaser regardless of the circumstances giving rise to any such condition (except for any action or inaction by Purchaser or any of its affiliates constituting a breach of the Merger Agreement) or may be waived by Purchaser in whole or in part at any time and from time to time in its sole discretion (subject to the terms of the Merger Agreement). The failure by Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. 17.CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS General. Except as described in this Section, based on its review of Target, neither Parent nor Purchaser is aware of any license or regulatory permit that appears to be material to the business of Target and its subsidiaries, taken as a whole, that might be adversely affected by Purchaser's acquisition of Shares (and/or the indirect acquisition of the stock of Target's subsidiaries) as contemplated herein or of any approval or other action by or with any domestic, foreign or international government authority or administrative or regulatory agency that would be required for the acquisition or ownership of the Shares (and/or the indirect acquisition of the stock of Target's subsidiaries) by Purchaser. Should any such approval or other action be required, Purchaser currently contemplates that such approval or other action will be sought, except as described below under "State Takeover Laws." While, except as otherwise expressly described in this Section, Purchaser does not presently intend to delay the acceptance for payment of or payment for Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no assurance that any such approval or other action, if needed, would be obtained without substantial conditions or that failure to obtain any such approval or other action might not result in consequences adverse to Target's business or that certain parts of Target's business might not have to be divested if such approvals were not obtained or such other actions were not taken, any of which could cause Purchaser to decline to accept for payment or pay for any Shares tendered. Purchaser's obligations to accept for payment or pay for the Shares tendered pursuant to the Offer is subject to certain conditions set forth in this Offer, including the conditions set forth above in this paragraph and with respect to litigation and governmental action as contemplated herein. See "The Offer--Certain Conditions of the Offer." Section 1203 ("Section 1203") California General Corporation Law. Target is incorporated under the laws of the State of California. Section 1203 provides that if a tender offer is made to some or all of a corporation's shareholders by an interested party, an affirmative opinion in writing as to the fairness of the consideration to the shareholders of that corporation shall be delivered to the shareholders at the time that the tender offer is first made in writing to the shareholders. However, if the tender offer is commenced by publication and tender offer materials are subsequently mailed or otherwise distributed to the shareholders, the opinion may be omitted in that publication if the opinion is included in the materials distributed to the shareholders. For purposes of Section 1203, the term "interested party" includes, among other things, a person who is a party to the transaction and (A) directly or indirectly controls the corporation that is the subject of the tender offer or proposal, (B) is, or is directly or indirectly controlled by, and officer or director of the subject corporation, or (C) is an entity in which a material financial interest is held by any director or executive officer of the subject corporation. While none of Target, Parent or Purchaser believes that the Offer constitutes a transaction which falls within the provisions of Section 1203, an independent financial advisor, Prudential, has been retained by Target to provide a fairness opinion with respect to the Offer. State Takeover Laws. Target is incorporated under the laws of the State of California. A number of states throughout the U.S. have enacted takeover statutes that purport, in varying degrees, to be applicable to attempts to acquire securities of corporations that are incorporated or have assets, shareholders, executive offices or places of business in such states. In Edgar v. MITE Corp., the Supreme Court of the United States held that the Illinois Business Takeover Act, which involved state securities laws that made the takeover of certain corporations more difficult, imposed a substantial burden on interstate commerce and therefore was unconstitutional. In CTS Corp. 58 v. Dynamics Corp. of America, however, the Supreme Court of the United States held that a state may, as a matter of corporate law and, in particular, those laws concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without prior approval of the remaining shareholders, provided that such laws were applicable only under certain conditions. Target, directly or through subsidiaries, conducts business in a number of states throughout the U.S., some of which have enacted "takeover" statutes. Purchaser does not know whether any of these state takeover statutes will, by their terms, apply to the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger. Purchaser has not currently complied with any state takeover statute or regulation. To the extent that certain provisions of these statutes purport to apply to the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger, Purchaser believes that there are reasonable bases for contesting such statutes. Purchaser reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger and nothing in this Offer to Purchase or any action taken in connection with the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger is intended as a waiver of such right. If it is asserted that any state takeover statute is applicable to the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger and an appropriate court does not determine that such statute is inapplicable or invalid as applied to the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger, then Purchaser may be required to file certain information with, or to receive approvals from, the relevant state authorities, and Purchaser may be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in consummating the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger. In such case Purchaser may not be obliged to accept for payment or pay for any Shares tendered pursuant to the Offer. See "The Offer--Certain Conditions of the Offer." Antitrust. Under the HSR Act and the rules that have been promulgated thereunder by the FTC, certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division and the FTC and certain waiting period requirements have been satisfied. The acquisition of Shares by Purchaser pursuant to the Offer is subject to such requirements. See "The Offer--Acceptance for Payment and Payment." Pursuant to the HSR Act, on July 16, 1997, Parent filed a Premerger Notification and Report Form in connection with the purchase of Shares pursuant to the Offer with the Antitrust Division and the FTC. Under the provisions of the HSR Act applicable to the Offer, the purchase of Shares pursuant to the Offer may not be consummated until the expiration of a 15- calendar day waiting period following the filing by Parent. Accordingly, the waiting period under the HSR Act applicable to the purchase of Shares pursuant to the Offer will expire at 11:59 p.m., New York City time, on July 31, 1997, unless such waiting period is earlier terminated by the FTC and the Antitrust Division or extended by a request from the FTC or the Antitrust Division for additional information or documentary material prior to the expiration of the waiting period. Pursuant to the HSR Act, Parent has requested early termination of the waiting period applicable to the Offer. There can be no assurance, however, that the 15-day HSR Act waiting period will be terminated early. If either the FTC or the Antitrust Division were to request additional information or documentary material from Parent with respect to the Offer, the waiting period with respect to the Offer would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Parent with such request. Thereafter, the waiting period could be extended only by court order. If the acquisition of Shares is delayed pursuant to a request by the FTC or the Antitrust Division for additional information or documentary material pursuant to the HSR Act, the Offer may, but need not, be extended and, in any event, the purchase of and payment for Shares will be deferred until ten days after the request is substantially complied with, unless the extended period expires on or before the date when the initial 15- day period would otherwise have expired, or unless the waiting period is sooner terminated by the FTC and the Antitrust Division. Only one extension of such waiting period pursuant to a request for additional information is authorized by the HSR Act and the rules promulgated thereunder, except by court order. Any such extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. See "The Offer--Withdrawal Rights." It is a condition to the Offer that the 59 waiting period applicable under the HSR Act to the Offer expire or be terminated. See "The Offer--Acceptance for Payment and Payment" and "The Offer--Certain Conditions of the Offer." The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of Shares by Purchaser pursuant to the Offer. At any time before or after the purchase of Shares pursuant to the Offer by Purchaser, the FTC or the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or seeking the divestiture of Shares purchased by Purchaser or the divestiture of substantial assets of Parent, Target or their respective subsidiaries. Private parties and state attorneys general may also bring legal action under federal or state antitrust laws under certain circumstances. Based upon an examination of information available to Parent relating to the businesses in which Parent, Target and their respective subsidiaries are engaged, Parent and Purchaser believe that the Offer will not violate the antitrust laws. Nevertheless, there can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such a challenge is made, what the result would be. See "The Offer--Certain Conditions of the Offer," for certain conditions to the Offer, including conditions with respect to litigation. Should one or more merger notifications be required in foreign jurisdictions, they shall be made at the appropriate time if necessary. 18.FEES AND EXPENSES Purchaser has retained Lehman to act as the Dealer-Manager and to provide certain financial advisory services in connection with the acquisition of Target. Parent has agreed to pay Lehman a fee of $1.0 million for such services. In addition, Target has agreed to reimburse Lehman for all out-of- pocket expenses incurred by it, including the reasonable fees of its counsel, and to indemnify Lehman and certain related persons against certain liabilities and expenses, including certain liabilities under the federal securities laws. In addition, it is anticipated that an aggregate of approximately $8.0 million of fees and expenses (including the fees of the Dealer-Manager) will be incurred by Target in connection with the Offer, the Axiohm Exchange, the Acquisition of the Purchaser and the Merger. Such amounts include usual and customary fees for accounting, lending, legal, printing, appraisal, consulting, and related services, including fees payable to Lehman. Parent has retained Georgeson & Company Inc. to act as the Information Agent and The Bank of New York to act as the Depositary. In connection with the Offer, the Information Agent and the Depositary each will receive reasonable and customary compensation for its services, will be reimbursed for certain reasonable out-of-ppocket expenses and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. Purchaser will not pay any fees or commissions to any broker or dealer or other person (other than the Dealer-Manager and the Information Agent) to solicit tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust companies will be reimbursed by Purchaser upon request for customary mailing and handling expenses incurred by them in forwarding material to their customers. It is estimated that the expenses incurred by Purchaser in connection with the Offer will be approximately as set forth below: Filing fees...................................................... $ 35,000 Legal Fees and Expenses.......................................... 1,000,000 Accounting Fees and Expenses..................................... 250,000 Investment Banking Fees and Expenses............................. 3,950,000 Depositary and Information Agent Fees and Expenses............... 25,000 Printing and Mailing Fees........................................ 75,000 Miscellaneous.................................................... 265,000 ---------- Total.......................................................... $5,600,000
The above estimate of fees does not include any fees and expenses incurred by Purchaser or Target in connection with the Axiohm Exchange, the Acquisition of Purchaser or the Merger. Target will not be responsible or pay for any of the expenses incurred by Purchaser in connection with the Offer, prior to the Merger. 60 19.MISCELLANEOUS The Offer is not being made to (nor will tenders be accepted from or on behalf of) shareholders residing in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. Purchaser is not aware of any jurisdiction in which the making of the Offer or the tender of Shares in connection therewith would not be in compliance with the laws of such jurisdiction. If Purchaser becomes aware of any valid state law prohibiting the making of the Offer or the acceptance of Shares pursuant thereto in such state, Purchaser will make a good faith effort to comply with any such state statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, Purchaser cannot comply with any such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF PURCHASER NOT CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS OFFER TO PURCHASE NOR ANY PURCHASE PURSUANT TO THE OFFER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PURCHASER OR TARGET SINCE THE DATE AS OF WHICH INFORMATION IS FURNISHED OR THE DATE OF THIS OFFER TO PURCHASE. Purchaser and Parent have filed with the Commission a Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3 under the Exchange Act that provides certain additional information with respect to the Offer. In addition, Target has filed with the Commission a Schedule 14D-9, together with exhibits, pursuant to Rule 14d-9 under the Exchange Act, setting forth its recommendation and the recommendations of the members of Target's Board with respect to the Offer and the reasons for such recommendations and furnishing certain additional related information. Such Schedules and any amendments thereto, including exhibits, may be inspected and copies may be obtained from the Commission in the manner set forth in "The Offer--Certain Information Concerning Target" (except that they will not be available at the regional offices of the Commission). 61 ANNEX A DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER AND PARENT The name, business address, present principal occupation or employment and employment history for the five years prior to the date hereof of each of the directors and executive officers of Purchaser and Parent are set forth below. All directors and executive officers listed below are citizens of France.
PRINCIPAL OCCUPATION OR EMPLOYMENT FIVE YEAR NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY ------------------------- -------------------------------------------- Bernard Patry.............. Mr. Patry has served as a director of Parent since BP 675-1 a 9, rue d'Arcueil 1988. Mr. Patry is currently the Vice President of 92 542 Montrouge Cedex, Sales of Parent, a position he has held since France 1996. From 1991 to 1995, Mr. Patry was the Chief Executive Officer of Parent and from 1995 to 1996, he was Vice President of Marketing and Business Development of Parent. Nicolas Dourassof.......... Mr. Dourassof has served as a director of Parent 23, rue Balzac since 1996. Mr. Dourassof is currently a Managing 75008 Paris, Director of ABN AMRO Investissement, the France investment subsidiary of ABN AMRO (a Dutch bank), a position he has held since 1996. Prior to joining ABN AMRO Investissement, Mr. Dourassof had served as the Director of the Acquisition Financing Department of Banque de Neuflize, Schlumberger Mallet (NSM), subsidiary of ABN AMRO, since 1995. Prior to joining Banque de Neuflize, Mr. Dourassof commanded Alcyon, Commandant Jacques Cousteau's second ship, for which Mr. Dourassof served as designer and architect. Prior to 1995, Mr. Dourassof attended business school and served as a Naval architect. Gonzague de Blignieres..... Mr. de Blignieres has served as a director of 19, avenue de l'Opera Parent since 1996. Mr. de Blignieres is currently 75001 Paris, the General Manager of Barclay's Capital France Development, an investment subsidiary of Barclay's, a position he has held since 1992. Gilles Gibier.............. Mr. Gibier is a director and the Secretary and BP 675-1 a 9, rue d'Arcueil Treasurer of Purchaser. Mr. Gibier has also served 92 542 Montrouge Cedex, as a director of Parent since 1988. Since 1988, France Mr. Gibier has also been a Co-Chairman and fifty- percent shareholder of Dardel Technologies, S.A., a French holding company which is a principal shareholder of Parent. Jean-George Huglin......... Mr. Huglin has served as a director of Parent BP 675-1 a 9, rue d'Arcueil since 1988. Mr. Huglin is currently the Chief 92 542 Montrouge Cedex, Financial Officer of Parent, a position he has France held since June of 1995. Prior to joining Parent, Mr. Huglin held the position of Chief Financial Officer of Dardel Technologies, S.A., a French holding company which is a principal shareholder of Parent, since September 1992. Between May 1992 and September 1992 Mr. Huglin served as the Managing Director of Enerdis, S.A., a manufacturer of measuring equipment which is owned by Dardel. Patrick Dupuy.............. Mr. Dupuy is a director and the President of BP 675-1 a 9, rue d'Arcueil Purchaser. Mr. Dupuy has also served as a director 92 542 Montrouge Cedex, and the Chairman of Parent since 1988. Since 1988, France Mr. Dupuy has also been a Co-Chairman and fifty- percent shareholder of Dardel Technologies, S.A., a French holding company which is a principal shareholder of Parent.
A-1 ANNEX B REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Axiohm S.A. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and retained earnings and of cash flows present fairly, in all material respects, the financial position of Axiohm S.A. and its subsidiaries (the "Company") at December 31, 1996 and 1995 and the results of their operations and their cash flows for the years then ended in conformity with United States generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with United States generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse Paris, June 27, 1997 B-1 CONSOLIDATED FINANCIAL INFORMATION AXIOHM S.A. CONSOLIDATED BALANCE SHEET (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
NOTE DECEMBER 31, ---- --------------- 1996 1995 ------- ------- CURRENT ASSETS: Cash and cash equivalents............................... $ 1,839 $ 636 Accounts receivable, net................................ 2 10,552 9,700 Inventories, net........................................ 3 13,900 13,506 Other current assets.................................... 3,286 2,435 ------- ------- Total current assets................................... $29,577 $26,277 Property, plant and equipment, net...................... 4 11,235 11,002 Goodwill................................................ 5 2,606 2,254 Other assets............................................ 560 651 ------- ------- Total Assets........................................... $43,978 $40,184 ======= ======= CURRENT LIABILITIES: Accounts payable........................................ $ 7,480 $ 6,675 Bank overdraft.......................................... -- 545 Current portion of long-term debt....................... 7 1,267 1,748 Current portion of financing obligation................. 8 139 84 Current portion of government grant obligations......... 10 916 327 Other current liabilities............................... 6 5,703 4,185 ------- ------- Total current liabilities.............................. $15,505 $13,564 Long-term debt.......................................... 7 4,821 13,087 Capital lease and financing obligation.................. 8 1,543 1,662 Government grant obligations............................ 10 1,846 2,600 Deferred income taxes................................... 12 1,557 1,482 Other long-term liabilities............................. 2,273 1,812 ------- ------- Total Liabilities...................................... $27,545 $34,207 ======= ======= Commitments and contingencies........................... 9 SHAREHOLDERS' EQUITY: 14 Common stock, ordinary shares "A" par value FF 500 at December 31, 1996 and FF 100 at December 31, 1995; 38,405 shares authorized and outstanding at December 31, 1996; 38,000 shares authorized and outstanding at December 31, 1995 Common stock, ordinary shares "B" par value FF 500, 2,735 shares authorized and outstanding at December 31, 1996................................................... $ 3,841 $ 616 Capital in excess of par value.......................... 326 66 Retained earnings....................................... 12,149 5,434 Foreign currency translation adjustment................. 117 (139) ------- ------- Total Shareholders' Equity............................. $16,433 $ 5,977 ======= ======= Total Liabilities and Shareholders' Equity............. $43,978 $40,184 ======= =======
The accompanying notes are an integral part of the consolidated financial statements B-2 AXIOHM S.A. CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED NOTE DECEMBER 31, ---- ---------------- 1996 1995 ------- ------- Revenue................................................. $95,302 $72,155 Costs and expenses: Costs of products sold................................. (66,390) (52,202) Selling, general and administrative.................... (10,972) (8,807) Research and development............................... (6,648) (5,836) Goodwill amortization.................................. 5 (200) (161) ------- ------- Total costs and expenses................................ (84,210) (67,006) Income from operations.................................. 11,092 5,149 Interest expense, net................................... (874) (1,731) Other income/(expenses), net............................ 992 (393) ------- ------- Income before income taxes.............................. 11,210 3,025 Provision for income taxes.............................. 12 (4,406) (1,095) ------- ------- Net income.............................................. $ 6,804 $ 1,930 ======= =======
The accompanying notes are an integral part of the consolidated financial statements B-3 AXIOHM S.A. CONSOLIDATED STATEMENTS OF CASH FLOW (IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED DECEMBER 31, ---------------- 1996 1995 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................. $ 6,804 $ 1,930 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............................. 2,921 2,696 Deferred income taxes...................................... 458 (155) Provision for inventory obsolescence....................... 87 1,040 Provision for long-term liabilities........................ 461 184 Other...................................................... 213 36 Effect on cash of changes in operating assets and liabili- ties: (Increase) in accounts receivable.......................... (2,215) (4,659) (Increase) in inventories.................................. (823) (1,896) (Increase) in other current assets......................... (517) (248) Increase in accounts payable............................... 2,700 160 Increase in other current liabilities...................... 1,137 1,371 Increase in income tax payable............................. 618 678 (Decrease) in deferred revenue............................. (107) (130) ------- ------- Net cash provided by operating activities.................. $11,737 $ 1,007 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures....................................... $(3,056) $(2,955) Proceeds from disposition of property, plant and equipment. 71 53 Other...................................................... (12) (123) ------- ------- Net cash used in investing activities...................... $(2,997) $(3,025) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Bank overdraft............................................. (545) 409 Net borrowings under lines of credit....................... (128) 953 Proceeds from long-term debt............................... -- 1,000 Principal repayments under long-term debt.................. (8,446) (4,992) Proceeds from government grant............................. 338 2,204 Proceeds from financing arrangements (Note 8).............. -- 1,600 Repayment of government grant.............................. (308) (196) Principal repayments under financing obligations........... (119) (36) Payments of dividends...................................... (411) -- Proceeds from stock issuance, net of issuance costs........ 3,807 -- Loans to related parties................................... (1,851) -- ------- ------- Net cash used in financing activities........................ $(7,663) $ 942 ------- ------- Effect of foreign exchange rate changes on cash and cash equivalents................................................. $ 126 $ 216 ------- ------- Change in cash and cash equivalents.......................... $ 1,203 $ (860) Cash and cash equivalents at beginning of year............... 636 1,496 ------- ------- Cash and cash equivalents at end of year..................... $ 1,839 $ 636 ======= ======= SUPPLEMENTAL CASH FLOW DISCLOSURES: CASH PAID DURING THE YEAR FOR: Interest.................................................... $ 845 $ 1,649 Income taxes, net of refunds................................ 3,245 604 NON-CASH TRANSACTIONS Capital lease obligation.................................... $ 163 $ 1,750 Accrual for contingent purchase price consideration (Note 9)......................................................... 552 --
The accompanying notes are an integral part of the consolidated financial statements B-4 AXIOHM S.A. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
NUMBER OF SHARES COMMON STOCK ------------------------------- FOREIGN CLASS CLASS CAPITAL IN CURRENCY -------------------------------EXCESS OF RETAINED TRANSLATION A B A B PAR VALUE EARNINGS ADJUSTMENT TOTAL -------- --------------- ---------------- -------- ----------- ------- BALANCE AT JANUARY 1, 1995................... 38,000 -- $ 616 -- $ 66 $ 3,504 $ 116 $ 4,302 Net income.............. -- -- -- -- -- 1,930 -- 1,930 Translation adjustment.. -- -- -- -- -- -- (255) (255) BALANCE AT DECEMBER 31, 1995................... 38,000 -- $ 616 -- $ 66 $ 5,434 $(139) $ 5,977 Issuance of Common Stock "A"............... 405 -- 8 -- 489 -- -- 497 Issuance of Common Stock "B".............. -- 2,735 -- 52 3,297 -- -- 3,349 Stock issuance costs.... -- -- -- -- (39) -- -- (39) Increases in nominal value of each share from FF 100 to FF 500.. -- -- 2,955 210 (3,165) -- -- -- Allocation to non distributable reserves. -- -- -- -- (322) 322 -- -- Dividends............... -- -- -- -- -- (411) -- (411) Net income.............. -- -- -- -- -- 6,804 -- 6,804 Translation adjustment.. -- -- -- -- -- -- 256 256 -------- ------- ------- ----- ------ ------- ----- ------- BALANCE AT DECEMBER 31, 1996................... 38,405 2,735 $ 3,579 $ 262 $ 326 $12,149 $ 117 $16,433 ======== ======= ======= ===== ====== ======= ===== =======
The accompanying notes are an integral part of the consolidated financial statements B-5 AXIOHM S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED) 1)DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business Axiohm S.A. (the "Company") designs, develops, manufactures and services printers, printer components and printing systems utilizing thermal and impact technologies. The Company's customers include major point of sales ("POS") providers, gasoline pump manufacturers, banking systems suppliers and other manufacturers of equipment printing slips, tickets or receipts. The Company operates on a worldwide basis with significant activities in North America and Europe. Basis of presentation The financial statements of the Company include the accounts of its wholly- owned subsidiaries in the United States, Hong Kong and Japan. All intercompany accounts and transactions have been eliminated. These accompanying financial statements have been presented in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). Use of estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of revenue and expenses during the reporting period. Actual results could differ from estimates. Goodwill The Company amortizes costs in excess of the fair value of companies acquired using the straight line method over a period of fifteen years. Property, plant and equipment Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the following estimated useful lives of the related assets: Buildings..................................................... 20 or 40 years Machinery and equipment....................................... 3 to 5 years Molds and tooling............................................. 3 to 5 years Furniture and fixtures........................................ 3 to 7 years Computer software............................................. 1 to 3 years
Inventories Inventories are valued at the lower of cost or market, cost being determined using the first in, first out ("FIFO") method. Cash and cash equivalents Cash equivalents consist principally of short term highly liquid money market funds with original maturities of less than three months. Revenues Revenue from product sales is recognized at the time of shipment. Service revenue is recognized upon completion of the service activity and the shipment of the repaired product to the customer. B-6 AXIOHM S.A. NOTES TO THE FINANCIAL CONSOLIDATED STATEMENTS--(CONTINUED) (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED) Research & development expenditures Research and development expenditures are expensed as incurred. Certain government research grants, which are repayable in the event that the related research project proves to be successful, are recognized in income when the research project has been determined to be unsuccessful and all other conditions of earning the grant have been met. Translation of financial statements The Company's financial results have been reported in U.S. dollars. The functional currencies of the Company's subsidiaries are the local currencies where the subsidiaries operate. When translating local currency based financial statements into U.S. dollars, assets and liabilities are translated at the year end rate unless hedged by forward foreign exchange contracts, in which case the rates specified in such forward contracts are used, while income and expenses are translated using the average rate for the year. Translation differences are presented as a component of shareholders' equity. Foreign Currency Hedges The Company uses forward foreign exchange contracts and options in its management of currency risks. The Company does not hold or issue derivative financial instruments for trading purposes. Unrealized gains and losses on forward contracts to hedge specific future currency transactions are deferred and recognized against the matching losses and gains on the specific transactions. Concentration of credit risk The Company sells products to various companies across several industries throughout the world. The Company performs on-going credit evaluations of its customers and maintains reserves for potential credit losses, and such losses have been within management's expectations. The Company generally requires no collateral from its customers. Income taxes The Company follows Statement of Financial Accounting Standard No. 109 ("SFAS 109"), Accounting for Income Taxes. Under SFAS 109, the tax provision is determined under the liability method. Under this method deferred tax assets and liabilities are recognized based on the differences between the financial statements and the tax basis of assets and liabilities using presently enacted tax rates. Valuation allowances are established on deferred tax assets when management estimates that it is more likely than not that some or all of deferred tax benefits will not be realized. Government grants and subsidies Grants received from government agencies for the acquisition of property and equipment are netted against the related capital expenditure. Grants for research and development and business investment are deferred and recognized in earnings if and when the conditions for earning the grant have been met. Subsidies received for employee training are recognized in earnings during the period in which the related costs are incurred. Fair value of financial instruments At December 31, 1996 and 1995, the carrying amount of the Company's financial instruments, including cash and cash equivalents, trade receivables and payables and other accrued liabilities, approximate their fair value due to their short term maturities. Based on quoted market prices and rates of interest available to the Company, the carrying amount of its debt instruments and other long-term liabilities at December 31, 1996 and 1995 also approximate fair value. B-7 AXIOHM S.A. NOTES TO THE FINANCIAL CONSOLIDATED STATEMENTS--(CONTINUED) (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED) Profit sharing and retirement indemnity plans Substantially all Axiohm S.A. employees participate in statutory profit sharing and retirement indemnity plans. Amounts owed under the profit plan are based on a formula prescribed by French law. Benefit obligations under the retirement indemnity plan are determined based on length of service, annual remuneration and job grade. These obligations and the related compensation expense are recorded as liabilities in the financial statements during the period the related benefits are earned. Postretirement medical plan Certain employees of the Company's Axiohm IPB subsidiary participate in a defined benefit post retirement medical plan. The Company's projected benefit obligation relating to such benefits is calculated and recorded in accordance with Statement of Financial Accounting Standard No. 106 ("SFAS 106"), Accounting for Postretirement Benefits. New Accounting Standards In March 1995, Statement of Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be disposed of was issued. This statement requires that long lived assets held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. This statement was implemented for the year ended December 31, 1996. The adoption of this accounting standard had no significant impact on the financial position or results of operations of the Company. The Company will continually assess impairment of long lived assets and certain identifiable intangibles whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123 ("SFAS 123") Accounting for Stock-Based Compensation. This statement defines a fair value based method of accounting for employee options or similar equity instruments and encourages all entities to adopt that method of accounting. However, it also allows an entity to continue to measure compensation costs using the intrinsic value based method of accounting prescribed by Accounting Principle Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees. The Company has elected to account for its employee stock compensation plan under the provisions of APB 25. 2)ACCOUNTS RECEIVABLE, NET
DECEMBER 31, --------------- 1996 1995 ------- ------ Trade accounts receivable...................................... $10,690 $9,838 Less allowance for doubtful accounts........................... (138) (138) ------- ------ Accounts receivable, net....................................... $10,552 $9,700 ======= ======
For the years ended December 31, 1996 and 1995, revenue in the amount of $49,502 and $46,278, respectively came from sales to NCR (formerly AT&T GIS) representing approximately 52% and 65%, respectively, of the Company's total revenue. At December 31, 1996 and 1995, accounts receivable from this customer were approximately $2,860 and $4,239, respectively. All amounts are due within one year. B-8 AXIOHM S.A. NOTES TO THE FINANCIAL CONSOLIDATED STATEMENTS--(CONTINUED) (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED) 3)INVENTORIES, NET
DECEMBER 31, ---------------- 1996 1995 ------- ------- Raw materials and components.................................. $13,345 $11,992 Work in process............................................... 949 2,152 Semi-finished and finished goods.............................. 1,793 1,555 ------- ------- 16,087 15,699 Less allowance for obsolescence............................... (2,187) (2,193) ------- ------- Inventories, net.............................................. $13,900 $13,506 ======= =======
4)PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31, ---------------- 1996 1995 ------- ------- Land.......................................................... $ 755 $ 803 Buildings..................................................... 5,355 5,085 Machinery and equipment....................................... 1,797 1,763 Molds and tooling............................................. 6,471 5,788 Furniture, fixtures and fittings.............................. 4,704 3,845 ------- ------- 19,082 17,284 Less accumulated depreciation................................. (7,847) (6,282) ------- ------- Property, plant and equipment, net............................ $11,235 $11,002 ======= ======= Depreciation expense for the years ended December 31, 1996 and 1995 was $2,721 and $2,421, respectively. 5)GOODWILL DECEMBER 31, ---------------- 1996 1995 ------- ------- Goodwill...................................................... $ 2,967 $ 2,415 Less accumulated amortization................................. (361) (161) ------- ------- Goodwill, net................................................. $ 2,606 $ 2,254 ======= ======= Amortization expense for the years ended December 31, 1996 and 1995 was $200 and $161, respectively. 6)OTHER CURRENT LIABILITIES DECEMBER 31, ---------------- 1996 1995 ------- ------- Accrued salaries and benefits................................. $ 2,501 $ 2,172 Customer advance.............................................. 989 654 Accrued warranty expenses..................................... 718 485 Other......................................................... 1,495 874 ------- ------- Total other current liabilities............................... $ 5,703 $ 4,185 ======= =======
B-9 AXIOHM S.A. NOTES TO THE FINANCIAL CONSOLIDATED STATEMENTS--(CONTINUED) (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED) 7)LONG-TERM DEBT The Company has entered into borrowing arrangements with various banks for loans denominated in French Francs ("FF") and U.S. Dollars ("USD").
DECEMBER 31, --------------- 1996 1995 ------ ------- Revolving credit line up to $8,000, the first $3,000 at lend- er's prime rate plus three quarters (9.5% at December 31, 1996 and 9.75% at December 31, 1995), the next $5,000 at lender's prime plus one quarter (9.00% at December 31, 1996 and 9.25% at December 31, 1995) payable in full January 1, 1998 secured by inventory, accounts receivable, contract rights, equipment and general intangibles.................... $1,174 $ 1,302 Revolving credit line in FF or USD up to FF 4.5 million at LI- BOR plus 0.75% payable in full January 1, 1998 secured by the Company's accounts receivable................................ -- 301 Business loan at 10% collateralized by various assets; balance paid in full in July 1996.................................... -- 3,045 Bank mortgage loan at lender's prime rate plus three quarters (9.5% at December 31, 1996 and 9.75% at December 31, 1995), payable in monthly installments of $44 (including interest) through 1997, amortized on twelve-year schedule beginning in 1998, with balloon for full outstanding balance due January 1, 2000; payment collateralized by building and machinery equipment.................................................... 3,868 4,019 Three bank loans in FF at rates between 4.6% and 7.25% payable through 1997 to 2002 secured by the Company's equipment...... 1,046 1,328 Bank loan in FF to acquire IPB assets at PIBOR one year rate plus 1.2% payable in seven yearly installments through 2001 secured by IPB shares; balance paid in full in 1996.......... -- 4,373 Five business loans in FF at rates between 5.75% and 8.75% se- cured by the Company's equipment; balance paid in full in 1996......................................................... -- 467 ------ ------- $6,088 $14,835 Less current portion.......................................... (1,267) (1,748) ------ ------- Total long-term debt.......................................... $4,821 $13,087 ====== =======
Commitment fees on the total amount of the revolving credit line in USD are payable annually at an annual rate of 0.25%. Annual maturities of long-term debt are as follows:
YEAR ENDING DECEMBER 31, ------------------------ 1997................................................................ $1,267 1998................................................................ 391 1999................................................................ 750 2000................................................................ 3,427 2001................................................................ 165 2002 and thereafter................................................. 88 ------ Total............................................................... $6,088 ======
B-10 AXIOHM S.A. NOTES TO THE FINANCIAL CONSOLIDATED STATEMENTS--(CONTINUED) (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED) 8)FINANCING OBLIGATIONS a)Capital lease The Company and its subsidiaries lease office equipment and vehicles under various capital lease contracts with terms extending through December 31, 2000. b)Financing arrangement In 1994, the Company negotiated a FF 8.0 million ($1.6 million) grant from various agencies of the government of France to subsidize the purchase and improvement of certain properties in France. The agreement is structured as a sale/leaseback transaction in which title to the purchased property was sold to a government agency in exchange for a cash payment of FF 16 million ($3.2 million) and subsequently leased back for a fifteen year period. The terms of the agreement provide for a bargain purchase option at the conclusion of the lease term, hence the sales/leaseback transaction has been accounted for as financing arrangement in which the related assets and a corresponding obligation are recorded in the financial statements of the Company. A financing obligation representing the proceeds for the sale/leaseback component of the transaction has been netted against the underlying capital expenditure. At December 31, 1996, the Company has a contingent liability to repay, in whole or in part, grants received of approximately FF 8.0 million ($1.6 million), in the event the Company does not meet the requirements of the grant including minimum employment levels through 1997, minimum capital expenditures and continued use of the building throughout the lease term. Future minimum lease commitments under capital leases and the financing arrangement at December 31, 1996 are as follows:
CAPITAL LEASES FINANCING TOTAL ------- --------- ------ 1997............................................... $102 $ 189 $ 291 1998............................................... 102 189 291 1999............................................... 47 189 236 2000............................................... 19 189 208 2001............................................... -- 189 189 2002 and thereafter................................ -- 1,600 1,600 ---- ------ ------ Total minimum lease payments....................... $270 $2,545 $2,815 Less: amounts representing interest................ (1,133) ------ Present value of minimum lease payments............ $1,682 Current portion.................................... (139) ------ Long-term capital lease obligations................ $1,543 ======
Included in property, plant and equipment in the accompanying consolidated balance sheets are the following assets under capital leases and financing arrangements:
DECEMBER 31, -------------- 1996 1995 ------ ------ Building at cost............................................. $1,527 $1,634 Equipment at cost............................................ 310 150 ------ ------ 1,837 1,784 Less accumulated depreciation................................ (210) (64) ------ ------ Assets under capital lease, net.............................. $1,627 $1,720 ====== ======
B-11 AXIOHM S.A. NOTES TO THE FINANCIAL CONSOLIDATED STATEMENTS--(CONTINUED) (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED) 9)COMMITMENTS AND CONTINGENCIES In connection with the 1994 acquisition of what is now its Axiohm IPB subsidiary, the Company is contingently liable to the seller for up to $5,000 annually, for additional purchase consideration through 1997, based upon the subsidiary achieving certain sales levels. Any additional consideration paid will be treated as additional acquisition cost. As of December 31, 1996, the Company had accrued $552 for contingent payments resulting from 1996 sales performance. 10)GOVERNMENT GRANT OBLIGATIONS French government agencies provide various long-term grants to promote fundamental research programs and to encourage commercial implementation overseas. The reimbursement of such grants is contingent upon the success of the related program. These grants are as follows:
DECEMBER 31, -------------- 1996 1995 ------ ------ Fundamental research......................................... $1,488 $1,709 Commercial implementation in Asia............................ 1,274 1,218 ------ ------ 2,762 2,927 Less current portion......................................... (916) (327) ------ ------ Total........................................................ $1,846 $2,600 ====== ======
11)INSURANCE PROCEEDS At the end of 1995 and into 1996, severe disruption of its thermal head clean room output and loss of business due to water damage caused by a subcontracting company performing routine maintenance work were experienced in France. Insurance proceeds of approximately $1.0 million received in compensation in 1996 for the loss of revenue and commercial damage are included in other income. 12)INCOME TAXES The Company operates internationally and tax rates are subject to applicable tax legislation in the country in which it operates. The domestic and foreign components of pre-tax income are as follows:
DECEMBER 31, --------------- 1996 1995 ------- ------- Domestic (France) pre-tax income........................... $ 4,780 $(1,011) Foreign pre-tax income..................................... 6,430 4,036 ------- ------- Total...................................................... $11,210 $ 3,025 ======= =======
B-12 AXIOHM S.A. NOTES TO THE FINANCIAL CONSOLIDATED STATEMENTS--(CONTINUED) (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED) A reconciliation of the differences between income taxes computed at the French statutory rate and the Company's reported income tax provision is as follows:
DECEMBER 31, ----------- 1996 1995 ---- ----- Statutory rate.................................................. 36.7% 36.7% Tax research credit............................................ -- (11.9) Non utilized foreign entities losses........................... 1.7 6.8 Effect of tax rate differences in foreign jurisdictions........ 1.1 1.7 Effect of change in tax rate on domestic deferred taxes........ -- 2.8 Other.......................................................... (0.2) 0.1 ---- ----- Effective Tax Rate.............................................. 39.3% 36.2% ==== =====
In 1995, a tax research credit of approximately $359 was recorded. This tax research credit was based on an increase in research and development expenditure. Additionally, certain tax losses in foreign jurisdictions were unavailable for offset against taxable income. As of December 31, 1996 and 1995, the components of deferred tax assets and liabilities were as follows:
DECEMBER 31, ---------------- 1996 1995 ------- ------- DEFERRED TAX ASSETS Postretirement benefit obligation........................ $ 677 $ 643 Investment grant......................................... 504 578 Operating loss carry forwards............................ 388 815 Other.................................................... 720 403 ------- ------- Total deferred tax assets................................. 2,289 2,439 Less valuation allowance................................. (388) (260) ------- ------- Net deferred tax assets................................... $ 1,901 $ 2,179 ======= ======= DEFERRED TAX LIABILITIES Long-term investment..................................... $(1,603) $(1,756) Plant and equipment...................................... (639) (576) Goodwill................................................. (407) (436) Provisions............................................... (304) -- Other.................................................... (16) (27) ------- ------- Total deferred tax liabilities............................ $(2,969) $(2,795) ======= =======
The Company recorded a valuation allowance of $388 and $260 at December 31, 1996 and December 31, 1995, respectively, for net operating loss carry forwards since realization of these future benefits cannot be reasonably assured. These net operating loss carry forwards expire at varying dates through 2001. B-13 AXIOHM S.A. NOTES TO THE FINANCIAL CONSOLIDATED STATEMENTS--(CONTINUED) (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED) The provision for income tax consists of:
DECEMBER 31, -------------- 1996 1995 ------ ------ Current income tax expense Domestic................................................... $1,159 $ (359) Foreign.................................................... 2,789 1,609 ------ ------ Total....................................................... $3,948 $1,250 ====== ====== Deferred income tax expense Domestic................................................... $ 577 $ (280) Foreign.................................................... (119) 125 ------ ------ Total....................................................... $ 458 $ (155) ====== ======
13)EMPLOYEE BENEFIT PLANS The Company sponsors an employee savings plan for certain U.S. employees which conforms to the provisions of Section 401(k) of the U.S. Internal Revenue Code of 1986, as amended. The Company also provides certain defined pension benefits (based on years of service) to certain categories of U.S. and French employees. The Company's obligations under these plans for 1996 and 1995 were not material. The Company is currently obligated to provide certain postretirement medical and life insurance benefits to approximately 100 U.S. employees who have met certain requirements as to age (generally 55) and length of service (generally 10 years, which includes a minimum of 5 years after January 1, 1995). The Company accounts for the cost of these benefits in accordance with Statement of Financial Accounting Standards No. 106 Employer's Accounting for Postretirement Benefits Other Than Pensions. The Company funds these costs on a pay-as-you-go basis. The net post-retirement benefit expense for the years ended December 31, 1996 and 1995 amounts to $96 and $144, respectively. The total obligation and amounts recognized in the balance sheet at December 31, 1996 and 1995 were as follows:
DECEMBER 31, -------------- 1996 1995 ------ ------ Accumulated postretirement benefit obligation: Active--not fully eligible.................................. $ 374 $1,471 Retired..................................................... 66 -- ------ ------ Total...................................................... $ 440 $1,471 Unrecognized prior service cost.............................. 1,690 -- Unrecognized net loss........................................ (694) (130) ------ ------ Accrued postretirement benefit obligation.................... $1,436 $1,341 ====== ======
Significant assumptions employed in this valuation include a discount rate of 7.50% at December 31, 1996, and 7.25% at December 31, 1995. A pre-Medicare eligible healthcare cost trend rate is 8.0% for 1996 (6.0% for post-Medicare) declining by one percent each year through the year 2000 (1998 for post- Medicare), after which a rate of 5.0% was utilized for each year. B-14 AXIOHM S.A. NOTES TO THE FINANCIAL CONSOLIDATED STATEMENTS--(CONTINUED) (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED) The annual costs of postretirement benefits are based on assumed discount rates set relative to the general level of interest rates in the economy. If the healthcare cost trend rate was increased by one percentage point, the net postretirement benefit expense for the year ended December 31, 1996 and 1995 and the accumulated postretirement benefit obligation, as of December 31, 1996 and 1995 would not increase by a material amount. 14)SHAREHOLDERS' EQUITY a)Share Capital On June 24, 1996, the Company completed a private offering of 405 Common Shares "A", and 2,735 Common Shares "B" to an employee of the Company and two institutional investors, respectively, from which it received total proceeds of $3,807, net of offering costs of $39. Common Shares "B" are divided into separate securities representing their economic rights (represented by Certificats d'Investissements, or "CIs") and their voting rights (represented by Certificats de Droit de Vote). CIs have substantially the same terms as Common Shares "A" except for their voting features (their associated voting right is represented by separate voting right certificates). On the same date the Company increased the par value of its common shares from FF 100 to FF 500. b)Retained Earnings At December 31, 1996, the Company's distributable retained earnings amounted to $11,025 and would be subject to $2,851 of additional withholding tax, "precompte", in case of distribution. The withholding tax would be recorded in equity as part of the dividend paid to shareholders and shareholders receiving the dividend would be entitled to a tax credit "avoir fiscal" at least equal to the withholding tax paid, under conditions provided for in relevant tax treaties under French law. c)Stock Options On December 15, 1995, the shareholders of the Company implemented a stock option plan authorizing the Board of Directors to issue stock options for the subscription of a maximum of 1,583 shares of the Company's Common Stock. On February 19, 1996, the Board of Directors granted all 1,583 options (to acquire one share of Common Stock each) to an officer of the Company at an exercise price of FF 6,050 which approximated the fair value of the underlying shares on the date of grant. The options are valid for ten years (until December 31, 2005) and become exercisable rateably over five years. Non-vested options become void upon termination of employment. The plan also allows for accelerated vesting upon certain conditions and events including a public offering of the Company's stock and specified changes in the existing ownership of the Company. As of December 31, 1996, all 1,583 options (none of which are exercisable) remained outstanding. Had compensation costs for the Company's stock option plan been determined consistent with the fair value approach set forth in SFAS No. 123, the Company's net income for the year ended December 31, 1996 would have been reduced to $6,726. The fair value of the options granted is estimated on the date of grant using the minimum value method with the following assumptions: 3.9% dividend yield, a risk free interest rate of 6.35%, an expected option life of 10 years and no forfeitures. B-15 AXIOHM S.A. NOTES TO THE FINANCIAL CONSOLIDATED STATEMENTS--(CONTINUED) (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED) 15)FOREIGN CURRENCY HEDGES At December 31, 1996, the Company's portfolio consisted of five foreign exchange contracts to sell $4,500 at an average rate of 1 USD = 5.17 FF and one option to sell $3.0 million at August 29, 1997 at the rate of 5.15 FF for 1 USD. The option was acquired at a cost of $76. 16)RELATED PARTY TRANSACTIONS The Company purchased from Dardel Technologies, a significant shareholder (44% ownership) of the Company, services including insurance coverage, telecommunications and legal and management assistance. These services amounted to $991 and to $995 in fiscal years 1996 and 1995, respectively. In addition, Dardel Technologies sub-leases to Axiohm S.A. office space that it leases from a company owned by three directors of Axiohm S.A. These sub-lease payments to Dardel Technologies amounted to $279 and $291 in 1996 and 1995, respectively. This same company also provided office management services to Axiohm S.A. for an amount of $263 and $288 in 1996 and 1995, respectively. The terms of such transactions approximate those of an arm's length transaction with an unrelated party. In 1995 and 1996, the Company participated in a cash pooling agreement with Dardel Technologies allowing it to borrow or loan cash as considered necessary. At December 31, 1996, the Company had an outstanding loan with Dardel Technologies amounting to $1,832 and bearing interest at 6.42% which was recorded in other current assets. This loan was reimbursed in April 1997 and the cash pooling agreement has been subsequently terminated. B-16 AXIOHM S.A. NOTES TO THE FINANCIAL CONSOLIDATED STATEMENTS--(CONTINUED) (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED) 17)GEOGRAPHICAL INFORMATION The Company operates predominantly in a single industry as a manufacturer and service provider of thermal and impact printing equipment. The Company has operations in France, the United States, Hong Kong and Japan. Transfers between geographic areas primarily represent intercompany export sales of approximately $16,491 and $9,218 in 1996 and 1995, respectively. These produced goods are accounted for based on established sales prices between the related companies. In computing income from operations for foreign subsidiaries, no allocations of general corporate expenses, interest or income taxes have been made.
YEAR ENDED DECEMBER 31, 1996 ------------------------------------------------ NORTH EUROPE AMERICA ASIA ELIMINATIONS CONSOLIDATED ------- ------- ----- ------------ ------------ Sales to unaffiliated custom- ers.......................... $22,723 $72,262 $ 317 $95,302 Transfer between geographic areas........................ 15,318 146 1,027 $(16,491) -- ------- ------- ----- -------- ------- Total revenues................ 38,041 72,408 1,344 (16,491) 95,302 ------- ------- ----- -------- ------- Operating profit/(loss)....... 3,955 7,581 (444) -- 11,092 Net income/(loss)............. $ 3,039 $ 4,264 $(499) -- $ 6,804 Total assets at December 31, 1996......................... $23,467 $29,324 $ 600 $ (9,413) $43,978
YEAR ENDED DECEMBER 31, 1995 ------------------------------------------------- NORTH EUROPE AMERICA ASIA ELIMINATIONS CONSOLIDATED ------- ------- ----- ------------ ------------ Sales to unaffiliated custom- ers......................... $18,284 $53,680 $ 191 $72,155 Transfer between geographic areas....................... 7,751 921 546 $(9,218) -- ------- ------- ----- ------- ------- Total revenues............... 26,035 54,601 737 (9,218) $72,155 ------- ------- ----- ------- ------- Operating profit/(loss)...... (315) 5,992 (528) -- 5,149 Net income/(loss)............ $ (371) $ 2,862 $(561) -- $ 1,930 Total assets at December 31, 1995........................ $22,574 $26,475 $ 319 $(9,184) $40,184
18)SUBSEQUENT EVENTS As part of its long-term development strategy, the Company has an on-going policy to pursue potential acquisitions worldwide. In particular, the Company is currently negotiating a strategic alliance with a U.S. based company. The outcome of these negotiations is as yet unknown. B-17 The Depositary for the Offer is: THE BANK OF NEW YORK By Mail: Facsimile Transmission: By Hand or Overnight (for Eligible Courier: Institutions Only) (212) 815-6213 Tender & Exchange Tender & Exchange Department Department P.O. Box 11248 101 Barclay Street Church Street Station Receive and Deliver New York, New York 10286- Window 1248 New York, New York 10286 For Confirmation by Telephone: (800) 507-9357 Questions and requests for assistance or for additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Information Agent or the Dealer-Manager at their respective telephone numbers and locations listed below. Shareholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: LOGO Wall Street Plaza New York, New York 10005 Banks and Brokers Call Collect: (212) 440-9800 ALL OTHERS CALL TOLL-FREE: (800) 223-2064 The Dealer-Manager for the Offer is: LEHMAN BROTHERS Three World Financial Center New York, New York 10285 Call Collect: (212) 526-2161 EX-99.(A)(2) 3 LETTER OF TRANSMITTAL Exhibit (a)(2) LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK OF DH TECHNOLOGY, INC. PURSUANT TO THE OFFER TO PURCHASE DATED JULY 16, 1997 BY AX ACQUISITION CORPORATION AN INDIRECT WHOLLY OWNED SUBSIDIARY OF AXIOHM S.A. THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, AUGUST 12, 1997, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: THE BANK OF NEW YORK By Mail: Facsimile Transmission: By Hand or Overnight (for Eligible Courier: Institutions Only) (212) 815-6213 Tender & Exchange Tender & Exchange Department Department P.O. Box 11248 101 Barclay Street Church Street Station Receive and Deliver New York, New York 10286- Window 1248 New York, New York 10286 For Confirmation Telephone: (800) 507-9357 ---------------- DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by shareholders either if certificates are to be forwarded herewith or if delivery of Shares (as defined below) is to be made by book-entry transfer to an account maintained by The Bank of New York, as Depositary, at either The Depository Trust Company ("DTC") or Philadelphia Depository Trust Company ("PDTC") (each a "Book-Entry Transfer Facility") pursuant to the procedures set forth in "The Offer-- Procedure For Tendering Shares" of the Offer to Purchase (as defined below). Shareholders who deliver Shares by book-entry transfer are referred to herein as "Book-Entry Shareholders" and other shareholders are referred to herein as "Certificate Shareholders". Shareholders whose certificates for Shares are not immediately available or who cannot deliver either the certificates for, or a Book-Entry Confirmation (as defined in "The Offer--Procedure For Tendering Shares" of the Offer to Purchase) with respect to, their Shares and all other documents required hereby to The Bank of New York, as Depositary, prior to the Expiration Date (as defined in "The Offer--Terms of the Offer, Proration and Expiration Date" of the Offer to Purchase) must tender their Shares in accordance with the guaranteed delivery procedures set forth in "The Offer--Procedure For Tendering Shares" of the Offer to Purchase. DELIVERY OF DOCUMENTS TO A BOOK- ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE BANK OF NEW YORK. SEE SECTION 2, "REQUIREMENTS OF TENDER", UNDER THE CAPTION "INSTRUCTIONS" HEREIN. All capitalized terms not defined herein shall have the meaning ascribed thereto in the Offer to Purchase. DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------------- SHARES TENDERED (ATTACHED PRINT NAME(S) AND ADDRESS(ES) OF REGISTERED ADDITIONAL HOLDER(S) SIGNED LIST EXACTLY AS NAME(S) APPEAR(S) ON IF CERTIFICATE(S)(1) NECESSARY) - --------------------------------------------------------------------------------------- TOTAL NUMBER OF SHARES NUMBER CERTIFICATE REPRESENTED BY OF SHARES NUMBER(S)(2) CERTIFICATE(S)(2) TENDERED(3) ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ - ---------------------------------------------------------------------------------------
(1) The names and addresses of the registered holders should be printed exactly as they appear on the certificates representing Shares tendered hereby. The certificates and number of Shares that the undersigned wishes to tender should be indicated in the appropriate boxes. (2) Need not be completed by Book-Entry Shareholders. (3) Unless otherwise indicated, it will be assumed that all Shares described above are being tendered. See Instruction 4. 2 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY [_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE BANK OF NEW YORK, AS DEPOSITARY, WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name of Tendering Institution: ___________________________________________ Check Box of Book-Entry Transfer Facility: [_] DTC^^^[_] PDTC Account Number: __________________________________________________________ Transaction Code Number: _________________________________________________ [_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE BANK OF NEW YORK, AS DEPOSITARY, AND COMPLETE THE FOLLOWING. PLEASE INCLUDE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY. Name(s) of Registered Owner(s): __________________________________________ Window Ticket Number (if any): ___________________________________________ Date of Execution of Notice of Guaranteed Delivery: ______________________ Name of Institution that Guaranteed Delivery: ____________________________ If delivered by Book-Entry, check box of applicable Book-Entry Transfer Facility: [_] DTC [_] PDTC Account Number: __________________________________________________________ Transaction Code Number: _________________________________________________ 3 Ladies and Gentlemen: The undersigned hereby tenders to AX Acquisition Corporation, a California corporation (the "Purchaser") and an indirect wholly owned subsidiary of Axiohm S.A., a French corporation ("the Parent"), the above-described shares of Common Stock, without par value (the "Shares"), of DH Technology, Inc., a California corporation (the "Target"), pursuant to the Purchaser's offer to purchase the Maximum Number of Shares at a price of $25.00 per Share, net to the seller in cash without interest, in accordance with the terms and conditions of the Purchaser's Offer to Purchase, dated July 16, 1997 (the "Offer to Purchase"), and this Letter of Transmittal (which, together with any amendments or supplements thereto or hereto, collectively constitute the "Offer"), receipt of which is hereby acknowledged. Subject to, and effective upon, acceptance for payment of, and payment for, the Shares tendered herewith in accordance with the terms of the Offer (including, if the Offer is extended or amended, the terms or conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, the Purchaser all right, title and interest in and to all the Shares that are being tendered hereby (and any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after July 16, 1997) and irrevocably constitutes and appoints The Bank of New York the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and any such other Shares or securities or rights), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares (and any such other Shares or securities or rights) or transfer ownership of such Shares (and any such other Shares or securities or rights) on the account books maintained by a Book-Entry Transfer Facility together, in any such case, with all accompanying evidences of transfer and authenticity to, or upon the order of, the Purchaser, (b) present such Shares (and any such other Shares or securities or rights) for transfer on Target's books and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any such other Shares or securities or rights), all in accordance with the terms of the Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the tendered Shares (and any and all Shares or other securities or rights issued or issuable in respect of such Shares on or after July 16, 1997), and, when the same are accepted for payment by the Purchaser, the Purchaser will acquire good title thereto, free and clear of all liens, restrictions, claims and encumbrances. The undersigned will, upon request, execute any additional documents deemed by The Bank of New York, as Depositary, or the Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the tendered Shares (and any such other Shares or other securities or rights). All authority conferred or agreed to be conferred pursuant to this Letter of Transmittal shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. The undersigned hereby irrevocably appoints Patrick Dupuy and Gilles Gibier, in their respective capacities as officers of Purchaser or its affiliates, and any individual who shall hereafter succeed to any such office of Purchaser or its affiliates, and each of them, and any other designees of the Purchaser, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to vote at any annual, special or adjourned meeting of Target's shareholders or otherwise in such manner as each such attorney-in-fact and proxy or his substitute shall in his sole discretion deem proper with respect to, and to otherwise act (by written consent or otherwise) as each such attorney-in-fact and proxy or his substitute shall in his sole discretion deem proper with respect to all the Shares tendered hereby that have been accepted for payment by the Purchaser prior to the time any such action is taken and with respect to which the undersigned is entitled to vote (and with respect to any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after July 16, 1997). This appointment is effective when, and only to the extent that, the Purchaser accepts for payment such Shares as provided in the Offer to Purchase. This power of attorney and proxy are irrevocable and are granted in consideration of the acceptance for payment of such Shares in accordance with the terms of the 4 Offer. Such acceptance for payment shall, without further action, revoke all prior powers of attorney and proxies appointed by the undersigned at any time with respect to such Shares (and any such other Shares or securities or rights) and no subsequent powers of attorney or proxies will be appointed by the undersigned, or be effective, with respect thereto. The undersigned understands that the valid tender of Shares pursuant to any one of the procedures described in "The Offer--Procedure for Tendering Shares" of the Offer to Purchase and in the Instructions hereto will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. Unless otherwise indicated herein under "Special Payment Instructions," please issue the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered." In the event that both the Special Delivery Instructions and the Special Payment Instructions are completed, please issue the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment (and any accompanying documents, as appropriate) in the name of, and deliver such check and/or return such certificates (and any accompanying documents, as appropriate) to, the persons so indicated. The undersigned recognizes that the Purchaser has no obligation pursuant to the Special Payment Instructions to transfer any Shares from the name of the registered holder thereof if the Purchaser does not accept for payment any of the Shares so tendered. The Depositary will withhold U.S. federal income taxes equal to 30% of the gross payments payable to a foreign shareholder unless such foreign shareholder proves in a manner satisfactory to the Purchaser and the Depositary that either (i) the sale of Shares pursuant to the Offer will qualify as a sale or exchange, rather than a dividend, for U.S. federal income tax purposes (as described in "The Offer--Certain U.S. Federal Income Tax Consequences" of the Offer to Purchase), in which case no withholding is required, or (ii) the foreign shareholder is eligible for a reduced tax treaty rate with respect to dividend income, in which case the Depositary will withhold at the reduced treaty rate. For this purpose, a foreign shareholder is any shareholder that is not (i) an individual citizen or resident of the U.S., (ii) a corporation, partnership or other entity created or organized under the laws of the U.S. or any political subdivision thereof, (iii) any estate the income of which is subject to U.S. federal income taxation regardless of the source of such income or (iv) a trust which is subject to the supervision of a court within the U.S. or the control of a U.S. fiduciary. In order for the Depositary to determine whether the sale of Shares will qualify as a sale or exchange, all foreign shareholders must complete the Ownership Change Questionnaire attached hereto as Annex A. The Depositary will determine a shareholder's status as a foreign shareholder and eligibility for a tax treaty reduced rate of withholding by reference to the shareholder's address and to any outstanding certificates or statements concerning eligibility for a reduced rate of withholding unless facts and circumstances indicate that reliance is not warranted. A foreign shareholder who has not previously submitted the appropriate certificates or statements with respect to a reduced rate of withholding for which such shareholder may be eligible should consider doing so in order to avoid overwithholding. A foreign shareholder may be eligible to obtain from the U.S. Internal Revenue Service a refund of tax withheld if such shareholder meets one of the Redemption Tests described in "The Offer--Certain U.S. Federal Income Tax Consequences" of the Offer to Purchase or is otherwise able to establish that no tax or a reduced rate of tax was due. 5 SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if To be completed ONLY if certificate(s) for Shares not certificate(s) for Shares not tendered or not accepted for tendered or not accepted for payment and/or the check for the payment and/or the check for the purchase price of Shares accepted purchase price of Shares accepted for payment are to be issued in for payment are to be sent to the name of someone other than the someone other than the undersigned undersigned. or to the undersigned at an address other than that indicated above. Issue check and/or certificate(s) to: Name: _____________________________ Mail check and/or certificate(s) (Please Print) to: Address: __________________________ Name: _____________________________ (Include Zip Code) (Please Print) ----------------------------------- Address: __________________________ Tax Identification or Social (Include Zip Code) Security No. ----------------------------------- (See Substitute Form W-9 on Tax Identification or Social reverse side) Security No. (See Substitute Form W-9 on reverse side) IMPORTANT SHAREHOLDERS SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE) ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- (Signature(s) of Shareholder(s)) Dated: , 1997 (Must be signed by registered holder(s) as name(s) appear(s) on the certificate(s) for the Shares or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, agents, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s): ____________________________________________________________________ (Please Print) Capacity (Full Title): ______________________________________________________ Address: ____________________________________________________________________ (Include Zip Code) Area Code and Telephone No.: ________________________________________________ Taxpayer Identification or Social Security No.: _____________________________ (Complete Substitute Form W-9 on reverse side) GUARANTEE OF SIGNATURE(S): (IF REQUIRED--SEE INSTRUCTION 1 AND 5) Authorized Signature(s): ____________________________________________________ Name(s): ____________________________________________________________________ (Please Print) Name of Firm: _______________________________________________________________ Address: ____________________________________________________________________ (Include Zip Code) Area Code and Telephone No.: ________________________________________________ Dated: , 1997 6 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a financial institution (including most commercial banks, savings and loans associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program or identified as an "eligible guarantor institution" as such term is defined in Rule 17Ad-15 under the Exchange Act (an "Eligible Institution"). No signature guarantee is required on this Letter of Transmittal if (a) this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this document, shall include any participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) of Shares tendered herewith, unless such holder(s) has completed the information under the caption "Special Delivery Instructions" or "Special Payment Instructions" herein, or (b) such Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed by shareholders either if certificates are to be forwarded herewith or if delivery of Shares is to be made pursuant to the procedures for book-entry transfer set forth in "The Offer--Procedure for Tendering Shares" of the Offer to Purchase. For a shareholder validly to tender Shares pursuant to the Offer, either (a) a properly completed and duly executed Letter of Transmittal (or facsimile thereof), together with any required signature guarantees and any other required documents, must be received by The Bank of New York, as Depositary, at one of its addresses set forth herein prior to the Expiration Date and either (i) certificates for tendered Shares must be received by The Bank of New York, as Depositary, at one of such addresses prior to the Expiration Date or (ii) Shares must be delivered pursuant to the procedures for book-entry transfer set forth herein and a Book-Entry Confirmation must be received by The Bank of New York, as Depositary, prior to the Expiration Date or (b) the tendering shareholder must comply with the guaranteed delivery procedure set forth below and in "The Offer--Procedure for Tending Shares" of the Offer to Purchase. Shareholders whose certificates for Shares are not immediately available or who cannot deliver their certificates and all other required documents to The Bank of New York, as Depositary, or complete the procedures for book-entry transfer prior to the Expiration Date may tender their Shares by properly completing and duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in "The Offer--Procedure for Tendering Shares" of the Offer to Purchase. Pursuant to such procedures, (a) such tender must be made by or through an Eligible Institution, (b) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Purchaser must be received by The Bank of New York, as Depositary, prior to the Expiration Date and (c) the certificates for all physically delivered Shares or a Book- Entry Confirmation with respect to all tendered Shares, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees and any other documents required by this Letter of Transmittal, must be received by The Bank of New York, as Depositary, within five trading days after the date of execution of the Notice of Guaranteed Delivery. A "trading day" is any day on which the Nasdaq National Market(R) is open for business. THE METHOD OF DELIVERY OF SHARES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering shareholders, by execution of this Letter of Transmittal (or facsimile thereof), waive any right to receive any notice of the acceptance of their Shares for payment. 7 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto. 4. PARTIAL TENDERS (APPLICABLE TO CERTIFICATE SHAREHOLDERS ONLY). If fewer than all the Shares evidenced by any certificate submitted are to be tendered, fill in the number of Shares that are to be tendered under the headnote entitled "Description of Shares Tendered." In any such case, new certificate(s) for the remainder of the Shares that were evidenced by the old certificate(s) will be sent to the registered holder, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the expiration of the Offer. All Shares represented by certificates delivered to The Bank of New York, as Depositary, will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTERS OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without any change whatsoever. If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, agents, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to the Purchaser of their authority to so act must be submitted. When this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made to or certificates for Shares not tendered or accepted for payment are to be issued to a person other than the registered holder(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of certificates listed, the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates. Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. Purchaser will pay any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if certificates for Shares not tendered or accepted for payment are to be registered in the name of, any persons other than the registered holder(s), or if tendered certificates are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF TRANSMITTAL. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued in the name of and/or certificates for Shares not tendered or not accepted for payment are to be returned to, a person other than the signer of this Letter of Transmittal or if a check is to be sent and/or such certificates are to be returned to a person other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Any shareholder(s) delivering Shares by book-entry transfer may request that Shares not accepted for payment be credited to such account maintained at a Book-Entry Transfer Facility as such shareholder(s) may designate. 8 8. WAIVER OF CONDITIONS. Subject to the terms of the Offer, the Purchaser reserves the absolute right in its sole discretion to waive any of the specified conditions of the Offer, in whole or in part, in the case of any Shares tendered. 9. BACKUP WITHHOLDING. Under U.S. federal income tax law, a shareholder whose tendered Shares are accepted for payment is required to provide The Bank of New York, as Depositary, with such shareholder's correct taxpayer identification number, e.g., social security number or employer identification number ("TIN"), on Substitute Form W-9 below. If The Bank of New York, as Depositary, is not provided with the correct TIN, the U.S. Internal Revenue Service may subject the shareholder or other payee to a $50 penalty. In addition, payments that are made to such shareholder or other payee with respect to Shares purchased pursuant to the Offer may be subject to a 31% backup withholding. Certain shareholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, the shareholder must submit a Form W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from The Bank of New York, as Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. If backup withholding applies, The Bank of New York, as Depositary, is required to withhold 31% of any such payments made to the shareholder or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld, provided that the required information is given to the U.S. Internal Revenue Service. If withholding results in an overpayment of taxes, then a refund may be obtained from the U.S. Internal Revenue Service. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering shareholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the shareholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, The Bank of New York, as Depositary, will withhold 31% on all payments made prior to the time a properly certified TIN is provided to The Bank of New York, as Depositary. However, such amounts will be refunded to such shareholder if a TIN is provided to The Bank of New York, as Depositary, within 60 days. The shareholder is required to give The Bank of New York, as Depositary, the TIN (e.g., Social Security Number or Employer Identification Number) of the record owner of the Shares or of the last transferee appearing on the transfers attached to, or endorsed on, the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 should be directed to Lehman Brothers Inc., as Dealer-Manager, or Georgeson & Company Inc., as Information Agent, at each party's respective address set forth below. Questions or requests for assistance may be directed to the Dealer-Manager or the Information Agent. IMPORTANT: THIS LETTER OF TRANSMITTAL OR A SIGNED FACSIMILE COPY THEREOF (TOGETHER WITH CERTIFICATES FOR, OR A BOOK-ENTRY CONFIRMATION WITH RESPECT TO, TENDERED SHARES WITH ANY REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE BANK OF NEW YORK, AS DEPOSITARY, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE BANK OF NEW YORK, AS DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE. 9 PART 1--PLEASE PROVIDE YOUR TIN AND CERTIFY BY SIGNING AND DATING BELOW. ---------------------- Social Security Number OR ___________________ SUBSTITUTE Employer FORM W-9 Identification Number: DEPARTMENT OF THE TREASURY INTERNAL REVENUE ---------------------------------------------------- SERVICE PAYER'S REQUEST FOR TAXPAYER PART 2--CERTIFICATES--Under penalties of perjury, IDENTIFICATION I certify that: ("TIN") (1) The number shown on this form is my correct TIN (or I am waiting for a number to be issued for me) and SIGN (2) I am not subject to backup withholding either g because: (a) I am exempt from backup HERE withholding, or (b) I have not been notified by the U.S. Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under reporting interest or dividends on your tax return. However, if after being notified by the IRS that you are subject to backup withholding, you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such item (2). PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. PART 3--AWAITING TIN [_] ---------------------------------------------------- Signature: _______________________________________ Date: ____________________________________________ ---------------------------------------------------- 10 YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER ("TIN") I certify under penalty of perjury that a TIN has not been issued to me, and either (1) I have mailed or delivered an application to receive a TIN to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a TIN by the time of payment, 31% of all reportable payments made to me will be withheld, but that such amounts will be refunded to me if I then provide a TIN within sixty (60) days. Signature: _________________________________________________ Date: FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES OF THE OFFER TO PURCHASE, THIS LETTER OF TRANSMITTAL AND OTHER TENDER OFFER MATERIALS MAY BE DIRECTED TO THE DEALER-MANAGER OR THE INFORMATION AGENT AS SET FORTH BELOW. The Dealer-Manager for the Offer is: Lehman Brothers Inc. Three World Financial Center New York, New York 10285 Telephone: (212) 526-2161 Facsimile: (212) 526-3843 The Information Agent for the Offer is: Georgeson & Company Inc. Wall Street Plaza New York, New York 10005 Telephone: (212) 440-9915 Facsimile: (212) 440-9009 11 ANNEX A OWNERSHIP CHANGE QUESTIONNAIRE FOR FOREIGN SHAREHOLDERS THIS FORM IS TO BE COMPLETED ONLY BY FOREIGN SHAREHOLDERS. The Depositary will withhold tax at a rate of 30% of the amount otherwise payable to a foreign shareholder unless it can be established that one of the Redemption Tests described in the Offer to Purchase is satisfied (so that the proceeds should not be treated as a dividend for U.S. tax purposes), or unless a reduced tax treaty rate applies. For purposes of determining whether any of the Redemption Tests are satisfied, please indicate your actual and constructive ownership of Shares of Target both before and after the sale of Shares pursuant to the Offer on the form below. For purposes of this verification, you must take into account the ownership of Shares of Target that are held in your name and Shares held in the name of any related parties, including certain family members (e.g., spouse, children and grandchildren if you are an individual) and partnerships, corporations, estates and trusts in which you own or have a beneficial interest. To the extent you have an interest in Shares of Target through a related party such Shares may be considered to be "constructively" owned by you for purposes of determining whether the sale of Shares pursuant to the Offer satisfies one of the Redemption Tests. - ------------------------------------------------------------------------------- Under penalty of perjury, I certify that, to the best of my knowledge and belief, after the sale of Shares pursuant to the Offer, the undersigned owns the following Shares of Target either actually or constructively as described above:
ACTUALLY CONSTRUCTIVELY OWNED OWNED -------- -------------- Number of Shares of Target owned prior to sale.......... -------- -------- Number of Shares of Target owned after sale............. -------- --------
Signed this day of 1997. By: - ------------------------------------- Name: Title: A-1 EX-99.(A)(3) 4 PRESS RELEASE EXHIBIT (a)(3) DH TECHNOLOGY, INC. AND AXIOHM S.A. AGREE TO COMBINE THROUGH A TENDER OFFER FOR UP TO 7,000,000 OF THE OUTSTANDING SHARES OF DH TECHNOLOGY AT $25 PER SHARE (San Diego, California, July 14, 1997) DH Technology, Inc. (Nasdaq: DHTK) ("DH") and Axiohm S.A., a private French company ("Axiohm") announced today that they have signed a definitive merger agreement to combine their operations. Pursuant to the agreement, a wholly-owned subsidiary of Axiohm will commence a cash tender offer no later than July 21, 1997 to acquire not less than 6,500,000 shares and not more than 7,000,000 shares of the outstanding stock of DH at $25 per share. As a result of a subsequent merger and related transactions, the current DH shareholders will own between 15% and 21% of DH's outstanding shares depending on the number of shares tendered. EX-99.(A)(5) 5 LETTER TO SHAREHOLDERS EXHIBIT (A)(5) [DH LETTERHEAD] July 16, 1997 TO THE SHAREHOLDERS OF DH TECHNOLOGY, INC. Dear Shareholder: I am pleased to report that on July 14, 1997, DH Technology, Inc. ("DH") entered into a merger agreement with AX Acquisition Corporation, a newly formed California corporation ("Purchaser") and an indirect wholly-owned subsidiary of Axiohm S.A., a French corporation ("Parent"), that provides for the acquisition of DH by Parent and Purchaser. Under the terms of the proposed transaction, Purchaser has commenced a tender offer for up to 7,000,000 shares of DH common stock at $25 per share (the "Tender Offer"). The Tender Offer is currently scheduled to expire at 12:00 midnight, New York City time, on Tuesday, August 12, 1997. Pursuant to the merger agreement, Purchaser, Parent and DH will effect a series of transactions which will result in Parent becoming a wholly-owned subsidiary of DH and DH being owned by the former Parent shareholders (79-85%) and the current shareholders of DH (15-21%). YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE OFFER AND THE RELATED TRANSACTIONS AND DETERMINED THAT THE TERMS OF THE OFFER AND THE RELATED TRANSACTIONS ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE DH SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALL DH SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES. In arriving at its recommendation, the Board of Directors gave careful consideration to a number of factors. These factors included the opinion of Prudential Securities Incorporated, financial advisor to DH, that the consideration to be received by the shareholders in the Tender Offer and the related transactions, is fair to the DH shareholders. The factors considered by the Board of Directors are more fully described in the Solicitation/Recommendation Statement on Schedule 14D-9 filed by DH with the Securities and Exchange Commission and enclosed with this letter. We urge you to read carefully the Schedule 14D-9 in its entirety so that you will be fully informed as to the structure of the transaction and the Board's recommendation. Also accompanying this letter is a copy of the Offer to Purchase and related materials, including a Letter of Transmittal for use in tendering shares. These documents set forth the terms and conditions of the offer and provide instructions as to how to tender your shares. We urge you to read each of the enclosed materials carefully. The management and directors of DH thank you for the support you have given the company. On behalf of the Board of Directors, Sincerely, /s/ William H. Gibbs William H. Gibbs Chairman of the Board EX-99.(A)(6) 6 PRESS RELEASE - -------------------------------------------------------------------------------- News Release . . . . - -------------------------------------------------------------------------------- EXHIBIT (A)(6) FOR IMMEDIATE RELEASE DH TECHNOLOGY, INC. AND AXIOHM S.A. PROVIDE FURTHER INFORMATION REGARDING PROPOSED BUSINESS COMBINATION SAN DIEGO, CA/July 16, 1997--DH Technology, Inc. (Nasdaq: DHTK)("DH") and Axiohm S.A., a private French company ("Axiohm"), today provided further information regarding the definitive merger agreement they have signed to combine their operations. Pursuant to the agreement, an indirect wholly-owned subsidiary of Axiohm will commence a cash tender offer today, July 16, 1997, to acquire no less than 6,500,000 shares and no more than 7,000,000 shares of the outstanding stock of DH at $25 per share. Through a subsequent exchange between Axiohm's acquisition subsidiary and Axiohm's shareholders and a merger of the subsidiary into DH, Axiohm will become a subsidiary of DH and Axiohm's shareholders will own between 5,518,524 shares and 5,833,732 shares of DH, which will represent between 79% and 85% of the outstanding shares of DH, depending upon the number of shares purchased in the tender offer and other factors. DH's Board has unanimously approved the tender offer and recommended that shareholders tender their shares. Axiohm has received a commitment from Lehman Brothers, Inc. to provide up to $199,000,000 in tender offer financing, subject to certain conditions, including negotiation and execution of satisfactory documentation. The tender offer is conditioned upon the valid tender of at least 6,500,000 DH shares, the expiration or termination of the waiting periods under applicable antitrust and competition laws, and certain other matters. The tender offer is expected to be completed in August and the subsequent merger later in 1997. -more- Page 2 Under the terms of the agreement, DH is entitled to consider unsolicited proposals from other parties for the acquisition of DH that are superior, in the judgment of DH's Board, to the terms of the proposed transaction with Axiohm. The headquarters of DH will continue to be in San Diego. Mr. William H. Gibbs, the President, Chief Executive Officer and Chairman of DH's Board, is expected to remain Chief Executive Officer of the combined companies. Mr. Patrick Dupuy and Mr. Gilles Gibier, Chairman and Treasury/Secretary of Axiohm, respectively, are expected to be appointed to DH's Board as Co-Chairman. DH Technology's common stock is expected to continue to be quoted on the Nasdaq National Market. DH had sales of $116 million and earnings before interest and tax of $19 million during the fiscal year ended December 31, 1996. DH estimates that its revenues for the second quarter ended June 30, 1997 will be approximately $25.5 million. Axiohm had sales of approximately $95 million and earnings before interest and tax of approximately $12 million during the fiscal year ended December 31, 1996. Further financial details of the combined companies will be available in documents to be filed with the Securities and Exchange Commission today. Mr. Dupuy and Mr. Gibier said, "We are very excited about this combination. This is a perfect match of two companies and we are excited that Bill Gibbs has agreed to run the combined companies." Mr. Gibbs said, "This combination will benefit the customers of DH and Axiohm by providing a broader product line and a greater worldwide resources." Axiohm manufactures thermal and impact transaction printers, thermal print heads and mechanisms for use by customers engaged in retail, banking and industrial activities. DH Technology designs, manufactures and distributes transaction printers and mechanisms, magnetic and chip card readers, magnetic heads, impact printheads, bar code printers, and related services and supplies, such as labels and ribbons. DH's products provide solutions for any diverse applications, including freight and bar code labels, bank transactions, point-of-sale receipts and gaming tickets. DH's broad range of printing technologies, including thermal, impact, and laser printing, as well as magnetic and electronic (chip) card reading technologies. # # # EX-99.(A)(7) 7 SUMMARY ADVERTISEMENT EXHIBIT (a)(7) FORM OF SUMMARY ADVERTISEMENT This announcement is neither an offer to purchase nor a solicitation of an offer to sell shares. The Offer is made solely by the Offer to Purchase dated July 16, 1997 and the related Letter of Transmittal, and is being made to all holders of Shares. Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will make a good faith effort to comply with such state statute. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such State. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by Lehman Brothers Inc. as Dealer-Manager, or one or more registered brokers or dealers licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash up to 7,000,000 Shares of Common Stock of DH Technology, Inc. at $25 Net Per Share by AX Acquisition Corporation an indirect wholly owned subsidiary of Axiohm S.A. AX Acquisition Corporation, a newly formed California corporation (the "Purchaser") and an indirect wholly owned subsidiary of Axiohm S.A., a French corporation (the "Parent"), is offering to purchase not less than 6,500,000 (the "Minimum Condition") and up to 7,000,000 (the "Maximum Number") shares of Common Stock, without par value (the "Shares"), of DH Technology, Inc., a California corporation (the "Target"), which shares represented 87.6% of the Shares outstanding as of July 11, 1997, at a price of $25 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal (which, together with any supplements or amendments thereto collectively constitute the "Offer"). Following the Offer, Purchaser and Target intend to effect the Axiohm Exchange (as defined below), the Acquisition of Purchaser (as defined below) and the Merger (as defined below). THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, AUGUST 12, 1997, UNLESS THE OFFER IS EXTENDED. The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the expiration of the Offer at least 6,500,000 shares (representing 81.3% of the outstanding shares of Common Stock of Target as of July 11, 1997) and (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the regulations thereunder. The Offer is also subject to other terms and conditions which are contained in the Offer to Purchase. The Offer is being made pursuant to an Agreement and Plan of Merger dated as of July 14, 1997 (the "Merger Agreement") among Parent, Purchaser and Target. Pursuant to the Merger Agreement, Purchaser and Target will effect a series of transactions consisting of, among other things, the Offer, the Axiohm Exchange (defined below), the Acquisition of Purchaser (defined below) and the Merger (defined below). The Board of Directors of Target ("Target's Board") has unanimously approved the Merger Agreement and determined that the transactions contemplated thereby, including the Offer, the Axiohm Exchange, the Acquisition of Purchaser, and the Merger are fair to, and in the best interests of, the shareholders of Target, and recommends that the shareholders accept the Offer and tender their shares pursuant to the Offer. Following (or concurrently with) the Offer, Purchaser will attempt to enter into stock purchase agreements with the shareholders of Parent pursuant to which Purchaser shall attempt to purchase from such shareholders all of the outstanding shares of the capital stock of Parent for an aggregate of 5,518,524 of the Shares which Purchaser is acquiring in the Offer (the "Exchange Shares") and an aggregate of $12,197,900 in cash (the "Axiohm Exchange") (or, if at the closing of the Axiohm Exchange, Purchaser has not obtained the financing necessary to pay the entire amount of such cash, an aggregate of 5,833,732 Exchange Shares and an aggregate of $4,317,700 in cash). The Axiohm Exchange will result in approximately 79% to 85% (depending on the actual number of Shares purchased pursuant to the Offer and the actual number of Exchange Shares transferred by Purchaser in the Axiohm Exchange) of Target's outstanding Common Stock being held by Parent shareholders after the completion of the Merger and the cancellation of the Shares owned by Purchaser (described below). Simultaneously with the closing of the Axiohm Exchange, Parent will sell to Target, and Target will purchase from Parent (the "Acquisition of Purchaser"), all of the outstanding shares of the capital stock of Purchaser in exchange for Target's assumption, on a joint and several basis with Purchaser, of any and all obligations with respect to indebtedness incurred, or preferred stock issued, by Purchaser or Purchaser's Shareholder in connection with the Offer and the Axiohm Exchange, which obligations shall not exceed $199.0 million. As a result of the Axiohm Exchange and the Acquisition of Purchaser, Parent will become a subsidiary of Purchaser and Purchaser will become a wholly owned subsidiary of Target. Following the Axiohm Exchange and the Acquisition of Purchaser, Purchaser will be merged with and into Target (the "Merger") and the Shares owned by Purchaser will be cancelled (as will the shares of Purchaser owned by Target). In the Merger, the name of Target, as the surviving corporation in the Merger will be changed to Axiohm Inc. Following the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, Parent will be a subsidiary of Target and Target will be approximately 79% to 85% owned by the former Parent shareholders and approximately 15% to 21% owned by the current shareholders of Target (depending on the actual number of Shares purchased pursuant to the Offer and the actual number of Exchange Shares transferred by Purchaser in the Axiohm Exchange). Following such transactions, approximately 51% to 55% of the outstanding shares of Target's Common Stock will be beneficially owned by two principal shareholders and directors of Parent. Target's Common Stock is expected to continue to be quoted on the Nasdaq National Market and it is anticipated that Target will remain subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"). However, if the Maximum Number is increased by Purchaser, the anticipated Nasdaq quotation and Exchange Act reporting treatment described above may be affected. -2- For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered to Purchaser and not withdrawn as, if and when Purchaser gives oral or written notice to The Bank of New York, as Depositary (the "Depositary"), of Purchaser's acceptance for payment of such Shares. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering shareholders for the purpose of receiving payment from Purchaser and transmitting payment to validly tendering shareholders whose Shares have been accepted for payment. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or timely Book-Entry Confirmation of the book-entry transfer of such Shares into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedures set forth in "The Offer--Procedure for Tendering Shares" of the Offer to Purchase), (ii) a Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in connection with a book- entry transfer and (iii) any other documents required by such Letter of Transmittal. Under no circumstances will interest be paid by Purchaser on the Offer Price for the Shares tendered pursuant to the Offer, regardless of any extension of the Offer or any delay in making such payment. The term "Expiration Date" means 12:00 Midnight, New York City time, on Tuesday, August 12, 1997, unless and until Purchaser, in its sole discretion, shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Purchaser, will expire. Purchaser expressly reserves the right, in its sole discretion (subject to the terms and conditions of the Merger Agreement), at any time and from time to time, to extend for any reason the period of time during which the Offer is open, including the occurrence of any condition specified in "The Offer--Certain Conditions of the Offer" of the Offer to Purchase, by giving oral or written notice of such extension to the Depositary. Any such extension will be followed as promptly as practicable by public announcement thereof, such announcement to be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date (as defined below) of the Offer. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the rights of a tendering shareholder to withdraw his Shares. Upon the terms and subject to the conditions of the Offer, if more than the Maximum Number of Shares shall be validly tendered and not withdrawn prior to the Expiration Date, Purchaser will, upon the terms and conditions of the Offer, purchase the Maximum Number of Shares on a pro rata basis (with adjustments to avoid purchases of fractional shares) based upon the number of Shares validly tendered and not withdrawn prior to the Expiration Date. Except as otherwise provided in the Offer to Purchase, tenders of Shares made pursuant to the Offer are irrevocable, provided that Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth below at any time prior to the Expiration Date and, unless theretofore accepted for payment by Purchaser pursuant to the Offer, may also be withdrawn at any time after September 12, 1997. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn, and the name of the registered holder of the Shares to be withdrawn, if different from the name of the persons who tendered the Shares. If certificates for the Shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial -3- numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution, the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been delivered pursuant to the procedures for book- entry transfer as set forth in "The Offer--Procedure for Tendering Shares" of the Offer to Purchase, any notice of withdrawal must also specify the name and number of the account at the appropriate financial institution that is a participant in a Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's procedures for such withdrawal, in which case a notice of withdrawal will be effective if delivered to the Depositary by any method of delivery described in the second sentence of this paragraph. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in "The Offer-- Procedure for Tendering Shares" of the Offer to Purchase at any time on or prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by Purchaser, in its sole discretion, which determination will be final and binding. None of Purchaser, Parent, any of their affiliates or assigns, the Depositary, the Dealer-Manager, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. Target has provided Purchaser with Target's shareholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares whose names appear on Target's shareholder list and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the shareholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. The Offer to Purchase and the related Letter of Transmittal contain important information which should be read before any decision is made with respect to the Offer. Questions and requests for assistance or for additional copies of the Offer to Purchase and the related Letter of Transmittal and other tender offer materials may be directed to the Dealer-Manager or the Information Agent as set forth below, and copies will be furnished promptly at Purchaser's expense. No fees or commissions will be paid to brokers, dealers or other persons (other than the Dealer-Manager and the Information Agent) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: GEORGESON & COMPANY INC. Wall Street Plaza New York, New York 10005 Banks and Brokers Call Collect: (212) 440-9800 All Others Call Toll Free: (800) 223-2064 -4- The Dealer-Manager for the Offer is: LEHMAN BROTHERS Three World Financial Center New York, New York 10285 Call Collect: (212) 526-2161 -5- EX-99.(C)(1) 8 AGREEMENT AND PLAN OF MERGER EXHIBIT (c)(1) AGREEMENT AND PLAN OF MERGER Among AXIOHM S.A. AX ACQUISITION CORPORATION and DH TECHNOLOGY, INC. Dated as of July 14, 1997 TABLE OF CONTENTS
Page ---- ARTICLE I THE OFFER SECTION 1.1 The Offer......................................................... 2 SECTION 1.2 Company Action.................................................... 3 ARTICLE II AXIOHM EXCHANGE, ACQUISITION OF PURCHASER AND MERGER SECTION 2.1 The Axiohm Exchange............................................... 5 SECTION 2.2 Acquisition of Purchaser.......................................... 7 SECTION 2.3 The Merger........................................................ 7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY SECTION 3.1 Organization and Standing; Subsidiaries........................... 9 SECTION 3.2 Capitalization of the Company..................................... 10 SECTION 3.3 Financial Statements; Exchange Act Filings........................ 11 SECTION 3.4 No Undisclosed Liabilities........................................ 11 SECTION 3.5 Absence of Certain Changes, Events or Conditions.................. 12 SECTION 3.6 No Default........................................................ 12 SECTION 3.7 Litigation, Etc................................................... 12 SECTION 3.8 Intellectual Property............................................. 12 SECTION 3.9 No Excess Parachute Payments; Section 162(m) of the Code.......... 13 SECTION 3.10 Environmental Laws and Regulations................................ 13 SECTION 3.11 Compliance........................................................ 14 SECTION 3.12 Offer Documents; Registration Statement and Exchange Documents.... 14 SECTION 3.13 No Conflict With Other Documents.................................. 15 SECTION 3.14 Authority; Consents............................................... 15 SECTION 3.15 Contracts......................................................... 16 SECTION 3.16 Customers and Suppliers........................................... 17 SECTION 3.17 Tax Matters....................................................... 17
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SECTION 3.18 Pension and Employee Benefit Plans.............................. 18 SECTION 3.19 Foreign Corrupt Practices Act................................... 19 SECTION 3.20 No Pending Transactions......................................... 20 SECTION 3.21 Transactions with Affiliates.................................... 20 SECTION 3.22 Opinion of Financial Advisor.................................... 20 SECTION 3.23 Brokers......................................................... 20 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER SECTION 4.1 Organization and Standing; Subsidiaries......................... 21 SECTION 4.2 Capitalization of Parent........................................ 22 SECTION 4.3 Financial Statements............................................ 22 SECTION 4.4 No Undisclosed Liabilities...................................... 23 SECTION 4.5 Absence of Certain Changes, Events or Conditions................ 23 SECTION 4.6 No Default...................................................... 23 SECTION 4.7 Litigation, Etc................................................. 24 SECTION 4.8 Intellectual Property........................................... 24 SECTION 4.9 Environmental Laws and Regulations.............................. 25 SECTION 4.10 Compliance...................................................... 25 SECTION 4.11 Offer Documents; Registration Statement and Exchange Documents.. 25 SECTION 4.12 No Conflict With Other Documents................................ 26 SECTION 4.13 Authority; Consents............................................. 26 SECTION 4.14 Contracts....................................................... 27 SECTION 4.15 Customers and Suppliers......................................... 27 SECTION 4.16 Tax Matters..................................................... 28 SECTION 4.17 Pension and Employee Benefit Plans.............................. 28 SECTION 4.18 Foreign Corrupt Practices Act................................... 30 SECTION 4.19 No Pending Transactions......................................... 30 SECTION 4.20 Transactions with Affiliates.................................... 30 SECTION 4.21 Brokers......................................................... 31 SECTION 4.22 Financing....................................................... 31 ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER SECTION 5.1 Conduct of Business of the Company Pending the Merger.......... 31 SECTION 5.2 Maintenance of Cash............................................ 33
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SECTION 5.3 Conduct of Business of Parent Pending the Merger.................. 33 SECTION 5.4 Conduct of Business of Purchaser Pending the Merger............... 36 ARTICLE VI ADDITIONAL AGREEMENTS SECTION 6.1 Company Board Representation; Co-Chairmen of the Board of Directors; Section 14(f)........................................ 36 SECTION 6.2 Access to Information; Confidentiality............................ 37 SECTION 6.3 No Solicitation of Transactions................................... 38 SECTION 6.4 Stock Options..................................................... 39 SECTION 6.5 Notification of Certain Matters................................... 39 SECTION 6.6 Further Action; All Reasonable Efforts............................ 39 SECTION 6.7 Public Announcements.............................................. 40 SECTION 6.8 Disposition of Litigation......................................... 40 SECTION 6.9 Officer's and Directors' Indemnification.......................... 40 SECTION 6.10 Issuance of Company Warrants and Roll-Over Notes.................. 41 ARTICLE VII CONDITIONS TO AXIOHM EXCHANGE, ACQUISITION OF PURCHASER AND MERGER SECTION 7.1 Conditions to Obligation of Each Party to Effect the Axiohm Exchange.................................................. 42 SECTION 7.2 Conditions to Obligation of Each Party to Effect the Acquisition of Purchaser.............................. 42 SECTION 7.3 Conditions to Obligation of Each Party to Effect the Merger ............................................... 43 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER SECTION 8.1 Termination......................................................... 43 SECTION 8.2 Effect of Termination............................................... 44 SECTION 8.3 Fees................................................................ 44 SECTION 8.4 Amendment........................................................... 46 SECTION 8.5 Waiver.............................................................. 46
-iii- ARTICLE IX GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and Agreements.. 46 SECTION 9.2 Notices..................................................... 46 SECTION 9.3 Certain Definitions......................................... 47 SECTION 9.4 Severability................................................ 48 SECTION 9.5 Entire Agreement; Assignment................................ 48 SECTION 9.6 Parties in Interest......................................... 49 SECTION 9.7 Specific Performance........................................ 49 SECTION 9.8 Governing Law............................................... 49 SECTION 9.9 United States Currency...................................... 49 SECTION 9.10 Headings................................................... 49 SECTION 9.11 Counterparts............................................... 49
ANNEX A Offer Conditions ANNEX B Company Outstanding Options -iv- AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of July 14, 1997 (the "Agreement"), among AXIOHM S.A., a French corporation ("Parent"), AX ACQUISITION CORPORATION, a California corporation ("Purchaser") and a wholly-owned subsidiary of Axiohm IPB, Inc., a Delaware corporation ("IPB") which is a wholly-owned subsidiary of Parent and DH TECHNOLOGY, INC. a California corporation (the "Company"). WHEREAS, the Boards of Directors of Parent, Purchaser and the Company have each determined that it is in the best interests of their respective shareholders for the principal shareholders of Parent to acquire the Company upon the terms and subject to the conditions set forth herein; WHEREAS, in furtherance of such acquisition, it is proposed that Purchaser shall make a cash tender offer (the "Offer") to acquire up to 7.0 million shares (the "Specified Number") of Common Stock, no par value, of the Company ("Company Common Stock"), representing approximately 88% of the outstanding shares of Company Common Stock as of the date hereof (such shares of Company Common Stock being hereinafter collectively referred to herein as "Shares") for $25.00 per Share net to the seller in cash (such amount, or any greater amount per Share paid pursuant to the Offer, being hereinafter referred to as the "Per Share Amount"), upon the terms and subject to the conditions of this Agreement and the Offer; WHEREAS, the Board of Directors of the Company has unanimously consented to the making of the Offer by Purchaser and resolved and agreed to recommend that holders of Shares tender their Shares pursuant to the Offer; WHEREAS, also in furtherance of such acquisition, the respective Boards of Directors of Parent, Purchaser and the Company have each approved (i) the purchases (collectively, the "Axiohm Exchange") to be made by Purchaser from the shareholders of Parent, of all of the outstanding shares (each, a "Parent Share") of the common stock of Parent (the "Parent Stock") held by such shareholders for an aggregate of 5,518,524 Shares and approximately $12.2 million (or, if at the closing of the Axiohm Exchange, Purchaser does not have available the financing necessary to pay the entire amount of such cash, an aggregate of 5,883,732 Shares and approximately $4.3 million); (ii) the sale by IPB to the Company and the purchase by the Company from IPB (the "Acquisition of Purchaser") of all of the outstanding capital stock of Purchaser in exchange for the assumption by the Company, on a joint and several basis with Purchaser, of any and all obligations with respect to indebtedness incurred, or preferred stock issued, by Purchaser or IPB in connection with the Offer and the Axiohm Exchange (which obligations shall not exceed $199 million); (iii) the merger (the "Merger") of Purchaser with and into the Company in accordance with the California General Corporation Law ("CGCL") following the consummation of the Offer, the Axiohm Exchange and the Acquisition of Purchaser upon the terms and subject to the conditions set forth herein; and (iv) the other transactions contemplated hereby. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Purchaser and the Company hereby agree as follows: ARTICLE I THE OFFER SECTION 1.1 The Offer. (a) Provided that this Agreement shall not have been terminated in accordance with Section 8.1 hereof and no event shall have occurred and no circumstance shall exist which would result in a failure to satisfy any of the conditions or events set forth in Annex A hereto (the "Offer Conditions"), Purchaser shall commence the Offer at the initial Per Share Amount as soon as reasonably practicable after the date hereof, and in any event within five business days from the date hereof, but in no event later than five business days after the initial public announcement of Purchaser's intention to commence the Offer. The obligation of Purchaser to accept for payment the Specified Number of Shares tendered pursuant to the Offer shall be subject to the condition (the "Minimum Condition") that at least 6.5 million Shares (representing approximately 81% of the outstanding Company Common Stock as of the date of this Agreement) shall have been validly tendered and not withdrawn prior to the expiration of the Offer, and also shall be subject to the satisfaction of the other Offer Conditions. Purchaser expressly reserves the right, in its sole discretion, to increase the Specified Number, waive any Offer Condition and make any other changes in the terms and conditions of the Offer; provided, however, that, unless previously approved by the Company in writing, no change may be made which decreases the initial Per Share Amount, changes the form of consideration payable in the Offer (other than by adding consideration), reduces the Specified Number, changes the Minimum Condition, or imposes conditions to the Offer in addition to those set forth herein which are adverse to holders of the Shares. Purchaser covenants and agrees that, subject to the terms and conditions of this Agreement, including but not limited to the Offer Conditions, it will accept for payment and pay for up to the Specified Number of Shares (in accordance with the proration provisions of Section 1.1(b), if necessary) as soon as practicable after it is permitted to do so under applicable law, subject to the prior satisfaction of the Offer Conditions. Notwithstanding the foregoing, Purchaser may, without the consent of the Company, (i) extend the Offer beyond the scheduled expiration date (the initial scheduled expiration date being 20 business days following the commencement of the Offer) if, at the scheduled expiration date of the Offer, any of the conditions to Purchaser's obligations to accept for payment, and to pay for, the Shares, shall not be satisfied or waived, (ii) extend the Offer for any period required by any rule, regulation or interpretation of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer, or (iii) extend the Offer for an aggregate -2- period of not more than 10 business days beyond the latest applicable date that would otherwise be permitted under clause (i) or (ii) of this sentence, if as of such date, all of the conditions to Purchaser's obligations to accept for payment, and to pay for, the Shares are satisfied or waived, but the number of Shares validly tendered and not withdrawn pursuant to the Offer equals at least the Minimum Condition but less than the Specified Number, of the outstanding Shares; provided, however, that if, on the initial scheduled expiration date of the Offer, the sole condition remaining unsatisfied is the failure of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), to have expired or been terminated, then, in either case, Purchaser shall extend the Offer from time to time until five business days after the expiration or termination of the applicable waiting period under the HSR Act. (b) If more Shares than the Specified Number are validly tendered prior to the expiration or termination of the Offer and not properly withdrawn, Purchaser will, upon the terms and subject to the conditions of the Offer, accept for payment and pay for only the Specified Number, on a pro rata basis, with adjustments to avoid purchases of fractional Shares, based on the number of Shares validly tendered and not properly withdrawn prior to the expiration or termination of the Offer. (c) As soon as reasonably practicable on the date of commencement of the Offer, Purchaser and Parent shall file with the SEC a Tender Offer Statement on Schedule 14D-1 (together with all amendments and supplements thereto, the "Schedule 14D-1") with respect to the Offer. The Schedule 14D-1 shall contain or shall incorporate by reference an offer to purchase (the "Offer to Purchase") and forms of the related letter of transmittal and any related summary advertisement (which Schedule 14D-1, Offer to Purchase and other documents, together with any further supplements or amendments thereto, are referred to herein collectively as the "Offer Documents"). The Company and its counsel shall be given the opportunity to review and comment on the Offer Documents before they are filed with the SEC or first published, sent or given to shareholders, and shall be given copies of any comment letters from the SEC regarding the Schedule 14D-1 and, to the extent practicable, the opportunity to participate in conversations with the SEC staff. The Schedule 14D-1 and all amendments thereto will comply in all material respects with the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder. Parent, Purchaser and the Company each agrees promptly to correct any information provided by it for use in the Offer Documents that shall have become false or misleading in any material respect, and Parent and Purchaser further agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer Documents as so corrected to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. SECTION 1.2 Company Action. (a) The Company hereby approves of and consents to the Offer and represents and warrants that: (i) its Board of Directors, at a meeting duly called and held on July 13-14, 1997, has unanimously (A) determined that this Agreement and the transactions contemplated hereby, including each of the Offer, the Axiohm Exchange, the Acquisition of -3- Purchaser and the Merger, are fair to and in the best interests of the holders of Shares, (B) approved and adopted this Agreement and the transactions contemplated hereby and (C) resolved to recommend that the shareholders of the Company accept the Offer and tender their Shares to Purchaser thereunder (provided, however, that subject to the provisions of Section 6.3 such recommendation may be withdrawn, modified or amended in connection with a Superior Proposal (as defined in Section 6.3)); and (ii) Prudential Securities Incorporated (the "Financial Adviser"), has delivered to the Board of Directors of the Company its written opinion that the consideration to be received by holders of shares of Company Common Stock (other than Parent and its affiliates), consisting of the cash consideration to be received by such holders pursuant to the Offer and the shares of Company Common Stock to be retained by such holders following the consummation of the Axiohm Exchange, the Acquisition of Purchaser and the Merger, is fair to such holders from a financial point of view. The Company has been authorized by the Financial Adviser to permit, subject to prior review and consent by the Financial Adviser, the inclusion of such fairness opinion (or a reference thereto) in the Offer Documents and in the Schedule 14D-9 referred to below. The Company hereby consents to the inclusion in the Offer Documents of the recommendations of the Company's Board of Directors described in this Section 1.2(a). (b) As soon as reasonably practicable on the date of filing by Parent and Purchaser of the Offer Documents with the SEC, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (together with all amendments and supplements thereto, the "Schedule 14D-9"), containing the recommendations of the Company's Board of Directors described in Section 1.2(a) and shall promptly mail the Schedule 14D-9 to the shareholders of the Company. Parent and its counsel shall be given the opportunity to review and comment on the Schedule 14D-9 before it is filed with the SEC, and shall be given copies of any comment letters from the SEC regarding the Schedule 14D-9 and, to the extent practicable, the opportunity to participate in conversations with the SEC staff. The Schedule 14D-9 and all amendments thereto will comply in all material respects with the Exchange Act and the rules and regulations promulgated thereunder. The Company, Parent and Purchaser each agrees promptly to correct any information provided by it for use in the Schedule 14D-9 that shall have become false or misleading in any material respect, and the Company further agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. (c) In connection with the Offer, the Company shall promptly furnish Purchaser with mailing labels, security position listings, any non-objecting beneficial owner lists and any available listings or computer files containing the names and addresses of the record holders of Shares, each as of a recent date, and shall promptly furnish Purchaser with such additional information (including but not limited to updated lists of shareholders, mailing labels, security position listings and non-objecting beneficial owner lists) and such other assistance as Parent, Purchaser or their agents may reasonably require in communicating the Offer to the record and beneficial holders of Shares. Subject to the requirements of applicable laws and except for such steps as are necessary to -4- disseminate the Offer Documents and any other documents necessary to consummate the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, as applicable, Parent and Purchaser (and their agents) shall hold in confidence the information contained in any of such labels and lists and, if this Agreement shall be terminated, will upon request promptly deliver to the Company or destroy all copies of such information then in their possession or control. ARTICLE II AXIOHM EXCHANGE, ACQUISITION OF PURCHASER AND MERGER SECTION 2.1 The Axiohm Exchange. (a) Upon the terms and subject to the conditions of this Agreement, as soon as practicable after the date hereof, Purchaser shall commence the Axiohm Exchange by seeking to enter into stock purchase agreements ("Axiohm Purchase Agreements") with all holders of Parent Shares (the "Parent Holders"). Pursuant to the Axiohm Purchase Agreements, Purchaser shall attempt to purchase from the Parent Holders all Parent Shares held by such Parent Holders for an aggregate of 5,518,524 Shares of the Company Common Stock purchased by Purchaser in the Offer (the "Exchange Shares") plus an aggregate of $12,197,900 in cash (the "Exchange Cash") (the Exchange Shares and the Exchange Cash are hereinafter referred to collectively as the "Exchange Consideration"). The payment of the Exchange Shares shall be pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Act"). The aggregate value of the Exchange Consideration to be paid by Purchaser to each Parent Holder shall be in proportion to the percentage of outstanding Parent Shares which are held by such Parent Holder, provided, however, that Purchaser reserves the right to vary the relative amount of Exchange Shares and Exchange Cash to be received by each Parent Holder as a part of such Exchange Consideration. In the event that at the Axiohm Exchange Closing (as defined below) Purchaser does not have available the financing necessary to pay the entire amount of the Exchange Cash to the Parent Holders, then the aggregate Exchange Cash to be paid by Purchaser shall be reduced to $4,317,700 and the number of Exchange Shares to be transferred by Purchaser to the Parent Holders in the Axiohm Exchange shall be increased to an aggregate of 5,833,732 Shares. Except as set forth above, neither Parent nor Purchaser shall distribute or transfer any other amounts to the Parent Holders in connection with the transactions contemplated by this Agreement. (b) Effective Time of Axiohm Exchange. No later than 45 days after the satisfaction or waiver of the conditions set forth in Section 7.1 and immediately prior to the Effective Time, Purchaser and Parent shall cause the Axiohm Exchange to be consummated (the "Axiohm Exchange Closing"). (c) Reduction in Exchange Consideration. Notwithstanding anything to the contrary contained herein, in the event that less than all of the Parent Shares are delivered to Purchaser -5- pursuant to the Axiohm Exchange (whether directly or indirectly pursuant to Section 2.1(e)), the Exchange Consideration to be issued in the Axiohm Exchange shall be reduced proportionately. (d) Treatment of Parent Outstanding Options. At the Axiohm Exchange Closing, the Company shall cause all of the 1,583 Parent Outstanding Options (as defined in Section 4.2), all of which are held by one individual (the "Parent Option Holder"), to be replaced by an option to purchase an aggregate of 231,118 shares of Company Common Stock at an exercise price of $7.15 per share (the "Replacement Options"). The Replacement Options shall be issued to the Parent Option Holder pursuant to the Company's 1992 Stock Option Plan, as amended, or will otherwise be exempt under Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as amended and, except as provided herein, shall contain such general provisions as are typically contained in the Company Outstanding Options. The options represented by the Replacement Option shall become exercisable ratably over four years, with 20% of such options exercisable upon the issuance thereof and an additional 20% to become exercisable on January 1 of each year thereafter, beginning with January 1, 1998. As soon as practicable after the issuance of the Replacement Options, the Company shall take all necessary actions to cause the shares of Company Common Stock to be issued upon exercise of the Replacement Options to be registered under the Act. (e) Indirect Exchange of Parent Shares. Notwithstanding anything to the contrary contained herein, Parent, Purchaser and the Company acknowledge and agree that (i) certain Parent Shares are owned by Dardel Technologies, S.A., a French corporation which is wholly-owned by two individuals (the "Dardel Holders") and (ii) provided that (A) Dardel has no liabilities other than liabilities which are offset by cash remaining in Dardel and no assets other than the Parent Shares and such cash, if any, and (B) the Company shall have received from the Dardel Holders indemnification with respect to any undisclosed liabilities of Dardel and any tax that arises from Purchaser's purchase of Dardel Shares rather than Parent Shares in the Axiohm Exchange, then, at the option of the Dardel Holders, Purchaser shall receive in the Axiohm Exchange all of the capital stock of Dardel (the "Dardel Shares") in exchange for Exchange Consideration, rather than receiving the Parent Shares directly from Dardel. In the event that the Dardel Holders elect to have Purchaser receive the Dardel Shares in place of the Parent Shares owned by Dardel, then (x) such Parent Shares shall not be exchanged in the Axiohm Exchange but rather will be beneficially owned by Purchaser following the Axiohm Exchange by virtue of Purchaser's ownership of the Dardel Shares, (y) the Dardel Holders, rather than Dardel, shall be considered "Parent Holders" for purposes of the Axiohm Exchange, and (z) the distribution of the Exchange Consideration to the Dardel Holders shall be, in the aggregate, based upon the number of Parent Shares owned by Dardel and will be divided among such Dardel Holders in proportion to their ownership of Dardel Shares immediately prior to the Axiohm Exchange. (f) Registration of Resales of Exchange Shares. (i) As soon as practicable following the Axiohm Exchange Closing, the Company shall (A) cause to be filed with the SEC, a registration -6- statement on Form S-3 (the "Registration Statement") under the Act relating to the resale by the Parent Holders of the Exchange Shares, (B) use their reasonable best efforts to cause such Registration Statement to become effective at the earliest possible time, (C) in connection with the foregoing, file (I) all pre-effective amendments to such Registration Statement as may be necessary in order to cause such Registration Statement to become effective and (II) if applicable, a post-effective amendment to such Registration Statement pursuant to Rule 430A under the Act, (D) take any action (other than qualifying to do business in any jurisdiction in which it is not now qualified) required to be taken under any applicable state securities laws in connection with the resale of the Exchange Shares; and (E) prepare all documents, notices and announcements required in connection with the resale of such Exchange Shares, including the prospectus included in the Registration Statement (the "Prospectus"), and cause the Prospectus to be mailed to and otherwise made available to the Parent Holders. (ii) The Company shall cause the Registration Statement relating to the resale of the Exchange Shares to be continuously effective for a period of not less than two years. SECTION 2.2 Acquisition of Purchaser. Simultaneously with the Axiohm Exchange Closing, the Company and Parent hereby agree that the Company shall purchase from IPB and Parent shall cause IPB to sell to the Company all shares of the capital stock of Purchaser which are owned by IPB in exchange for the assumption by the Company, on a joint and several basis with Purchaser, of any and all obligations with respect to indebtedness incurred, or preferred stock issued, by Purchaser or IPB in connection with the Offer and the Axiohm Exchange, which obligations shall not exceed $199 million. The transactions contemplated by this Section 2.2 are referred to herein as the "Acquisition of Purchaser." SECTION 2.3 The Merger. (a) Upon the terms and subject to the conditions of this Agreement and in accordance with the CGCL, at the Effective Time (as defined in Section 2.3(b)), Purchaser shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Purchaser shall cease and the Company shall continue as the surviving corporation of the Merger (the "Surviving Corporation"), with the name Axiohm Inc. (b) Effective Time of the Merger. As soon as practicable after the satisfaction or waiver of the conditions set forth in Article VII, the parties hereto shall cause the Merger to be consummated by filing an Agreement of Merger (the "Agreement of Merger") with the Secretary of State of the State of California, in such form as required by and executed in accordance with the relevant provisions of the CGCL (the date and time of the filing of the Agreement of Merger with the Secretary of State of the State of California (or such later time as is specified in the Agreement of Merger) being the "Effective Time"). (c) Effects of the Merger. The Merger shall have the effects set forth in the applicable provisions of the CGCL. Without limiting the generality of the foregoing and subject thereto, at the -7- Effective Time all the property, rights, privileges, immunities, powers and franchises of the Company and Purchaser shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Purchaser shall become the debts, liabilities and duties of the Surviving Corporation. (d) Articles of Incorporation; By-Laws. (i) At the Effective Time and without any further action on the part of the Company and Purchaser, the Articles of Incorporation of the Company as in effect immediately prior to the Effective Time, until thereafter amended as provided therein and under the CGCL, shall be the Articles of Incorporation of the Surviving Corporation; provided, that, upon the consummation of the Merger, such Articles of Incorporation shall be amended in accordance with Section 1110(d) of the CGCL to change the name of the Surviving Corporation to Axiohm Inc. (ii) At the Effective Time and without any further action on the part of the Company and Purchaser, the By-Laws of Purchaser shall be the By-Laws of the Surviving Corporation and thereafter may be amended or repealed in accordance with their terms or the Articles of Incorporation of the Surviving Corporation and as provided by law. (e) Directors and Officers. Subject to Section 6.1, the directors of the Company immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Articles of Incorporation and By-Laws of the Surviving Corporation, and, subject to Section 6.1, the officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed (as the case may be) and qualified. (f) Cancellation of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of Purchaser, the Company or the holders of any of the following securities: (i) Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than any Shares to be cancelled pursuant to Section 2.3(f)(ii)) shall remain outstanding. (ii) Each share of Company Common Stock owned by Purchaser or any other direct or indirect wholly-owned subsidiary of Parent or of the Company, in each case immediately prior to the Effective Time but after the Axiohm Exchange Closing, shall be cancelled and retired without any conversion thereof and no payment or distribution shall be made with respect thereto. (iii) Each share of common, preferred or other capital stock of Purchaser issued and outstanding immediately prior to the Effective Time shall be cancelled, since such shares are then owned by the Company. -8- ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Purchaser and Parent that the statements contained in this Article III are true and correct, except as set forth in the disclosure schedule delivered by the Company to Purchaser and Parent on or before the date of this Agreement (the "Company Disclosure Schedule"). The Company Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections contained in this Article III. SECTION 3.1 Organization and Standing; Subsidiaries. (a) Each of the Company and its subsidiaries whose business or assets are material to the Company (collectively, the "Company Subsidiaries," and, together with the Company, collectively the "Corporation") is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not have a Material Adverse Effect on the Corporation. When used in connection with the Company or any of its subsidiaries, the term "Material Adverse Effect" means any change or effect that would be materially adverse to the business, assets (whether tangible or intangible), financial condition, results of operations of the Company and its subsidiaries taken as a whole. The Company has heretofore delivered to Purchaser accurate and complete copies of the Articles of Incorporation and By- Laws (or equivalent organization documents), as currently in effect, of the Company and each of the Company Subsidiaries. The Company Disclosure Schedule includes a list of each of the Company's subsidiaries, together with the jurisdiction of incorporation of each subsidiary and the percentage of each subsidiary's outstanding capital stock or other equity interests owned by the Company or its subsidiaries, as the case may be. (b) Each of the Company and the Company Subsidiaries is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so duly qualified or licensed and in good standing would not, individually or in the aggregate, have a Material Adverse Effect on the Corporation. SECTION 3.2 Capitalization of the Company. (a) The Company's entire authorized capital stock consists of 29,500,000 shares, of which 28,500,000 shares are classified as Company Common Stock, and 1,000,000 of which are classified as Preferred Stock, no par value (the "Preferred Stock"). As of the date hereof, there are no shares of Preferred Stock issued and outstanding, 7,994,402 shares of Company Common Stock issued and outstanding and 1,811,721 shares reserved -9- for issuance in connection with the Company's stock option plans (of which options to purchase 315,825, 1,006,375 and 56,250 shares are outstanding under the Company's 1983 Stock Option Plan, 1992 Stock Plan and the Director Warrant Plan, respectively (the "Company Outstanding Options")). Except as set forth above or as contemplated in connection with the Financing (as defined herein) or by Annex B hereto, there are outstanding (i) no shares of capital stock or other voting securities of the Company, (ii) no securities of the Company or any of the Company Subsidiaries convertible into or exchangeable for shares of capital stock or other voting securities of the Company, (iii) no options, warrants or other rights to acquire from the Company or any of the Company Subsidiaries (including any rights issued or issuable under a shareholders rights plan or similar arrangement), and no obligations of the Company or any of the Company Subsidiaries to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company, (iv) no equity equivalents, interests in the ownership or earnings of the Company or any of the Company Subsidiaries or other similar rights (with the securities listed in clauses (i) through (iv) referred to collectively as the "Corporation's Securities"), and (v) no outstanding obligations of the Company or any of the Company Subsidiaries to repurchase, redeem or otherwise acquire any of the Corporation's Securities or to make any investment (by loan, capital contribution or otherwise) in any other entity. The Company Disclosure Statement sets forth a list of all Company Outstanding Options and which such options are currently vested. (b) All of the outstanding capital stock of, or other ownership interests in, each of the Company Subsidiaries, is owned by the Company, directly or indirectly, free and clear of any Lien or any other limitation or restriction (including any restriction on the right to vote or sell the same, except as may be provided as a matter of law). For purposes of this Agreement, "Lien" means, with respect to any asset (including, without limitation, any security) any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. There are no securities of the Company or any of the Company Subsidiaries convertible into or exchangeable for, no options or other rights to acquire from the Company or any of the Company Subsidiaries, and no other contract, understanding, arrangement or obligation (whether or not contingent) providing for the issuance or sale, directly or indirectly, of, any capital stock or other ownership interests in, or any other securities of, any of the Company Subsidiaries. There are no outstanding contractual obligations of the Company or any of the Company Subsidiaries to repurchase, redeem or otherwise acquire any outstanding shares of capital stock or other ownership interests in any subsidiary of the Company. (c) All issued and outstanding shares of the capital stock of the Company and each of the Company Subsidiaries (i) have been duly authorized and validly issued and are fully paid and non-assessable, free of any preemptive rights and (ii) were issued in compliance with all applicable federal and state securities laws. The Company Outstanding Options have been duly authorized and validly issued and are in full force and effect. -10- SECTION 3.3 Financial Statements; Exchange Act Filings. (a) The Company has heretofore delivered to the Purchaser copies of: (i) the Company's consolidated financial statements as of and for the years ended December 31, 1994, 1995 and 1996, which have been audited by KPMG Peat Marwick LLP, independent public accountants (the "Company Audited Financial Statements"), and (ii) the Company's unaudited consolidated financial statements as of and for the three months ended March 31, 1997, (the "Company Unaudited Financial Statements"). The Company Audited Financial Statements and the Company Unaudited Financial Statements (collectively, the "Company Financial Statements") fairly present, in conformity with US GAAP (as defined in Section 9.3 hereof) applied on a consistent basis by the Company (except as may be indicated in the notes thereto) and in conformity with the SEC's Regulation S-X, the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject in the case of any unaudited financial statements to normal recurring year-end audit adjustments, which are not expected to be material in amount). Since December 31, 1996, the Company has not made any changes in the accounting policies applied to the Company Audited Financial Statements, and no such changes are currently contemplated nor, to the best of the Company's knowledge, required under US GAAP or the SEC's Regulation S-X. (b) The Company has heretofore delivered to the Purchaser complete copies of all periodic reports, statements and other documents (including Exhibits thereto) that the Company has filed with the SEC under the Exchange Act since January 1, 1993 (collectively, the "Company SEC Reports"). All Company SEC Reports required to be filed with the SEC by the Company during such period were filed in a timely manner and complied in all material respects with the applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder. At the time filed with the SEC (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing), no Company SEC Report contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. SECTION 3.4 No Undisclosed Liabilities. Except as and to the extent reflected or reserved against in the Company's consolidated balance sheet dated as of March 31, 1997, the Corporation had no material liabilities or obligations (whether accrued, absolute or contingent), including without limitation, any liabilities resulting from failure to comply with any law or any federal, state, local or foreign tax liabilities due or to become due whether (i) incurred in respect of or measured by income for any period ending on or prior to the close of business on such date, or (ii) arising out of transactions entered into, or any state of facts existing, on or prior thereto. SECTION 3.5 Absence of Certain Changes, Events or Conditions. Since January 1, 1997, other than as disclosed in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, (i) the Company has not incurred any liabilities of any nature, whether or not accrued, contingent or otherwise, which would have a Material Adverse Effect on the Corporation, -11- and (ii) there have been no events, changes or effects with respect to the Company and the Company Subsidiaries having or which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Corporation, and (iii) the Company and the Company Subsidiaries have conducted their businesses only in the ordinary course and in a manner consistent with prior practice. SECTION 3.6 No Default. Neither the Company nor any of the Company Subsidiaries is in default or violation (and no event has occurred which with notice or the lapse of time or both would constitute a default or violation) of any term, condition or provision of (i) its Articles of Incorporation or By-Laws (or similar governing documents), (ii) any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which the Company or any of the Company Subsidiaries is now a party or by which any of them or any of their respective properties or assets may be bound, or (iii) any order, writ, injunction, decree, law, statute, rule or regulation applicable to the Company, any of the Company Subsidiaries or any of their respective properties or assets, except in the case of (ii) or (iii) for violations, breaches or defaults that would not, individually or in the aggregate, have a Material Adverse Effect on the Corporation. SECTION 3.7 Litigation, Etc. (i) There is no suit, claim, action, proceeding or investigation pending or, to the knowledge of the Company, threatened against the Company or any of the Company Subsidiaries or any of their respective properties or assets before any court, administrative agency or commission or other governmental authority or instrumentality ("Governmental Entity") which, individually or in the aggregate, could have a Material Adverse Effect on the Corporation if decided adversely to the Corporation or could prevent or delay the consummation of the transactions contemplated by this Agreement, and (ii) neither the Company nor any of the Company Subsidiaries is subject to any outstanding order, writ, injunction or decree which, insofar as can be reasonably foreseen, individually or in the aggregate, in the future could have a Material Adverse Effect on the Corporation or could prevent or delay the consummation of the transactions contemplated hereby. SECTION 3.8 Intellectual Property. (a) The Company or one of the Company Subsidiaries owns, or is licensed or otherwise possesses legally enforceable rights to use, all patents, trademarks, trade names, service marks, copyrights, and any applications for such patents, trademarks, trade names, service marks and copyrights, processes, formulae, methods, schematics, technology, know-how, computer software programs or applications and tangible or intangible proprietary information or material that are necessary to conduct the business of the Corporation as currently conducted, or proposed to be conducted, the absence of which would be reasonably likely to have a Material Adverse Effect on the Corporation (the "Company Intellectual Property Rights"). The Company Disclosure Schedule lists (i) all patents and patent applications and all trademarks, registered copyrights, trade names and service marks which the Company considers to be material to the business of the Corporation and which are included in the Company Intellectual Property Rights, including the jurisdictions in which each such Company Intellectual Property Right has been issued or registered or in which any such application for such issuance and registration has been -12- filed, (ii) all material licenses, sublicenses and other agreements as to which the Company or any of the Company Subsidiaries is a party and pursuant to which any person is authorized to use any Company Intellectual Property Rights, and (iii) all material licenses, sublicenses and other agreements as to which the Company or any of the Company Subsidiaries is a party and pursuant to which the Company or any of the Company Subsidiaries is authorized to use any third party patents, trademarks or copyrights, including software ("Company Third Party Intellectual Property Rights") which are incorporated in or form a part of any Corporation product that is material to its business. (b) Neither the Company nor any of the Company Subsidiaries is, nor will any of them be as a result of the execution and delivery of this Agreement or the performance of its obligations under this Agreement, in breach of any license, sublicense or other agreement relating to the Company Intellectual Property Rights or Company Third Party Intellectual Property Rights, the breach of which could have a Material Adverse Effect on the Corporation. (c) To the Company's knowledge, all patents, registered trademarks, service marks and copyrights held by the Company or any of the Company Subsidiaries are valid and subsisting. Neither the Company nor any of the Company Subsidiaries (i) has been sued (or threatened with suit or notified of a claim) involving a claim of infringement of any patents, trademarks, service marks, copyrights or violation of any trade secret or other proprietary right of any third party; and (ii) has any knowledge that the manufacturing, marketing, licensing or sale of its products or services infringes any patent, trademark, service mark, copyright, trade secret or other proprietary right of any third party. SECTION 3.9 No Excess Parachute Payments; Section 162(m) of the Code. (i) The acceleration of the vesting of certain of the Company Outstanding Options which are owned by Walter S. Sobon, the Company's Chief Financial Officer, as a result of any of the transactions contemplated by this Agreement will not be characterized as an "excess parachute payment" (as such term is defined in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the "Code")) and (ii) the disallowance of a deduction under Section 162(m) of the Code for employee remuneration will not apply to any amount paid or payable by the Company or any Company Subsidiary under any contract, benefit plan, program, arrangement or understanding currently in effect. SECTION 3.10 Environmental Laws and Regulations. (i) The Company and each of the Company Subsidiaries is in compliance with all applicable Federal, state, foreign and local laws and regulations relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) (collectively, "Environmental Laws"), except for non-compliance that individually or in the aggregate would not have a Material Adverse Effect on the Corporation, which compliance includes, but is not limited to, the possession by the Company and the Company Subsidiaries of all material -13- permits and other governmental authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof and (ii) neither the Company nor any of the Company Subsidiaries has received written notice of, or is the subject of, any action, cause of action, claim, investigation, demand or notice by any person or entity alleging liability under or non-compliance with any Environmental Law (an "Environmental Claim") that individually or in the aggregate would have a Material Adverse Effect on the Corporation. SECTION 3.11 Compliance. (i) The Company and each of the Company Subsidiaries holds all licenses, permits, variances, exemptions, orders, approvals and other authorizations of all Governmental Entities necessary for the lawful conduct of their respective businesses (the "Company Permits"), except for failures to hold such permits, licenses, variances, exemptions, orders, approvals and other authorizations which would not, individually or in the aggregate, have a Material Adverse Effect on the Corporation; (ii) the Company and the Company Subsidiaries are in compliance with the terms of each of the Company Permits, except where the failure so to comply would not have a Material Adverse Effect on the Corporation, (iii) the businesses of the Company and the Company Subsidiaries are not being conducted in violation of any law, ordinance or regulation of any Governmental Entity, except for violations or possible violations which individually or in the aggregate do not, and, insofar as reasonably can be foreseen, in the future will not, have a Material Adverse Effect on the Corporation, and (iv) no investigation or review by any Governmental Entity with respect to the Company or any of the Company Subsidiaries is pending or, to the best knowledge of the Company, threatened, nor, to the best knowledge of the Company, has any Governmental Entity indicated an intention to conduct the same, other than, in each case, those which the Company reasonably believes will not have a Material Adverse Effect on the Corporation. SECTION 3.12 Offer Documents; Registration Statement and Exchange Documents. (a) Neither the Schedule 14D-9, nor any of the information supplied by the Company in writing for inclusion in the Offer Documents, shall, at the respective times such Schedule 14D-9, the Offer Documents or any amendments or supplements thereto are filed with the SEC or are first published, sent or given to shareholders, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) Neither the Registration Statement nor the Exchange Documents, shall, at the respective times such Registration Statement or Exchange Documents or any amendments or supplements thereto are filed with the SEC and later become effective or are first published, sent or given to the holders of Parent Shares, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or necessary to correct any statement in any earlier communication with respect to the registration of Company Common Shares or the -14- exchange by the holders of Parent Shares of such Parent Shares for the Exchange Consideration which has become false or misleading. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information supplied by Parent or Purchaser or any of their respective representatives in writing which is contained in the Schedule 14D-9, the Registration Statement or the Exchange Documents. The Schedule 14D-9 will comply in all material respects as to form with the requirements of the Exchange Act and the rules and regulations promulgated thereunder. SECTION 3.13 No Conflict With Other Documents. Neither the execution, delivery or performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the respective Articles of Incorporation or By-Laws (or similar governing documents) of the Company or of any of the Company Subsidiaries; (ii) trigger the rights of the Company or any of the Company Subsidiaries or any holder of the Corporation's Securities under any shareholder rights plan or similar arrangement; (iii) restrict any business combination between the Purchaser or any of its subsidiaries and the Company or any of its subsidiaries under the laws of the United States; (iv) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, or result in the material modification of, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which the Company or any of the Company Subsidiaries is a party or by which any of them or any of their respective properties or assets may be bound; or (v) violate any order, writ, injunction, decree, law, statute, rule or regulation applicable to the Company or any of the Company Subsidiaries or any of their respective properties or assets, except in the case of (iv) or (v) for violations, breaches or defaults which could not, individually or in the aggregate, have a Material Adverse Effect on the Corporation. SECTION 3.14 Authority; Consents. (a) The Company has all necessary corporate power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the Company's Board of Directors and no other corporate proceedings on the part of the Company or any of the Company Subsidiaries are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. (b) Upon the satisfaction of all other conditions contained herein and the filing of the Agreement of Merger with the Secretary of State of the State of California, this Agreement will -15- result in the valid, legally binding and enforceable statutory merger of Purchaser with and into the Company. (c) No consent, approval, order or authorization of, or registration, declaration or filing with (i) any Governmental Entity or (ii) any individual, corporation or other entity (including any holder of the Corporation's Securities) is required by or with respect to the Company in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (A) the filing of the Registration Statement with the SEC in accordance with the Exchange Act, (B) the filing of the Agreement of Merger with the California Secretary of State, (C) satisfaction of all information and waiting period requirements of HSR and any regulations promulgated thereunder, (D) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable state "blue sky" or securities laws and the securities laws of any foreign country, (E) those set forth in the Company Disclosure Schedule, and (F) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not be reasonably likely to have a Material Adverse Effect on the Corporation. SECTION 3.15 Contracts. Neither the Company nor any of the Company Subsidiaries is a party to or subject to: (i) any employment contract or independent contractor arrangements with any officer, consultant, director or employee or former employee or any other person; (ii) any plan or contract or arrangement providing for bonuses, pensions, options, deferred compensation, retirement payments, profit sharing, or the like; (iii) any contract or agreement with any labor union; (iv) any contract, agreement, instrument or other document that would be required to be filed as an exhibit to a Registration Statement on Form S-1 were the Company or any of the Company Subsidiaries to file such a Registration Statement on the date of this Agreement; (v) any contract, agreement, instrument or other document not entered into by the Company or any of the Company Subsidiaries in the ordinary course of business, under which the Company or any of the Company Subsidiaries is required to make annual payments to any third party in excess of $100,000; or (vi) any agreement, voting trust, understanding or arrangement, written or oral, concerning the election of directors. Neither the Company nor any of the Company Subsidiaries has breached, or received in writing any claim or threat that it has breached, any of the terms or conditions of any agreement, contract or commitment referred to in the prior sentence ("Company Material Contracts") in such a manner as would permit any other party to cancel or terminate the same or would permit any other party to seek material damages from the Company or any of the Company Subsidiaries under any Company Material Contract. Each Company Material Contract that has not expired or been terminated is in full force and effect and is not subject to any material default thereunder of which the Company is aware by any party obligated to the Company or any of the Company Subsidiaries pursuant to the Company Material Contract. SECTION 3.16 Customers and Suppliers. Neither the Company nor any of the Company Subsidiaries has received notice that, nor do any of them have knowledge or any reason to believe that, any customer that represented 5% or more of the Company's consolidated revenues in any of -16- the past three years will not continue to do business with the Company or the Company Subsidiaries at volumes consistent with past practices subsequent to the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger. No entity which is now supplying, or during 1996 supplied, to the Company or the Company Subsidiaries products and services has reduced or otherwise discontinued, or threatened to reduce or discontinue, supplying such items to the Company or the Company Subsidiaries on reasonable terms, except for such reductions or discontinuations which would not have a Material Adverse Effect on the Corporation. SECTION 3.17 Tax Matters. (a) For the purposes of this Agreement, a "Tax" or, collectively, "Taxes," means any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person or entity with respect to such amounts and including any liability for taxes of a predecessor entity. (b) The Company and the Company Subsidiaries have accurately prepared and timely filed or will accurately prepare and timely file all material federal, state, local and foreign returns, estimates, information statements and reports required to be filed at or before the Effective Time ("Returns") relating to any and all Taxes concerning or attributable to the Company, any of the Company Subsidiaries or any of their operations or assets, and such Returns are and will be true and correct in all material respects and have been or will be completed in all material respects in accordance with applicable law; and copies of all Returns of the Company and the Company Subsidiaries for the past three years have been or will be provided by the Company to Purchaser. (c) The Company and each of the Company Subsidiaries as of the Effective Time: (i) will have paid all Taxes any of them is required to pay prior to the Effective Time (other than those being contested in good faith); (ii) will have properly reflected on its books and records an accrual for all Taxes payable at the Effective Time; (iii) will have withheld with respect to their employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld; and (iv) will have collected all sales and use taxes on account of sales by the Company or any Company Subsidiary or use of any of their products, except in each instance where any failure to make such payment or withholding would not be reasonably likely to have a Material Adverse Effect on the Corporation. (d) There is no Tax deficiency outstanding, proposed or assessed against the Company or any of the Company Subsidiaries that is not reflected as a liability on the Company Financial Statements nor has the Company or any of the Company Subsidiaries executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. -17- SECTION 3.18 Pension and Employee Benefit Plans. (a) The Company has set forth on the Company Disclosure Schedule all employee benefit plans (including "employee benefit plans" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), whether or not subject to ERISA, and all bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and all other programs or arrangements intended to provide employee benefits, and all unexpired severance agreements, written or otherwise, for the benefit of, or relating to, any current or former employee of the Company or any of the Company Subsidiaries or any trade or business (whether or not incorporated) which is a member or which is under common control with the Company within the meaning of Section 414 of the Code (an "ERISA Affiliate") (together, the "Company Employee Plans"). (b) With respect to each Company Employee Plan, the Company has made or will make available to Parent, a true and correct copy of (i) the most recent annual report (Form 5500) filed with the Internal Revenue Service ("IRS"), (ii) such Company Employee Plan, (iii) each trust agreement and group annuity contract, if any, relating to such Company Employee Plan and (iv) the most recent actuarial report or valuation relating to a Company Employee Plan subject to Title IV of ERISA. (c) With respect to the Company Employee Plans, individually and in the aggregate, no event has occurred, and to the knowledge of the Company there exists no condition or set of circumstances, in connection with which the Company or any subsidiary of the Company could be subject to any liability under ERISA, the Code or any other applicable law that is reasonably likely to have a Material Adverse Effect on the Corporation. (d) With respect to the Company Employee Plans, individually and in the aggregate, there are no funded benefit obligations for which contributions have not been made or properly accrued and there are no unfunded benefit obligations which have not been accounted for by reserves, or otherwise properly footnoted in accordance with US GAAP on the Company Financial Statements. (e) Except as set forth on the Company Disclosure Schedule, neither the Company nor any of the Company Subsidiaries is a party to any oral or written (i) union or collective bargaining agreement, (ii) agreement with any officer or other key employee of the Company or any of the Company Subsidiaries, the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company of the nature contemplated by this Agreement, (iii) agreement with any officer providing any term of employment or compensation guarantee extending for a period longer than one year from the date hereof, providing for the payment of compensation in excess of $100,000 per annum or providing for severance benefits or other benefits upon or following termination of employment, or (iv) agreement or plan, including any stock option plan, stock appreciation right plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of -18- the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. (f) Each of the Company Employee Plans which is intended to qualify under Section 401 of the Code is designated on the Company Disclosure Schedule as being a qualified plan (the Plans so designated being hereinafter referred to as the "Company Qualified Plans"). Each Company Qualified Plan is qualified under Section 401(a) of the Code and, unless the Company Qualified Plan is a standardized form or paired plan (as defined in Revenue Procedure 97-6) each Parent Qualified Plan is the subject of a currently effective determination letter from the IRS confirming such qualification. True and correct copies of the most recent determination letters from the IRS with respect to the Company Qualified Plans which were issued after the effective date of ERISA have been or will be delivered to the Purchaser. With respect to each Company Qualified Plan, the Company has not obtained a waiver of any minimum funding requirements imposed by ERISA or the Code in respect of such Company Qualified Plan, and has not incurred any liability to the Pension Benefit Guaranty Corporation in connection with any such Company Qualified Plan. As of the date hereof, the funding of all Parent Qualified Plans complies with ERISA and all applicable laws. No "reportable event," as such term is defined in ERISA and in regulations issued thereunder, has occurred with respect to any of the Company Qualified Plans since the effective date of ERISA (other than as a result of this Agreement). (g) The Company has identified to the Purchaser which, if any, of the Company Employee Plans are multi-employer pension plans (as defined by ERISA) and the number of employees of the Corporation who participated in multi- employer plans during the year ended December 31, 1996. Since April 29, 1980, neither the Company nor any of the Company Subsidiaries has, with respect to any multi-employer plan, suffered or otherwise caused a "complete withdrawal" or "partial withdrawal" (as such terms are defined by ERISA) nor has the Company engaged in any transaction that would be deemed to avoid or evade liabilities related to such withdrawal. SECTION 3.19 Foreign Corrupt Practices Act. Neither the Company nor any of the Company Subsidiaries, nor, to the Company's knowledge, any director, officer, agent, employee, consultant, or any other person associated with or acting on behalf of any of them, has engaged or is engaged in any course of conduct, or is a party to any agreement or involved in any transaction, which has or would give rise to a violation of the Foreign Corrupt Practices Act of 1977 or any other United States statute or regulation governing the conduct of business abroad by United States corporations and their subsidiaries. SECTION 3.20 No Pending Transactions. (a) Except for the transactions contemplated by this Agreement and the acquisition agreements or negotiations described on the Company Disclosure Statement or in the Company's SEC Reports, neither the Company nor any of the Company Subsidiaries is a party to or bound by or the subject of any agreement, undertaking, commitment or discussion with another party with respect to a proposal or offer for a merger, consolidation, business -19- combination, or a sale of substantial assets, or sale or acquisition of at least 15% of the outstanding of shares of capital stock of the Company or a Company Subsidiary (including without limitation by way of a tender offer or similar transactions involving the Company, other than the transactions contemplated by this Agreement) (any of the foregoing transactions being referred to in this Agreement as an "Acquisition Transaction"). (b) Neither of the Company nor any of the Company Subsidiaries has entered into or effectuated any new or amended agreements with any other person or entity or otherwise has taken any action, including, without limitation, the declaration or payment of any dividend or distribution on the Company Common Stock, which would have the effect of impairing the ability of Purchaser or the Company to consummate the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger or otherwise diminishes the expected economic value to Purchaser of the transactions contemplated by this Agreement. SECTION 3.21 Transactions with Affiliates. Neither the Company nor any of the Company Subsidiaries is a party to any transaction with any (i) current or former officer or director of the Company or any of the Company Subsidiaries, or (ii) any parent, spouse, child, brother, sister or other family relation of any such officer or director or (iii) any corporation, partnership or other entity of which any such officer or director or any such family relation is an officer, director, partner or greater than 10% shareholder (based on percentage ownership of voting stock) or (iv) any "affiliate" or "associate" of any such persons or entities (as such terms are defined in the rules and regulations promulgated under the Act), including, without limitation, any transaction involving a contract, agreement or other arrangement providing for the employment of, furnishing of materials, products or services by, rental of real or personal property from, or otherwise requiring payments to, any such person or entity. SECTION 3.22 Opinion of Financial Advisor. Prudential Securities Incorporated has delivered to the Company its written opinion dated the date of this Agreement that the consideration to be received by the holders of shares of Company Common Stock (other than Parent or its affiliates), consisting of the cash consideration to be received by such holders pursuant to the Offer and the shares of Company Common Stock to be retained by such holders following the consummation of the Axiohm Exchange, the Acquisition of Purchaser and the Merger is fair to such holders from a financial point of view. SECTION 3.23 Brokers. No broker, finder or investment banker (other than Prudential Securities Incorporated, the engagement letter with which is attached as Section 3.23 of the Company Disclosure Schedule) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of the Company. -20- ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER Parent and Purchaser hereby, jointly and severally, represent and warrant to the Company that the statements contained in this Article IV are true and correct, except as set forth in the disclosure schedule delivered by Parent and Purchaser to the Company on or before the date of this Agreement (the "Parent Disclosure Schedule"). The Parent Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections contained in this Article IV. SECTION 4.1 Organization and Standing; Subsidiaries. (a) Each of Parent, and its subsidiaries whose business or assets are material to Parent (collectively, the "Parent Subsidiaries", and, together with Parent, collectively "Axiohm") is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not have a Material Adverse Effect on Axiohm. When used in connection with Parent or any of its subsidiaries, the term "Material Adverse Effect" means any change or effect that would be materially adverse to the business, assets (whether tangible or intangible), financial condition, results of operations of Parent and its subsidiaries taken as a whole. Parent has heretofore delivered to the Company accurate and complete copies of the Articles of Incorporation and By-Laws (or equivalent organization documents), as currently in effect, of Parent and each of the Parent Subsidiaries. The Parent Disclosure Schedule includes a list of each of Parent's subsidiaries, together with the jurisdiction of incorporation of each subsidiary and the percentage of each subsidiary's outstanding capital stock or other equity interests owned by Parent or its subsidiaries, as the case may be. (b) Each of Parent, and the Parent Subsidiaries is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so duly qualified or licensed and in good standing would not, individually or in the aggregate, have a Material Adverse Effect on Axiohm. SECTION 4.2 Capitalization of Parent. (a) Parent's entire authorized capital stock consists of 42,723 shares which are classified as common stock, with a par value of 500 French Francs per share ("Parent Common"). As of the date hereof, there are 41,140 shares of Parent Common issued and outstanding and 1,583 shares reserved for issuance in connection with options awarded under that certain Plan for Application for Shares in Axiohm (all of which options are outstanding (the "Parent Outstanding Options")). Except as set forth above, there are outstanding (i) no shares of -21- capital stock or other voting securities of Parent, (ii) no securities of Parent or any of the Parent Subsidiaries convertible into or exchangeable for shares of capital stock or other voting securities of Parent (iii) no options, warrants or other rights to acquire from Parent or any of the Parent Subsidiaries (including any rights issued or issuable under a shareholders rights plan or similar arrangement), and no obligations of Parent or any of the Parent Subsidiaries to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of Parent, (iv) no equity equivalents, interests in the ownership or earnings of Parent or any of the Parent Subsidiaries or other similar rights (with the securities listed in clauses (i) through (iv) referred to collectively as "Axiohm's Securities"), and (v) no outstanding obligations of Parent or any of the Parent Subsidiaries to repurchase, redeem or otherwise acquire any of Axiohm's Securities or to make any investment (by loan, capital contribution or otherwise) in any other entity. The Parent Disclosure Statement sets forth a list of all Parent Outstanding Options, which such options are currently vested and which such options will vest as a result of the transactions contemplated by this Agreement. (b) All of the outstanding capital stock of, or other ownership interests in, each of the Parent Subsidiaries, is owned by Parent, directly or indirectly, free and clear of any Lien or any other limitation or restriction (including any restriction on the right to vote or sell the same, except as may be provided as a matter of law). Except as contemplated in connection with the Financing, there are no securities of Parent or any of the Parent Subsidiaries convertible into or exchangeable for, no options or other rights to acquire from Parent or any of the Parent Subsidiaries, and no other contract, understanding, arrangement or obligation (whether or not contingent) providing for the issuance or sale, directly or indirectly, of, any capital stock or other ownership interests in, or any other securities of, any of the Parent Subsidiaries. There are no outstanding contractual obligations of Parent or any of the Parent Subsidiaries to repurchase, redeem or otherwise acquire any outstanding shares of capital stock or other ownership interests in any subsidiary of Parent. (c) All issued and outstanding shares of the capital stock of Parent and each of the Parent Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, free of any preemptive rights. The Parent Outstanding Options have been duly authorized and validly issued and are in full force and effect. SECTION 4.3 Financial Statements. Parent has heretofore delivered to the Purchaser copies of: (i) Parent's consolidated financial statements as of and for the years ended December 31, 1995 and 1996, which have been audited by Price Waterhouse, LLP, independent public accountants (the "Parent Audited Financial Statements"), and (ii) Parent's unaudited consolidated financial statements as of and for the three months ended March 31, 1997, (the "Parent Unaudited Financial Statements"). The Parent Audited Financial Statements and Parent Unaudited Financial Statements (collectively, the "Parent Financial Statements") fairly present, in conformity with US GAAP, applied on a consistent basis by Parent (except as may be indicated in the notes thereto), the consolidated financial position of Parent and its consolidated subsidiaries as of the dates thereof and -22- their consolidated results of operations and cash flows for the periods then ended (subject in the case of any unaudited financial statements to normal recurring year-end audit adjustments, which are not expected to be material in amount). Since December 31, 1996, Parent has not made any changes in the accounting policies applied to the Parent Audited Financial Statements, and no such changes are currently contemplated nor, to the best of Parent's knowledge, required under US GAAP. SECTION 4.4 No Undisclosed Liabilities. (a) Except as and to the extent reflected or reserved against in Parent's consolidated balance sheet dated as of March 31, 1997, at the date of such statements, Axiohm had no material liabilities or obligations (whether accrued, absolute or contingent), including without limitation, any liabilities resulting from failure to comply with any law or any federal, state, local or foreign tax liabilities due or to become due whether (i) incurred in respect of or measured by income for any period ending on or prior to the close of business on such date, or (ii) arising out of transactions entered into, or any state of facts existing, on or prior thereto. SECTION 4.5 Absence of Certain Changes, Events or Conditions. Since January 1, 1997, other than as described on Parent's consolidated balance sheet dated as of March 31, 1997, (i) Parent has not incurred any liabilities of any nature, whether or not accrued, contingent or otherwise, which would have a Material Adverse Effect on Parent, and (ii) there have been no events, changes or effects with respect to Parent and the Parent Subsidiaries having or which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Parent, and (iii) Parent and the Parent Subsidiaries have conducted their businesses only in the ordinary course and in a manner consistent with prior practice. SECTION 4.6 No Default. Neither Parent nor any of the Parent Subsidiaries is in default or violation (and no event has occurred which with notice or the lapse of time or both would constitute a default or violation) of any term, condition or provision of (i) its Articles of Incorporation or By-Laws (or similar governing documents), (ii) any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which Parent or any of the Parent Subsidiaries is now a party or by which any of them or any of their respective properties or assets may be bound, or (iii) any order, writ, injunction, decree, law, statute, rule or regulation applicable to Parent, any of the Parent Subsidiaries or any of their respective properties or assets, except in the case of (ii) or (iii) for violations, breaches or defaults that would not, individually or in the aggregate, have a Material Adverse Effect on Axiohm. SECTION 4.7 Litigation, Etc. (i) There is no suit, claim, action, proceeding or investigation pending or, to the knowledge of Parent, threatened against Parent or any of the Parent Subsidiaries or any of their respective properties or assets before any Governmental Entity which, individually or in the aggregate, could have a Material Adverse Effect on Axiohm if decided adversely to Axiohm or could prevent or delay the consummation of the transactions contemplated by this Agreement, and (ii) neither Parent nor any of the Parent Subsidiaries is subject to any outstanding order, writ, injunction or decree which, insofar as can be reasonably foreseen, individually or in the aggregate, -23- in the future could have a Material Adverse Effect on Axiohm or could prevent or delay the consummation of the transactions contemplated hereby. SECTION 4.8 Intellectual Property. (a) Parent or one of the Parent Subsidiaries owns, or is licensed or otherwise possesses legally enforceable rights to use, all patents, trademarks, trade names, service marks, copyrights, and any applications for such patents, trademarks, trade names, service marks and copyrights, processes, formulae, methods, schematics, technology, know-how, computer software programs or applications and tangible or intangible proprietary information or material that are necessary to conduct the business of Axiohm as currently conducted, or proposed to be conducted, the absence of which would be reasonably likely to have a Material Adverse Effect on Axiohm (the "Parent Intellectual Property Rights"). The Parent Disclosure Schedule lists (i) all patents and patent applications and all trademarks, registered copyrights, trade names and service marks which Parent considers to be material to the business of Axiohm and which are included in the Parent Intellectual Property Rights, including the jurisdictions in which each such Parent Intellectual Property Right has been issued or registered or in which any such application for such issuance and registration has been filed, (ii) all material licenses, sublicenses and other agreements as to which Parent or any of the Parent Subsidiaries is a party and pursuant to which any person is authorized to use any Parent Intellectual Property Rights, and (iii) all material licenses, sublicenses and other agreements as to which Parent or any of the Parent Subsidiaries is a party and pursuant to which Parent or any of the Parent Subsidiaries is authorized to use any third party patents, trademarks or copyrights, including software ("Parent Third Party Intellectual Property Rights") which are incorporated in or form a part of any Axiohm product that is material to its business. (b) Neither Parent nor any of the Parent Subsidiaries is, nor will any of them be as a result of the execution and delivery of this Agreement or the performance of its obligations under this Agreement, in breach of any license, sublicense or other agreement relating to the Parent Intellectual Property Rights or Parent Third Party Intellectual Property Rights, the breach of which could have a Material Adverse Effect on Axiohm. (c) To Parent's knowledge, all patents, registered trademarks, service marks and copyrights held by Parent or any of the Parent Subsidiaries are valid and subsisting. Neither Parent nor any of the Parent Subsidiaries (i) has been sued (or threatened with suit or notified of a claim) involving a claim of infringement of any patents, trademarks, service marks, copyrights or violation of any trade secret or other proprietary right of any third party; and (ii) has any knowledge that the manufacturing, marketing, licensing or sale of its products or services infringes any patent, trademark, service mark, copyright, trade secret or other proprietary right of any third party. SECTION 4.9 Environmental Laws and Regulations. (i) Parent and each of the Parent Subsidiaries is in compliance with all applicable Environmental Laws, except for non-compliance that individually or in the aggregate would not have a Material Adverse Effect on Axiohm, which compliance includes, but is not limited to, the possession by Parent and the Parent Subsidiaries of -24- all material permits and other governmental authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof and (ii) neither Parent nor any of the Parent Subsidiaries has received written notice of, or is the subject of, any Environmental Claim that individually or in the aggregate would have a Material Adverse Effect on Axiohm. SECTION 4.10 Compliance. (i) Parent and each of the Parent Subsidiaries holds all licenses, permits, variances, exemptions, orders, approvals and other authorizations of all Governmental Entities necessary for the lawful conduct of their respective businesses (the "Parent Permits"), except for failures to hold such permits, licenses, variances, exemptions, orders, approvals and other authorizations which would not, individually or in the aggregate, have a Material Adverse Effect on Axiohm; (ii) Parent and the Parent Subsidiaries are in compliance with the terms of each of the Parent Permits, except where the failure so to comply would not have a Material Adverse Effect on Axiohm; (iii) the businesses of Parent and the Parent Subsidiaries are not being conducted in violation of any law, ordinance or regulation of any Governmental Entity, except for violations or possible violations which individually or in the aggregate do not, and, insofar as reasonably can be foreseen, in the future will not, have a Material Adverse Effect on Axiohm, and (iv) no investigation or review by any Governmental Entity with respect to Parent or any of the Parent Subsidiaries is pending or, to the best knowledge of Parent, threatened, nor, to the best knowledge of Parent, has any Governmental Entity indicated an intention to conduct the same, other than, in each case, those which Parent reasonably believes will not have a Material Adverse Effect on Axiohm. SECTION 4.11 Offer Documents; Registration Statement and Exchange Documents. Neither the Schedule 14D-1, nor the Offer Documents, shall, at the respective times such Schedule 14D-1, the Offer Documents or any amendments or supplements thereto are filed with the SEC or are first published, sent or given to shareholders, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. None of the information supplied in writing by Parent or Purchaser for inclusion in the Registration Statement or the Exchange Documents, shall, at the respective times such Registration Statement or Exchange Documents or any amendments or supplements thereto are filed with the SEC and later become effective or are first published, sent or given to the holders of Parent Shares, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or necessary to correct any statement in any earlier communication with respect to the subject matter thereof which has become false or misleading. Notwithstanding the foregoing, Parent makes no representation or warranty with respect to any information supplied by the Company or any of its representatives in writing which is contained in the Schedule 14D-1 or the Offer Documents. The Schedule 14D-1 will comply in all material -25- respects as to form with the requirements of the Exchange Act and the rules and regulations promulgated thereunder. SECTION 4.12 No Conflict With Other Documents. Neither the execution, delivery or performance of this Agreement by Parent nor the consummation by Parent of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the respective Articles of Incorporation or By-Laws (or similar governing documents) of Parent or of any of the Parent Subsidiaries; (ii) trigger the rights of Parent or any of the Parent Subsidiaries or any holder of Axiohm's Securities under any shareholder rights plan or similar arrangement; (iii) restrict any business combination between the Purchaser or any of its subsidiaries and Parent or any of its subsidiaries; (iv) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, or result in the material modification of, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which Parent or any of the Parent Subsidiaries is a party or by which any of them or any of their respective properties or assets may be bound; or (v) violate any order, writ, injunction, decree, law, statute, rule or regulation applicable to Parent or any of the Parent Subsidiaries or any of their respective properties or assets, except in the case of (iv) or (v) for violations, breaches or defaults which could not, individually or in the aggregate, have a Material Adverse Effect on Axiohm. SECTION 4.13 Authority; Consents. (a) Each of Parent and Purchaser has all necessary corporate power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by each of Parent's and Purchaser's Board of Directors and no other corporate proceedings on the part of Parent, Purchaser or any of the other Parent Subsidiaries are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Parent and constitutes a legal, valid and binding obligation of each of Parent and Purchaser, enforceable against each of Parent and Purchaser in accordance with its terms. (b) No consent, approval, order or authorization of, or registration, declaration or filing with (i) any Governmental Entity or (ii) any individual, corporation or other entity (including any holder of Axiohm's Securities) is required by or with respect to Parent in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (A) the filing of the Registration Statement with the SEC in accordance with the Exchange Act, (B) the filing of the Agreement of Merger with the California Secretary of State, (C) satisfaction of all information and waiting period requirements of the HSR Act and any regulations promulgated thereunder, (D) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable state "blue sky" or securities laws and the securities laws -26- of any foreign country, (E) those set forth in the Parent Disclosure Schedule, and (F) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not be reasonably likely to have a Material Adverse Effect on Axiohm. SECTION 4.14 Contracts. Neither Parent nor any of the Parent Subsidiaries is a party to or subject to: (i) any employment contract or independent contractor arrangements with any officer, consultant, director or employee or former employee or any other person; (ii) any plan or contract or arrangement providing for bonuses, pensions, options, deferred compensation, retirement payments, profit sharing, or the like; (iii) any contract or agreement with any labor union; (iv) any contract, agreement, instrument or other document that would be required to be filed as an exhibit to a Registration Statement on Form S-1 were Parent or any of the Parent Subsidiaries to file such a Registration Statement on the date of this Agreement; (v) any contract, agreement, instrument or other document not entered into by Parent or any of the Parent Subsidiaries in the ordinary course of business, under which Parent or any of the Parent Subsidiaries is required to make annual payments to any third party in excess of $100,000; or (vi) any agreement, voting trust, understanding or arrangement, written or oral, concerning the election of directors. Neither Parent nor any of the Parent Subsidiaries has breached, or received in writing any claim or threat that it has breached, any of the terms or conditions of any agreement, contract or commitment referred to in the prior sentence ("Parent Material Contracts") in such a manner as would permit any other party to cancel or terminate the same or would permit any other party to seek material damages from Parent or any of the Parent Subsidiaries under any Parent Material Contract. Each Parent Material Contract that has not expired or been terminated is in full force and effect and is not subject to any material default thereunder of which Parent is aware by any party obligated to Parent or any of the Parent Subsidiaries pursuant to the Parent Material Contract. SECTION 4.15 Customers and Suppliers. Neither Parent nor any of the Parent Subsidiaries has received notice that, nor do any of them have knowledge or any reason to believe that, any customer that represented 5% or more of Parent's consolidated revenues in any of the past three years will not continue to do business with Parent or the Parent Subsidiaries at volumes consistent with past practices subsequent to the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger. No entity which is now supplying, or during 1996 supplied, to Parent or the Parent Subsidiaries products and services has reduced or otherwise discontinued, or threatened to reduce or discontinue, supplying such items to Parent or the Parent Subsidiaries on reasonable terms, except for such reductions or discontinuations which would not have a Material Adverse Effect on Axiohm. SECTION 4.16 Tax Matters. (a) Parent and the Parent Subsidiaries have accurately prepared and timely filed or will accurately prepare and timely file all material federal, state, local and foreign Returns, required to be filed at or before the Effective Time relating to any and all Taxes concerning or attributable to Parent, any of the Parent Subsidiaries or any of their operations or assets, and such Returns are and will be true and correct in all material respects and have been or will be completed in all material respects in accordance with applicable law; and copies of all Returns -27- of Parent and the Parent Subsidiaries for the past three years have been or will be provided by Parent to the Company. (b) Parent and each of the Parent Subsidiaries as of the Effective Time: (i) will have paid all Taxes any of them is required to pay prior to the Effective Time (other than those being contested in good faith); (ii) will have properly reflected on its books and records an accrual for all Taxes payable at the Effective Time; (iii) will have withheld with respect to their employees all applicable foreign, federal and state income taxes including, if applicable, FICA and FUTA, and other Taxes required to be withheld; and (iv) will have collected all sales and use taxes on account of sales by Parent or any Parent Subsidiary or use of any of their products, except in each instance where any failure to make such payment or withholding would not be reasonably likely to have a Material Adverse Effect on Axiohm. (c) There is no Tax deficiency outstanding, proposed or assessed against Parent or any of the Parent Subsidiaries that is not reflected as a liability on the Parent Financial Statements nor has Parent or any of the Parent Subsidiaries executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. SECTION 4.17 Pension and Employee Benefit Plans. (a) Parent has set forth on the Parent Disclosure Schedule all employee benefit plans (including "employee benefit plans" as defined in Section 3(3) of ERISA, whether or not subject to ERISA, and all bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and all other programs or arrangements intended to provide employee benefits, and all unexpired severance agreements, written or otherwise, for the benefit of, or relating to, any current or former employee of Parent or any of the Parent Subsidiaries or any trade or business (whether or not incorporated) which is an ERISA Affiliate (together, the "Parent Employee Plans"). (b) With respect to each Parent Employee Plan, Parent has made or will make available to Parent, a true and correct copy of (i) the most recent annual report (Form 5500) filed with the IRS for benefit plans subject to ERISA, (ii) such Parent Employee Plan, (iii) each trust agreement and group annuity contract, if any, relating to such Parent Employee Plan and (iv) the most recent actuarial report or valuation relating to a Parent Employee Plan subject to Title IV of ERISA. (c) With respect to Parent Employee Plans, individually and in the aggregate, no event has occurred, and to the knowledge of Parent there exists no condition or set of circumstances, in connection with which Parent or any subsidiary of Parent could be subject to any liability under ERISA, the Code or any other applicable law that is reasonably likely to have a Material Adverse Effect on Axiohm. (d) With respect to the Parent Employee Plans, individually and in the aggregate, there are no funded benefit obligations for which contributions have not been made or properly accrued and -28- there are no unfunded benefit obligations which have not been accounted for by reserves, or otherwise properly footnoted in accordance with local accounting principles and practices. (e) Except as set forth on the Parent Disclosure Schedule, provided for in this Agreement, neither Parent nor any of the Parent Subsidiaries is a party to any oral or written (i) union or collective bargaining agreement, (ii) agreement with any officer or other key employee of Parent or any of the Parent Subsidiaries, the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving Parent of the nature contemplated by this Agreement, (iii) agreement with any officer providing any term of employment or compensation guarantee extending for a period longer than one year from the date hereof, providing for the payment of compensation in excess of $100,000 per annum or providing for severance benefits or other benefits upon or following termination of employment, or (iv) agreement or plan, including any stock option plan, stock appreciation right plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. (f) Each of the Parent Employee Plans which is intended to qualify under Section 401 of the Code is designated on the Parent Disclosure Schedule as being a qualified plan (the Plans so designated being hereinafter referred to as the "Parent Qualified Plans"). Each Parent Qualified Plan is qualified under Section 401(a) of the Code and, unless the Parent Qualified Plan is a standardized form of paired plan (as defined in Revenue Procedure 97-6) each Parent Qualified Plan is the subject of a currently effective determination letter from the IRS confirming such qualification. True and correct copies of the most recent determination letters from the IRS with respect to the Parent Qualified Plans which were issued after the effective date of ERISA have been or will be delivered to the Purchaser. With respect to each Parent Qualified Plan, Parent has not obtained a waiver of any minimum funding requirements imposed by ERISA or the Code in respect of such Parent Qualified Plan, and has not incurred any liability to the Pension Benefit Guaranty Corporation in connection with any such Parent Qualified Plan. As of the date hereof, the funding of all Parent Qualified Plans complies with ERISA and all applicable laws. No "reportable event," as such term is defined in ERISA and in regulations issued thereunder, has occurred with respect to any of the Parent Qualified Plans since the effective date of ERISA (other than as a result of this Agreement). (g) Parent has identified to the Purchaser which, if any, of the Parent Employee Plans are multi-employer pension plans (as defined by ERISA) and the number of employees of Axiohm who participated in multi-employer plans during the year ended December 31, 1996. Since April 29, 1980, neither Parent nor any of the Parent Subsidiaries has, with respect to any multi-employer plan, suffered or otherwise caused a "complete withdrawal" or "partial withdrawal" (as such terms are defined by ERISA) nor has Parent engaged in any transaction that would be deemed to avoid or evade liabilities related to such withdrawal. -29- SECTION 4.18 Foreign Corrupt Practices Act. Neither Parent nor any of the Parent Subsidiaries, nor to Parent's or Purchaser's knowledge, any director, officer, agent, employee, consultant, or any other person associated with or acting on behalf of any of them, has engaged or is engaged in any course of conduct, or is a party to any agreement or involved in any transaction, which has or would give rise to a violation of the Foreign Corrupt Practices Act of 1977 or any other United States statute or regulation governing the conduct of business abroad by United States corporations and their subsidiaries. SECTION 4.19 No Pending Transactions. (a) Except for the transactions contemplated by this Agreement and the acquisition agreements or negotiations described on the Parent Disclosure Statement, neither Parent nor any of the Parent Subsidiaries is a party to or bound by or the subject of any Acquisition Transaction. (b) Neither of Parent nor any of the Parent Subsidiaries has entered into or effectuated any new or amended agreements with any other person or entity or otherwise has taken any action including, without limitation, the declaration or payment of any dividend or distribution on the Parent Shares, which would have the effect of impairing the ability of Purchaser or Parent to consummate the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger or otherwise diminishes the expected economic value to the Company of the transactions contemplated by this Agreement. SECTION 4.20 Transactions with Affiliates. Except as disclosed on the Parent Disclosure Schedule, neither Parent nor any of the Parent Subsidiaries is a party to any transaction with any (i) current or former officer or director of Parent or any of the Parent Subsidiaries, or (ii) any parent, spouse, child, brother, sister or other family relation of any such officer or director or (iii) any corporation, partnership or other entity of which any such officer or director or any such family relation is an officer, director, partner or greater than 10% shareholder (based on percentage ownership of voting stock) or (iv) any "affiliate" or "associate" of any such persons or entities (as such terms are defined in the rules and regulations promulgated under the Act) including, without limitation, any transaction involving a contract, agreement or other arrangement providing for the employment of, furnishing of materials, products or services by, rental of real or personal property from, or otherwise requiring payments to, any such person or entity. SECTION 4.21 Brokers. No broker, finder or investment banker (other than Lehman Brothers, a copy of the engagement letter with which Parent has heretofore delivered to the Company) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of Parent or Purchaser. SECTION 4.22 Financing. Parent and Purchaser have received, and have furnished to the Company true and complete copies of, financing commitment letters from Lehman Brothers Inc. and -30- its affiliates (collectively, "Lehman Brothers") dated July 11, 1997 (such letters being referred to collectively herein as the "Financing Letter" and the financings contemplated thereby being referred to collectively herein as the "Financing"). The aggregate proceeds of the Financing will be sufficient to acquire the Specified Number of Shares in the Offer (as amended pursuant to Section 1(a) hereof) and to pay the Exchange Cash in the Axiohm Exchange. The Financing Letter has not been amended, modified or revoked as of the date hereof. ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER SECTION 5.1 Conduct of Business of the Company Pending the Merger. Except as contemplated by this Agreement, during the period from the date hereof to the earlier of termination of this Agreement or the Effective Time, the Company agrees to conduct its business and that of its subsidiaries only in the ordinary course of business consistent with past practice and to use all reasonable efforts consistent with past practices and policies to preserve intact its present business organization (including the services of its existing employees) and preserve its relationships with customers, suppliers and others having business dealings with it, to the end that its goodwill and ongoing business shall be unimpaired at the Effective Date. Without limiting the generality of the foregoing, and except as otherwise expressly provided in this Agreement, neither the Company nor any of its subsidiaries will, without the prior written consent of the Purchaser: (a) amend or propose to amend its Articles of Incorporation or By-Laws; (b) (i) authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any other securities or equity equivalents (including, without limitation, any stock options or stock appreciation rights) except shares of Company Common Stock issuable upon exercise of the Company Outstanding Options or (ii) amend any of the terms of any such securities or agreements outstanding as of the date hereof, except as specifically contemplated by this Agreement; (c) split, combine or reclassify any shares of its capital stock, declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem or otherwise acquire any of its securities or any securities of the Company's subsidiaries; (d) (i) incur or assume any long-term or short-term debt or issue any debt securities except for borrowings under existing lines of credit in the ordinary course of business; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or -31- otherwise) for the obligations of any other person or entity except in the ordinary course of business consistent with past practice, and except for obligations of wholly-owned subsidiaries of it; (iii) make any loans, advances or capital contributions to, or investments in, any other person or entity (other than to wholly-owned subsidiaries of it or advances to employees in the ordinary course of business consistent with past practice and in amounts not material to the maker of such loan or advance); (iv) pledge or otherwise encumber shares of its capital stock or any of its subsidiaries; or (v) mortgage or pledge any of its material assets, tangible or intangible, or create or suffer to exist any material Lien thereupon; (e) except as may be required by law or as contemplated by this Agreement or described on the Company Disclosure Schedule, enter into, adopt or amend or terminate any bonus, profit sharing, compensation, severance, termination, stock option, stock appreciation right, restricted stock, performance unit, stock equivalent, stock purchase agreement, pension, retirement, deferred compensation, employment, severance or other employee benefit agreement, trust, plan, fund or other arrangement for the benefit or welfare of any director, officer, employee or former employee or independent contractor in any manner, or (except for normal increases in the ordinary course of business consistent with past practice that, in the aggregate, do not result in a material increase in benefits or compensation expense to it and as required under existing agreements) increase in any manner the compensation or fringe benefits of any director, officer or employee or pay any benefit not required by any plan and arrangement as in effect as of the date hereof (including, without limitation, the granting of stock appreciation rights or performance units); (f) acquire, sell, lease, license to others or dispose of any assets outside the ordinary course of business which individually or in the aggregate are material to the Corporation, or enter into any commitment or transaction outside the ordinary course of business consistent with past practice which would be material to the Corporation; (g) except as may be required as a result of a change in law or in US GAAP, change any of the accounting principles or practices used by it; (h) revalue in any material respect any of its assets, including, without limitation, writing down the value of inventory or writing-off notes or accounts receivable other than in the ordinary course of business; (i) (i) acquire or agree to acquire (by merger, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership or other business organization or division thereof or any equity interest therein, other than as specifically described on the Company Disclosure Schedule; (ii) enter into any contract or agreement other than in the ordinary course of business consistent with past practice which would be material to it; (iii) authorize any new capital expenditure or expenditures which, individually, is in excess of -32- $250,000 or, in the aggregate, are in excess of $2,500,000; or (iv) enter into or amend any contract, agreement, commitment or arrangement providing for the taking of any action that would be prohibited hereunder; (j) make any tax election or settle or compromise any income tax liability material to the Company; (k) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in, or contemplated by the Company Financial Statements and the Company Subsidiaries or incurred in the ordinary course of business consistent with past practice or customary fees and expenses relating to the transactions contemplated by this Agreement; (l) settle or compromise any pending or threatened suit, action or claim relating to the transactions contemplated hereby; or (m) take, or agree in writing or otherwise to take, any of the actions described in this Section 5.1(a) through 5.1(l) or any action which would make any of the representations or warranties of the Company contained in this Agreement untrue or incorrect as of the date when made. SECTION 5.2 Maintenance of Cash. From the date hereof until the consummation of the Offer, the Company shall cause approximately $45 million to be maintained in its existing investments and, upon maturity of such investments, to invest such sums in municipal instruments with a rating of BBB or better (together, "Company Investments"). From the consummation of the Offer until the Effective Time, the Company shall cause approximately $33 million to be maintained in Company Investments. SECTION 5.3 Conduct of Business of Parent Pending the Merger. Except as contemplated by this Agreement, during the period from the date hereof to the earlier of termination of this Agreement or the Effective Time, Parent agrees to conduct its business and that of its subsidiaries only in the ordinary course of business consistent with past practice and to use all reasonable efforts consistent with past practices and policies to preserve intact its present business organization (including the services of its existing employees) and preserve its relationships with customers, suppliers and others having business dealings with it, to the end that its goodwill and ongoing business shall be unimpaired at the Effective Date. Without limiting the generality of the foregoing, and except as otherwise expressly provided in this Agreement, neither Parent nor any of its subsidiaries will, without the prior written consent of the Company: (a) amend or propose to amend its Articles of Incorporation or By-Laws (or equivalent organizational documents); provided, however, that IPB may amend its Articles of Incorporation or -33- By-Laws in any manner as may be necessary in connection with the transactions contemplated hereby or by Financing Letter; (b) except as contemplated in connection with the Financing, (i) authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any other securities or equity equivalents (including, without limitation, any stock options or stock appreciation rights) except shares of Company Common Stock issuable upon exercise of the Parent Options or (ii) amend any of the terms of any such securities or agreements outstanding as of the date hereof, except as specifically contemplated by this Agreement; (c) split, combine or reclassify any shares of its capital stock, declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem or otherwise acquire any of its securities or any securities of Parent's subsidiaries, except as otherwise contemplated in the Financing Letter; (d) except for the Financing contemplated by the Financing Letter, (i) incur or assume any long-term or short-term debt or issue any debt securities except for borrowings under existing lines of credit in the ordinary course of business; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person or entity except in the ordinary course of business consistent with past practice, and except for obligations of wholly-owned subsidiaries of it; (iii) make any loans, advances or capital contributions to, or investments in, any other person or entity (other than to wholly-owned subsidiaries of it or advances to employees in the ordinary course of business consistent with past practice and in amounts not material to the maker of such loan or advance); (iv) pledge or otherwise encumber shares of its capital stock or any of its subsidiaries; or (v) mortgage or pledge any of its material assets, tangible or intangible, or create or suffer to exist any material Lien thereupon; (e) except as may be required by law or as contemplated by this Agreement or described on the Parent Disclosure Schedule, enter into, adopt or amend or terminate any bonus, profit sharing, compensation, severance, termination, stock option, stock appreciation right, restricted stock, performance unit, stock equivalent, stock purchase agreement, pension, retirement, deferred compensation, employment, severance or other employee benefit agreement, trust, plan, fund or other arrangement for the benefit or welfare of any director, officer, employee or former employee or independent contractor in any manner, or (except for normal increases in the ordinary course of business consistent with past practice that, in the aggregate, do not result in a material increase in benefits or compensation expense to it and as required under existing agreements) increase in any manner the compensation or fringe benefits of any director, officer or employee or pay any benefit not required by any plan and arrangement as in effect as of the date hereof (including, without limitation, the granting of stock appreciation rights or performance units); -34- (f) acquire, sell, lease, license to others or dispose of any assets outside the ordinary course of business which individually or in the aggregate are material to Axiohm, or enter into any commitment or transaction outside the ordinary course of business consistent with past practice which would be material to Axiohm; (g) except as may be required as a result of a change in law or in US GAAP, change any of the accounting principles or practices used by it; (h) revalue in any material respect any of its assets, including, without limitation, writing down the value of inventory or writing-off notes or accounts receivable other than in the ordinary course of business; (i) (i) acquire or agree to acquire (by merger, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership or other business organization or division thereof or any equity interest therein, other than as specifically described on the Parent Disclosure Schedule; (ii) enter into any contract or agreement other than in the ordinary course of business consistent with past practice which would be material to it; (iii) authorize any new capital expenditure or expenditures which, individually, is in excess of $250,000 or, in the aggregate, are in excess of $2,500,000; or (iv) enter into or amend any contract, agreement, commitment or arrangement providing for the taking of any action that would be prohibited hereunder; (j) make any tax election or settle or compromise any income tax liability material to Parent; (k) except as contemplated in the Financing Letter and the engagement letters between Parent, Purchaser, IPB and Lehman Brothers dated May 22, 1997 and dated July 11, 1997, (collectively, the "Engagement Letter") pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in, or contemplated by the Parent Financial Statements or incurred in the ordinary course of business consistent with past practice, or customary fees and expenses relating to the transactions contemplated by this Agreement; (l) settle or compromise any pending or threatened suit, action or claim relating to the transactions contemplated hereby; or (m) take, or agree in writing or otherwise to take, any of the actions described in this Section 5.2(a) through 5.2(l) or any action which would make any of the representations or warranties of Parent or Purchaser contained in this Agreement untrue or incorrect as of the date when made. SECTION 5.4 Conduct of Business of Purchaser Pending the Merger. During the period from the date of this Agreement to the Effective Time, Purchaser shall not engage in any activities -35- of any nature except as provided in or contemplated by this Agreement, the Financing Letter or the Engagement Letter. ARTICLE VI ADDITIONAL AGREEMENTS SECTION 6.1 Company Board Representation; Co-Chairmen of the Board of Directors; Section 14(f). (a) Promptly upon the purchase by Purchaser of Shares pursuant to the Offer, the Company shall use all reasonable efforts (i) to cause its Bylaws to be amended to increase the number of directors of the Company from five (5) to seven (7); (ii) to cause three individuals designated by Purchaser to be elected to the Board of Directors of the Company, including securing the resignation of an incumbent director; (iii) to cause two of such Purchaser's designees as Purchaser shall identify to be Co-Chairmen of the Company's Board of Directors, including securing the resignation of the Company's current Chairman of the Board of Directors from such position. Additionally, at such time, the Company will use all reasonable efforts to cause the persons designated by Purchaser to be appointed to (x) each committee of the Board of Directors of the Company (including the Compensation Committee), (y) each board of directors of each domestic subsidiary of the Company and (z) each committee of each such board, in each case to the extent permitted by law or as may be required to comply with Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934 as amended, Nasdaq requirements or Section 162(m) of the Code and other applicable IRS regulations. Until the Effective Time and except as otherwise required hereby, the Company shall use all reasonable efforts to ensure that all the members of the Board of Directors of the Company as of the date hereof who are not employees of the Company shall remain members of the Board of Directors of the Company. (b) The Company's obligations to appoint Purchaser's designees to its Board of Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall promptly take all actions required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 6.1 and shall include in the Schedule 14D-9 or a separate Rule 14f-1 information statement provided to shareholders such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-1 to fulfill its obligations under this Section 6.1. Parent or Purchaser will supply to the Company and be solely responsible for any information with respect to either of them and their nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. (c) Following the election or appointment of Purchaser's designees pursuant to this Section 6.1 and prior to the Effective Time, any amendment (or recommendation thereof) by the Board of Directors of the Company of this Agreement or the Articles of Incorporation or By-Laws of the Company, any termination of this Agreement by the Company, any extension by the Company of -36- the time for the performance of any of the obligations or other acts of Purchaser or waiver of any of the Company's rights hereunder, and any other consent or action by the Board of Directors of the Company hereunder, will require the concurrence of a majority of the directors of the Company then in office who are not designated by Purchaser. SECTION 6.2 Access to Information; Confidentiality. (a) From the date hereof to the Effective Time, each of the Company and Parent shall, and shall cause its subsidiaries, officers, directors, employees, auditors and other agents to, afford the officers, employees, auditors and other agents of the other, reasonable access at all reasonable times to its officers, employees, agents, properties, offices, plants and other facilities and to all books and records, and shall furnish such with such financial, operating and other data and information as the Parent or the Company, as the case may be, through its officers, employees or agents may from time to time reasonably request. (b) Each of Parent and Purchaser will hold and will cause its officers, employees, auditors and other agents to hold in confidence, unless compelled to disclose by judicial or administrative process or, in the written opinion of its legal counsel, by other requirements of law, all documents and information concerning the Company and its subsidiaries furnished to Parent or Purchaser in connection with the transactions contemplated in this Agreement in accordance with the provisions of the letter dated April 2, 1997 between Parent and the Company (the "Parent Confidentiality Agreement"). (c) The Company will hold and will cause its officers, employees, auditors and other agents to hold in confidence, unless compelled to disclose by judicial or administrative process or, in the written opinion of its legal counsel, by other requirements of law, all documents and information concerning Parent and its subsidiaries (including Purchaser) furnished to the Company in connection with the transactions contemplated in this Agreement in accordance with the provisions of the letter dated May 6, 1997 between the Company and the Parent (the "Company Confidentiality Agreement"). (d) No investigation pursuant to this Section 6.2 shall affect any representations or warranties of the parties herein or the conditions to the obligations of the parties hereto. (e) The Company will use reasonable efforts to cause its executive officers and employees to assist the proposed lenders, underwriters or initial purchasers (the "Proposed Financiers") of the permanent financing proposed to be incurred or assumed by the Company and/or its subsidiaries at or following the Effective Time. Such assistance shall be reasonably requested by the Proposed Financiers and shall include, without limitation: (i) assistance in preparing offering memoranda, syndication materials or other selling or marketing materials, (ii) attendance at meetings with prospective investors, including a customary "roadshow" as may be determined by the Proposed Financiers and (iii) making available or directing the assistance of the Company's auditors, counsel -37- and/or other advisors or agents, including the preparation of financial statements and "comfort letters." SECTION 6.3 No Solicitation of Transactions. From and after the date of this Agreement until the earlier of the Effective Time of the Merger or the termination of this Agreement in accordance with its terms, the Company, its affiliates and their respective officers, directors, employees, representatives and agents (i) shall cease (and not reopen except as permitted herein) any existing discussions or negotiations, if any, with any parties with respect to any acquisition (other than the transactions contemplated by this Agreement) of all or any material portion of the assets of, or any equity interest in, the Company or any of the Company Subsidiaries or any business combination with the Company or any of the Company Subsidiaries and (ii) shall not, directly or indirectly, (A) solicit or initiate discussions, or, except with respect to a Superior Proposal (as defined below) received by the Company, engage in negotiations with any person or, except with respect to a Superior Proposal received by the Company, take any other action intended, designed or reasonably likely to facilitate the efforts of any person, other than Parent and Purchaser, relating to the possible acquisition of the Company or any of the Company Subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or any material portion of its or their capital stock or assets, (B) except with respect to a Superior Proposal received by the Company, and provided that the Company has required the party submitting the Superior Proposal to execute a non-disclosure agreement comparable to the Confidentiality Agreement, provide non-public information with respect to the Company or any of the Company Subsidiaries to any person, other than Parent and Purchaser, relating to the possible acquisition of the Company or any of the Company Subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or any material portion of its or their capital stock or assets, (C) enter into an agreement with any person, other than Parent and Purchaser, providing for the possible acquisition of the Company or any of the Company Subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or any material portion of its or their capital stock or assets or (D) except with respect to a Superior Proposal received by the Company, make or authorize any statement, recommendation or solicitation in support of any possible acquisition of the Company or any of the Company Subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or any portion of its or their capital stock or assets by any person, other than by Parent and Purchaser or withdraw or modify the recommendation by the Company's Board or Directors with respect to the Offer, this Agreement, the Axiohm Exchange, the Acquisition of Purchaser and the Merger. A "Superior Proposal" shall mean a written proposal that has not been solicited by the Company following the date of this Agreement relating to the possible acquisition of the Company or any of the Company Subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or any material portion of its or their capital stock or assets by any person other than by Parent or Purchaser, which proposal is, in the reasonable good faith judgment of the Board of Directors of the Company, after consultation with its legal and financial advisors, on financial and other terms more favorable to the shareholders of the Company than the terms of the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger, collectively, -38- and which is made by a party that can reasonably be expected to consummate the transaction on the terms proposed. If the Company or any of its subsidiaries receives any offer or proposal to enter negotiations relating to any of the above, the Company shall as promptly as practicable, notify Parent or Purchaser thereof, including information as to the identity of the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and provide Parent or Purchaser with the same information (if any) the Company provides to the party making the Superior Proposal. Notwithstanding the foregoing, following the receipt of an offer or proposal that the Board of Directors of the Company, in the exercise of its reasonable good faith judgement, after consultation with its legal and financial advisors, deems to be a Superior Proposal, the Company may terminate this Agreement under Section 8.1(d) (subject to the Company's obligations pursuant to Section 8.3) and accept such Superior Proposal, and the Board of Directors of the Company may approve or recommend (and, in connection therewith, withdraw or modify its approval and recommendation of the Offer, this Agreement, the Axiohm Exchange, the Acquisition of Purchaser and the Merger). SECTION 6.4 Stock Options. The parties hereto agree to take all actions with respect to the Company Outstanding Options as are described on Annex B hereto and to cause each of the following executives of the Company (collectively, the "Executives") to execute the agreements contemplated by Annex B, which are in a form reasonably acceptable to Parent and the Company, with respect to the Company Outstanding Options which each owns (the "Option Agreements"). For purposes of this Section 6.4, "Executives" shall mean William Gibbs, Walter Sobon, Janet Shanks and David Ledwell. SECTION 6.5 Notification of Certain Matters. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (i) the occurrence or non-occurrence of any event the occurrence or non- occurrence of which would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate and (ii) any failure of the Company, Parent or Purchaser, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.5 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. SECTION 6.6 Further Action; All Reasonable Efforts. Upon the terms and subject to the conditions of this Agreement, each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all appropriate action, and to do or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including but not limited to (i) cooperation in the preparation and filing of the Offer Documents, the Schedule 14D-9, the Registration Statement, the Exchange Documents, any required filings under the HSR Act, any required foreign filings and any amendments to any thereof and (ii) using all reasonable efforts to make all required regulatory filings and applications and to obtain all licenses, permits, consents, approvals, authorizations, -39- qualifications and orders of governmental authorities and parties to contracts with the Company and its subsidiaries and Parent and its subsidiaries, as the case may be, as are necessary for the consummation of the transactions contemplated by this Agreement and to fulfill the conditions to the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall use all reasonable efforts to take all such necessary action. SECTION 6.7 Public Announcements. Parent and the Company shall consult with each other before issuing any press release or otherwise making any public statements with respect to the Offer, the Axiohm Exchange, the Acquisition of Purchaser, the Merger or this Agreement and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law or pursuant to the rules of the SEC or any listing agreement with the Nasdaq National Market. On or prior to the date hereof, the Company and Parent shall have agreed to the final text of the press release announcing the execution of this Agreement and the commencement of the Offer by Purchaser. SECTION 6.8 Disposition of Litigation. The Company shall give Parent the opportunity to participate in the defense or settlement of any shareholder litigation against the Company and its directors relating to any of the transactions contemplated by this Agreement until the purchase of Company Common Stock pursuant to the Offer, and thereafter until the Effective Time of the Merger, shall give Parent the opportunity to direct the defense of such litigation and, if Parent so chooses to direct such litigation, Parent shall give the Company and its directors an opportunity to participate in such litigation; provided, however, that no settlement of such litigation shall be agreed to without Parent's consent; and provided further that no settlement requiring a payment by a director shall be agreed to without such director's consent. SECTION 6.9 Officer's and Directors' Indemnification. (a) Parent and Purchaser agree that all rights to indemnification for acts or omissions occurring prior to the Effective Time now existing in favor of the current or former directors or officers (the "Indemnified Parties") of the Company and its subsidiaries as provided in their respective articles of incorporation or by-laws (or similar organizational documents) or existing indemnification contracts in the form filed with the SEC shall survive the Offer, the Axiohm Exchange, the Acquisition of Purchaser and the Merger and shall continue in full force and effect in accordance with their terms. (b) For six years from the Effective Time, the Company shall use all reasonable efforts to maintain in effect the Company's current directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy (a copy of which has been heretofore delivered to Parent); provided, however, that in no event shall -40- the Company be required to expend in any one year an amount in excess of 150% of the annual premiums currently paid by the Company for such insurance which the Company represents is not more than $145,350; and provided, further, that if the annual premiums of such insurance coverage exceed such amount, the Company shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount. (c) This Section 6.9 shall survive the consummation of the Merger at the Effective Time, is intended to benefit the Company, Parent, the Surviving Corporation and the Indemnified Parties, and shall be binding on all successors and assigns of Parent and the Surviving Corporation. (d) The Surviving Corporation shall pay all expenses, including attorney's fees, that may be incurred by any Indemnified Party in enforcing the indemnity and other obligations provided for in this Section 6.9. SECTION 6.10 Issuance of Company Warrants and Roll-Over Notes. The Company hereby agrees, in accordance with the Financing Letter, (i) upon the closing of the Offer and in accordance with the instructions of Parent, to issue warrants, exercisable into an aggregate of 10% of the outstanding capital stock of the Company (calculated after giving effect to the exercise of such warrants and all other outstanding warrants, options or other convertible securities) and containing such other terms and provisions as are contemplated in the Financing Letter, and to cause such warrants to be placed into an escrow account until such warrants are released to Lehman Brothers in accordance with the Financing Letter and (ii) at the Effective Time, to issue the "Roll-Over Notes" contemplated by the Financing Letter, in redemption of the preferred stock issued by IPB. -41- ARTICLE VII CONDITIONS TO AXIOHM EXCHANGE, ACQUISITION OF PURCHASER AND MERGER SECTION 7.1 Conditions to Obligation of Each Party to Effect the Axiohm Exchange. The respective obligations of each party to effect the Axiohm Exchange shall be subject to the satisfaction at or prior to the Axiohm Exchange Closing of the following conditions: (a) No statute, rule, regulation, executive order, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) shall have been enacted, entered, promulgated or enforced by any United States federal or state court or governmental authority, or any French national or provincial court or governmental authority, as the case may be, which prohibits, restrains, enjoins or restricts the consummation of the Axiohm Exchange. (b) Any waiting period applicable to the Axiohm Exchange under the HSR Act and French law, if applicable, shall have terminated or expired. (c) Purchaser shall own Shares representing at least the Minimum Condition (whether purchased pursuant to the Offer or otherwise acquired). (d) Parent Holders owning at least a majority of the then outstanding Parent Shares shall have executed and delivered or shall have agreed to execute and deliver to Purchaser Axiohm Purchase Agreements. SECTION 7.2 Conditions to Obligation of Each Party to Effect the Acquisition of Purchaser. The respective obligations of each party to effect the Acquisition of Purchaser shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) No statute, rule, regulation, executive order, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) shall have been enacted, entered, promulgated or enforced by any United States federal or state court or governmental authority, or any French national or provincial court or governmental authority, as the case may be, which prohibits, restrains, enjoins or restricts the consummation of the Acquisition of Purchaser. (b) Any waiting period applicable to the Acquisition of Purchaser under the HSR Act and French law, if applicable, shall have terminated or expired. (c) Purchaser shall own Shares representing at least the Minimum Condition (whether purchased pursuant to the Offer or otherwise acquired), less the Exchange Shares. -42- (d) The Axiohm Exchange Closing shall have occurred. SECTION 7.3 Conditions to Obligation of Each Party to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) No statute, rule, regulation, executive order, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) shall have been enacted, entered, promulgated or enforced by any United States federal or state court or governmental authority, or any French national or provincial court or governmental authority, as the case may be, which prohibits, restrains, enjoins or restricts the consummation of the Merger. (b) Any waiting period applicable to the Merger under the HSR Act and French law, if applicable, shall have terminated or expired. (c) Purchaser shall own Shares representing at least the Minimum Condition (whether purchased pursuant to the Offer or otherwise acquired), less the Exchange Shares. (d) The Axiohm Exchange Closing shall have occurred. (e) The Acquisition of Purchaser shall have occurred. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER SECTION 8.1 Termination. This Agreement may be terminated and the Axiohm Exchange, the Acquisition of Purchaser and the Merger contemplated hereby may be abandoned at any time prior to the Effective Time, notwithstanding any approval thereof by the shareholders of the Company: (a) By mutual written consent of Parent, Purchaser and the Company; (b) By Parent or the Company if any court of competent jurisdiction or other governmental body located or having jurisdiction within the United States, France or any country or economic region in which either the Company or Parent, directly or indirectly, has material assets or operations, shall have issued a final order, decree or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger and such order, decree, ruling or other action is or shall have become final and -43- nonappealable, except if the party relying on this clause (c) to terminate this Agreement is in breach of any of its material obligations under this Agreement; (c) By Parent if, (i) due to a failure of any of the Offer Conditions, Purchaser shall have (A) terminated the Offer or (B) failed to pay for Shares pursuant to the Offer within 60 days (or 90 days if there has been a second request under the HSR Act) following the date hereof, unless such termination or failure has been caused by or results from (x) a breach of any representation or warranty on the part of Parent or Purchaser contained in this Agreement that has a Material Adverse Effect on Parent or Purchaser or (y) there shall have been any breach of any covenant or agreement on the part of Parent or Purchaser contained in this Agreement that has a Material Adverse Effect on Parent or Purchaser or (ii) the Company's Board of Directors shall have withdrawn or modified (including by amendment of the Schedule 14D-9) in a manner adverse to Purchaser its approval or recommendation of the Offer, this Agreement, the Axiohm Exchange, the Acquisition of Purchaser or the Merger or shall have approved or recommended another offer or transaction, or shall have resolved to effect any of the foregoing; or (d) By the Company (i) if Purchaser shall not have commenced the Offer within five days of the date on which Purchaser's intention to make the Offer is publicly announced; (ii) if the Offer shall not have been consummated within 60 days (or 90 days if there has been a second request under the HSR Act) following the date hereof; (iii) if due to a failure of any of the Offer Conditions, Purchaser shall have terminated the Offer, unless such termination has been caused by or results from (A) a breach of any representation or warranty on the part of the Company contained in this Agreement that has a Material Adverse Effect on the Company or could reasonably be expected to materially adversely affect (or materially delay) the consummation of the Offer or (B) there shall have been any breach of any covenant or agreement on the part of the Company contained in this Agreement that has a Material Adverse Effect on the Company or could reasonably be expected to materially adversely affect (or materially delay) the consummation of the Offer; or (iv) in connection with its determination to pursue a Superior Proposal pursuant to Section 6.3 hereof; provided that such termination under clause (iv) hereof shall not be effective until the Company has made payment of the Initial Fee required by Section 8.3 hereof. SECTION 8.2 Effect of Termination. In the event of the termination of this Agreement by any party pursuant to Section 8.1, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto or their respective officers, directors, shareholders or affiliates, except as set forth in Section 6.2(b), Section 6.2(c), this Section 8.2, Section 8.3 and Section 9.1 hereof; provided, however, that nothing herein shall relieve any party from liability for any breach hereof; provided, further, that neither Parent nor Purchaser shall be entitled to any punitive damages in the event of any breach hereof if the fees referred to in Section 8.3 have been paid in full to Parent. -44- SECTION 8.3 Fees. (a) (i) In the event that this Agreement is terminated pursuant to Section 8.1(d)(iv), the Company shall pay to Parent, in same day funds, upon demand, an amount equal to $2.6 million (the "Initial Fee"). (ii) In addition, in the event that (x) a proposal with respect to an Acquisition Transaction is commenced by the Company, publicly proposed, publicly disclosed or communicated to the Company or any representative or agent thereof after the date of this Agreement and prior to the date of termination of this Agreement, (y) this Agreement is thereafter terminated pursuant to Section 8.1(c) or 8.1(d), and (z) within six (6) months following such termination, an Acquisition Transaction is consummated or the Company enters into an agreement relating thereto, then, in any such event, the Company shall pay Parent, in same day funds, promptly (but in no event later than one business day after the first of such events shall have occurred) an additional fee of $3.9 million (the "Subsequent Fee"). For purposes of this Section 8.3(a)(ii), an "Acquisition Transaction" shall not include any merger, consolidation or business combination involving the Company or any Company Subsidiary if (A) the Company or such Company Subsidiary is the surviving company in such transaction, (B) the shareholders of the Company before the transaction continue to own at least 50% of the outstanding capital stock of the Company following such transaction, and (C) no more than 15% of the outstanding capital stock of the Company becomes beneficially owned by any person as a result of such transaction. (b) In the event that the Company shall fail to pay either the Initial Fee or the Subsequent Fee, the terms "Initial Fee" and/or "Subsequent Fee" shall be deemed to include the costs and expenses actually incurred or accrued by Parent, Purchaser and their respective shareholders and affiliates (including, without limitation, fees and expenses of counsel) in connection with the collection under and enforcement of this Section 8.3, together with interest on such unpaid Fee, commencing on the date that the applicable Fee became due, at a rate equal to the rate of interest publicly announced by Citibank, N.A., from time to time, in The City of New York, as such bank's Prime Rate plus 2.00%. (c) In the event that Parent or Purchaser shall have terminated the Offer due solely to a failure of the Offer Condition contained in subsection (c) of Annex A hereto and the failure of such Offer Condition was not a result, directly or indirectly, of (i) any event or condition having a Material Adverse Effect on the Company or (ii) any misrepresentation made by any of Parent, Purchaser or IPB to Lehman Brothers which was based upon information provided by the Company to Parent, Purchaser or IPB, then Parent shall reimburse the Company for the out-of-pocket expenses incurred by the Company in connection with this Agreement and the transactions contemplated hereby, provided, however, that the reimbursement required hereby shall not exceed an aggregate of $1.0 million. -45- (d) Except as set forth in this Section 8.3, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, whether or not any such transaction is consummated. SECTION 8.4 Amendment. Subject to Section 6.1, this Agreement may be amended by the parties hereto by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. SECTION 8.5 Waiver. Subject to Section 6.1, at any time prior to the Effective Time, any party hereto may, but shall not be required to, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby. ARTICLE IX GENERAL PROVISIONS SECTION 9.1 Non-Survival of Representations, Warranties and Agreements. The representations, warranties and agreements in this Agreement shall terminate at the Effective Time or upon the termination of this Agreement pursuant to Section 8.1, as the case may be, except that the agreements set forth in Article II, Section 6.7, Section 6.9 and this Article IX shall survive the Effective Time and those set forth in Section 6.2(b), Section 6.2(c), Section 8.3 and this Article IX shall survive termination of this Agreement. SECTION 9.2 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by cable, telecopy, telegram or telex or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified by like notice): if to Parent or Purchaser: Axiohm S.A. BP 675-1 a rue D'Arceuil 92542 Montrouge Cedex, FRANCE -46- Facsimile: 11-33-1-49-65-94-13 Attention: Patrick Dupuy with a copy to: McDermott, Will & Emery 227 West Monroe Street Chicago, IL 60606 Facsimile: (312) 984-3669 Attention: Helen R. Friedli, P.C. if to the Company: DH Technology, Inc. 15070 Avenue of Science San Diego, CA 92128 Facsimile: (619) 451-0326 Attention: William H. Gibbs with a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304-1050 Facsimile: (415) 493-6811 Attention: Henry P. Massey, Jr. SECTION 9.3 Certain Definitions. For purposes of this Agreement, the term: (a) "affiliate" of a person means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned person; (b) "beneficial owner" with respect to any shares means a person who shall be deemed to be the beneficial owner of such shares (i) which such person or any of its affiliates or associates (as such term is defined in Rule 12b-2 of the Exchange Act) beneficially owns, directly or indirectly, (ii) which such person or any of its affiliates or associates has, directly or indirectly, (A) the right to acquire (whether such right is exercisable immediately or subject only to the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of consideration rights, exchange rights, warrants or options, or otherwise, or (B) the right to vote pursuant to any agreement, arrangement or understanding or (iii) which are beneficially owned, directly or indirectly, -47- by any other persons with whom such person or any of its affiliates or person with whom such person or any of its affiliates or associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares; (c) "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of stock, as trustee or executor, by contract or credit arrangement or otherwise; (d) "person" means an individual, corporation, partnership, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d)(3) of the Exchange Act); and (e) "subsidiary" or "subsidiaries" of the Company, the Surviving Corporation, Parent or any other person means any corporation, partnership, joint venture or other legal entity of which the Company, the Surviving Corporation, Parent or such other person, as the case may be (either alone or through or together with any other subsidiary), owns, directly or indirectly, 50% or more of the stock or other equity interests the holder of which is generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity; and (f) "US GAAP" shall mean the generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession in the United States. SECTION 9.4 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. SECTION 9.5 Entire Agreement; Assignment. This Agreement, together with the Parent Confidentiality Agreement and the Company Confidentiality Agreement, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. This Agreement shall not be assigned by operation of law or otherwise, except that Parent and Purchaser may assign all or any of their respective rights and obligations -48- hereunder to any direct or indirect wholly owned subsidiary or subsidiaries of Parent, provided, that no such assignment shall relieve the assigning party of its obligations hereunder. SECTION 9.6 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and its successors and permitted assigns, and, except as provided in Section 6.9 hereof, nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 9.7 Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. SECTION 9.8 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 9.9 United States Currency. All amounts described under this Agreement and all transactions between the parties in connection with this Agreement shall be paid in U.S. dollars. SECTION 9.10 Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 9.11 Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. -49- IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. AXIOHM S.A. By:__________________________________ Name:________________________________ Title:_______________________________ Attest: By:____________________________ Name:__________________________ Title: Secretary AX ACQUISITION CORPORATION By:__________________________________ Name:________________________________ Title:_______________________________ Attest: By:____________________________ Name:__________________________ Title: Secretary DH TECHNOLOGY, INC. By:__________________________________ Name:________________________________ Title:_______________________________ Attest: By:____________________________ Name:__________________________ Title: Secretary -50- Annex A Offer Conditions The capitalized terms used in this Annex A have the meanings set forth in the attached Agreement, except that the term "Merger Agreement" shall be deemed to refer to the attached Agreement. Notwithstanding any other provision of the Offer, Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-l(c) under the Exchange Act (relating to Purchaser's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for any Shares tendered pursuant to the Offer, and may postpone the acceptance for payment or, subject to the restriction referred to above, payment for any Shares tendered pursuant to the Offer, and may amend or terminate the Offer in accordance with the Merger Agreement if, prior to the expiration of the Offer, (i) at least 6.5 million Shares shall not have been validly tendered and not properly withdrawn prior to the expiration of the Offer (the "Minimum Condition") or (ii) at any time on or after the date hereof and prior to the acceptance for payment of or payment for Shares, any one or more of the following conditions occurs or has occurred: (a) there shall have been instituted or pending any action or proceeding brought by any governmental authority before any federal or state court, or any order or preliminary or permanent injunction entered in any action or proceeding before any federal or state court or governmental, administrative or regulatory authority or agency, or any other action taken, or statute, rule, regulation, legislation, interpretation, judgment or order enacted, entered, enforced, promulgated, amended, issued or deemed applicable to Parent, Purchaser, the Company or any subsidiary or affiliate of Purchaser or the Company or the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger, by any legislative body, court, government or governmental, administrative or regulatory authority or agency that would reasonably be expected to have the effect of: (i) making illegal, materially delaying or otherwise directly or indirectly restraining or prohibiting the making of the Offer, the acceptance for payment of, or payment for, some of or all the Shares by Purchaser or any of its affiliates or the consummation of any of the transactions contemplated by the Merger Agreement or materially delaying the Axiohm Exchange, the Acquisition of Purchaser or the Merger; (ii) prohibiting or materially limiting the ownership or operation by the Company or any of its subsidiaries or Parent, Purchaser or any of Parent's affiliates of all or any material portion of the business or assets of the Company or any of its subsidiaries or Parent, or any of its affiliates, or compelling Parent, Purchaser or any of Parent's affiliates to dispose of or hold separate all or any material portion of the business or assets of the Company or any of its subsidiaries or Parent, or any of its affiliates, as a result of the transactions contemplated by the Offer, the Axiohm Exchange, the Acquisition of Purchaser or the Merger Agreement; (iii) imposing or confirming limitations on the A-1 ability of Parent, Purchaser or any of Parent's affiliates or shareholders effectively to acquire or hold or to exercise full rights of ownership of Shares, including without limitation the right to vote any Shares acquired or owned by Parent or Purchaser or any of its affiliates or shareholders on all matters properly presented to the shareholders of the Company, including without limitation the adoption and approval of the Merger Agreement, the Axiohm Exchange, the Acquisition of Purchaser and the Merger or the right to vote any shares of capital stock of any subsidiary directly or indirectly owned by the Company; or (iv) requiring divestiture by Parent or Purchaser or any of their affiliates of any Shares; provided, that Parent and Purchaser shall have used all reasonable efforts to cause any such judgment, order or injunction to be vacated or lifted; (b) there shall have occurred any event that is reasonably likely to have a Material Adverse Effect on the Corporation; (c) Purchaser shall not have received the financing sufficient to acquire the Specified Number of the Shares tendered in the Offer (as amended pursuant to Section 1(a) hereof) and to pay the anticipated expenses in connection therewith and with the Axiohm Exchange, the Acquisition of Purchaser and the Merger; (d) the Company shall not have taken all actions with respect to the Company Outstanding Options contemplated by Annex B hereto or the Executives shall not have executed the Option Agreements; (e) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States, (ii) a material disruption of or material adverse change in financial, banking or capital market conditions in the United States or France or a declaration of a banking moratorium by French, United States or New York State banking officials, (iii) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly materially adversely affecting (or materially delaying) the consummation of the Offer or (iv) in the case of any of the foregoing existing at the time of commencement of the Offer, a material acceleration or worsening thereof; (f) (i) it shall have been publicly disclosed or Purchaser shall have otherwise learned that beneficial ownership (determined for the purposes of this paragraph as set forth in Rule 13d-3 promulgated under the Exchange Act) of more than 20% of the outstanding Shares has been acquired by any corporation (including the Company or any of its subsidiaries or affiliates), partnership, person or other entity or group (as defined in Section 13(d)(3) of the Exchange Act), other than Parent or any of its affiliates, or (ii) (A) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Parent or Purchaser the approval or recommendation of the Offer, the Axiohm Exchange, the Acquisition of Purchaser, the Merger or the Merger Agreement, or approved or recommended any takeover proposal or any other acquisition of more than 5% of the outstanding Shares other than the Offer, the Axiohm Exchange, A-2 the Acquisition of Purchaser and the Merger, (B) any corporation, partnership, person or other entity or group shall have entered into a definitive agreement or an agreement in principle with the Company with respect to a tender offer or exchange, offer for any Shares or a merger, consolidation or other business combination with or involving the Company or any of its subsidiaries, or (C) the Board of Directors of the Company or any committee thereof shall have resolved to do any of the foregoing; (g) any of the representations and warranties of the Company set forth in the Merger Agreement shall not be true and correct, as if such representations and warranties were made at the time of such determination, and the failure of all such representations and warranties, together in their entirety, to be true and correct has a Material Adverse Effect on the Corporation; (h) the Company shall have failed to perform in any material respect any obligation or to comply in any material respect with any agreement or covenant of the Company to be performed or complied with by it under the Merger Agreement, and (i) the Company fails to cure any such failure within ten business days after written notice from the Purchaser and (ii) the failure to comply with such agreement or covenant has a Material Adverse Effect on the Corporation; (i) the Merger Agreement shall have been terminated in accordance with its terms or the Offer shall have been terminated with the consent of the Company; or (j) any waiting periods under the HSR Act applicable to the purchase of Shares pursuant to the Offer shall not have expired or been terminated, or any material approval, permit, authorization or consent of any domestic or foreign governmental, administrative or regulatory agency (federal, state, local, provincial or otherwise) shall not have been obtained on terms satisfactory to the Parent in its reasonable discretion and the failure to obtain such approval, permit, authorization or consent has a Material Adverse Effect on the Corporation. The foregoing conditions are for the sole benefit of Purchaser and may be asserted by Purchaser regardless of the circumstances giving rise to any such condition (except for any action or inaction by Purchaser or any of its affiliates constituting a breach of the Merger Agreement) or may be waived by Purchaser in whole or in part at any time and from time to time in its sole discretion (subject to the terms of the Merger Agreement). The failure by Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. A-3 ANNEX B COMPANY OUTSTANDING OPTIONS AND EMPLOYMENT AGREEMENTS 1. Vested Options: Upon acceptance for payment of Shares by Purchaser pursuant to the Offer ("Consummation of the Offer"), all Vested Company Outstanding Options (as defined below), other than Company Outstanding Options held by the individuals designated by the Company and reasonably acceptable to Axiohm (the "Listed Individuals"), shall be cancelled and each holder thereof shall thereupon be paid by the Company an amount, in cash, equal to the product of (i) the number of Shares subject to Vested Company Outstanding Options held by such holder and (ii) the Per Share Amount minus the exercise price applicable to such Vested Company Outstanding Options (the "Option Spread"), less applicable taxes. Listed Individuals may elect not later than 10 days prior to the Consummation of the Offer, as to all or a portion of the individual's Vested Company Outstanding Options, to be covered under the preceding sentence or to receive the Option Spread on a deferred basis. The amounts subject to deferred payment ("Deferred Amounts") shall be distributed in accordance with a payment schedule selected by the individual from among alternative schedules specified by the Company over a period not to exceed seven years following the Effective Time, subject to earlier distribution upon termination of the individual's employment for any reason. The Company shall fund its obligation with respect to Deferred Amounts by transferring funds equal to the Deferred Amounts into a rabbi trust. While in trust the Deferred Amounts may be invested in the same investments as are available under the Company's 401(k) plan (other than Company stock) and shall be credited with earnings accordingly. The Company shall also pay to Listed Individuals who remain employed by the Company through the Consummation of the Offer, tax subsidy payments with respect to the Option Spread (the "Tax Subsidy"). The Company shall pay the Tax Subsidy to the Employee at the time (or times) that the Employee receives payment of the Option Spread, and shall consist of (i) a payment to reflect the federal and state tax rate differential between long- term capital gains and ordinary income in effect on the date (or dates) of payment of the Option Spread, and (ii) a payment to reimburse the individual for taxes due as a result of the rate differential payment at the rate in effect on the date (or dates) of the Tax Subsidy, provided that the Tax Subsidy shall be limited so as to avoid triggering the golden parachute excise tax under Sections 280G and 4999 of the Internal Revenue Code (the "Excise Tax"). Prior to the Consummation of the Offer, the Company and each of the Listed Individuals shall execute an Option Cancellation Agreement in a form reasonably acceptable to the parties hereto. Vested Company Outstanding Options shall mean: (i) all Company Outstanding Options that are vested as of the date of acceptance for payment of Shares by Purchaser pursuant to the Offer or that would have vested through September 6, 1997; (ii) one-half of Company Outstanding Options issued to Walter Sobon; and (iii) all warrants outstanding under the Company's Director Warrant Plan. 2. Unvested Options: All Company Outstanding Options other than Vested Company Outstanding Options ("Unvested Company Outstanding Options") shall remain outstanding and subject to the terms and conditions of the applicable Company option plan and option agreement, but shall be modified to provide for full vesting acceleration in the event the employee's employment is terminated (i) by the Company other than for cause, or (ii) as the result of the employee's death or disability. Unvested Outstanding Company Options held by William Gibbs and Walter Sobon shall be also be modified to provide for acceleration upon an Involuntary Termination of employment (as defined in the Employment Agreements). In the event the Company engages in a transaction prior to April 1, 2001, as a result of which the Company's Shares are no longer registered under the Securities Act of 1934, as amended, each holder of Unvested Outstanding Company Options shall be entitled to receive from the Company a cash payment equal to the product of (i) the number of Shares subject to Unvested Company Outstanding Options held by such holder and (ii) the Per Share Amount minus the exercise price applicable to such Unvested Company Outstanding Options, less applicable taxes; provided, however, that in the event such payment triggers the Excise Tax, the Company and the holders subject to such Excise Tax shall negotiate, in good faith, an alternative arrangement intended to minimize or eliminate such Excise Tax. Prior to the Consummation of the Offer, the Company and each of the employees (other than Gibbs and Sobon) holding Unvested Outstanding Company Options shall execute an Option Amendment in a form reasonably acceptable to the parties hereto. 3. New Options: The Company will grant 350,000 new options to management and employees under the Company's 1992 Stock Plan on a date specified by Gibbs and the Compensation Committee of the Company's Board of Directors within the first two full fiscal quarters after the Effective Time at an option price equal to the fair market value of the Common Stock on the specified date. Such new options shall be allocated by the Compensation Committee, shall have an 8-year term and, except as otherwise provided in the Employment Agreements (as applicable), shall vest cumulatively as to 50% on the second anniversary of the grant date, 25% on the third anniversary and 25% on the fourth anniversary. 4. Employment Agreements: The Company on the one hand and each of Gibbs and Sobon on the other hand shall execute agreements in the form attached hereto as Annex B-1 with the severance payments specified below which shall be payable upon termination of employment as an Involuntary Termination (as defined in the Employment Agreements). All severance payments shall be limited so as to avoid the golden parachute excise tax of Sections 280G and 4999 of the Internal Revenue Code: Gibbs: 2 years' Current Compensation if terminated in the first year, 1 1/2 years' if terminated in second year, 1 year thereafter. For this purpose, "Current Compensation" means the Employee's average annual base salary and annual bonus over the three preceding fiscal years. Sobon: 1 year's Current Compensation (as defined), provided (i) one and one-half years' Current Compensation in the first year following the Effective Time if Gibbs ceases to be an employee of the Company for any reason in such year; and (ii) one and one-quarter years' Current Compensation in the second year following the Effective Time if Gibbs ceases to be an employee of the Company for any reason in such year. 2 LIST OF ATTACHMENTS ANNEX B-1: Form of Employment Agreement 3 DH TECHNOLOGY, INC. EMPLOYMENT AGREEMENT This Agreement is entered into as of , by and among DH Technology, Inc. (the "Company"), Axiohm SA (the "Acquiror") and Janet Shanks (the "Employee"). WHEREAS, the Company is proposing to enter into a negotiated business combination with the Acquiror and a subsidiary of the Acquiror which will result in the Acquiror becoming a wholly-owned subsidiary of the Company (the "Transaction"); and WHEREAS, the Acquiror and the Company desire to retain the Employee on a full-time basis in the capacity of [title] of the Company following the Transaction, and the Employee desires to accept such employment; and WHEREAS the parties desire and agree to enter into an employment relationship by means of this Agreement; NOW THEREFORE in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is mutually covenanted and agreed by and among the parties as follows: 1. CONDITION PRECEDENT. This Agreement shall become effective upon the closing of the Transaction (the "Effective Date") and shall supersede any prior agreement or understanding between the Employee and the Company relating to the Employee's employment by the Company. Prior to the Effective Date, this Agreement shall be of no force or effect. 2. POSITION AND DUTIES. The Employee shall be employed, as of the Effective Date, as [title] of the Company, reporting to the Chief Executive Officer of the Company and assuming and discharging such responsibilities as are commensurate with the Employee's position. In performing her basic duties, the Employee shall work out at her current location, although the Employee acknowledges that frequent travel may be necessary in carrying out her duties hereunder. The Employee shall perform her duties faithfully and to the best of her ability and shall devote her full business time and effort to the performance of her duties hereunder; provided, however, that the foregoing shall not preclude the Employee from engaging in civic, charitable or religious activities, from devoting a reasonable amount of time to private investments, or from being employed by, rendering services to or serving on the boards of directors of other entities, so long as such activities, employment and/or service do not materially interfere or conflict with her responsibilities to the Company. 3. EMPLOYMENT RELATIONSHIP. The Company and the Employee acknowledge that the Employee's employment is and shall continue to be at-will, as defined under applicable law. If the Employee's employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company's established employee plans and policies at the time of termination. 4. COMPENSATION. (A) BASE SALARY. For all services to be rendered by the Employee pursuant to this Agreement, the Employee shall receive a minimum annual base salary of $ , payable monthly in accordance with the Company's normal payroll practices, increased from time to time by the Board of the Company (the "Board") consistent with past practices. 4 (B) BONUS. Beginning with the Company's current fiscal year, and for each fiscal year thereafter during the term of this Agreement, the Employee shall be eligible to receive a target bonus of $ based on performance of the Company as set forth in the Company's annual operating plan established by the Chief Executive Officer of the Company and the Board (the "Target Bonus"). (C) OPTION. Within six (6) months after the closing of the Transaction, the Company shall grant an option to the Employee for a number of shares of the Company's Common Stock to be determined by the Compensation Committee of the Company's Board (the "Shares"), at a per Share purchase price equal to the then current fair market value of a Share, pursuant to the Company's 1992 Stock Plan (the "1992 Plan") and standard form of stock option agreement. Subject to the terms of the 1992 Plan, fifty percent (50%) of the Shares shall vest on the date twenty-four (24) months after the date of grant, and an additional twenty- five percent (25%) of the Shares shall vest at the end of each year thereafter. (D) AUTOMOBILE ALLOWANCE. During the term of this Agreement, the Company shall provide the Employee with an automobile allowance of not less than $ per month. The Employee agrees to have available for business use a four- door automobile suitable for clients and customers. 5. OTHER BENEFITS. The Employee shall be entitled to participate in the employee benefit plans and programs of the Company, if any, to the extent that her position, tenure, salary, age, health and other qualifications make her eligible to participate in such plans or programs, subject to the rules and regulations applicable thereto. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time. 6. EXPENSES. The Company shall reimburse the Employee for reasonable travel, entertainment or other expenses incurred by the Employee in the furtherance of or in connection with the performance of the Employee's duties hereunder, in accordance with the Company's expense reimbursement policy as in effect from time to time. 7. TERMINATION. (A) INVOLUNTARY TERMINATION. If the Employee's employment with the Company terminates in an Involuntary Termination, then, subject to Section 9: (i) the Employee shall be entitled to receive a severance payment equal to one times the Employee's Current Compensation (one-half times the Employee's Current Compensation if such Termination occurs after the first anniversary of the Effective Date); and (ii) the vesting and exercisability of all outstanding stock options that were granted to the Employee by the Company prior to the Effective Date shall accelerate in full. Any severance payments to which the Employee is entitled pursuant to this Section 7(a) shall be paid to the Employee in a lump sum within fifteen (15) days of the Employee's Involuntary Termination. (B) DISABILITY. If the Employee's employment with the Company terminates as a result of Disability, the Company shall make available to the Employee and the Employee's spouse and dependents group health, life and other similar insurance plans substantially comparable to the group health, life and other similar insurance plans in which the Employee or such dependents participated on the date of such termination (the "Company Coverage"). The Company Coverage shall be at the Company's expense for twelve (12) months following such termination. In addition, the Employee's stock options shall vest in full as provided in clause (ii) of Section 7(a) above. (C) DEATH. In the event of the Employee's death, this Agreement, to the extent it has not already terminated, shall terminate on the last day of the calendar month of the Employee's death. In addition (i) the Employee's estate or beneficiaries shall be eligible for those benefits (if any) as may then be established under the Company's severance and benefits plans and policies existing at the time of the Employee's death, and (ii) the Employee's stock options shall vest in full as provided in clause (ii) of Section 7(a) above. 5 (D) OTHER TERMINATION. If the Employee's employment terminates other than in an Involuntary Termination, or upon the Employee's Death or Disability, then the Employee shall not be entitled to receive severance or other benefits pursuant to this Agreement, but may be eligible for those benefits (if any) as may then be established under the Company's severance and benefits plans and policies existing at the time of such termination. 8. DEFINITIONS. (A) CAUSE. "Cause" shall mean the occurrence of any one or more of the following: (i) the Employee's conviction by, or entry of a plea of guilty or nolo contendere in, a court of final jurisdiction for any crime which constitutes a felony in the jurisdiction involved (other than a felony traffic offense), which felony materially injures the Company; (ii) the Employee's misappropriation of funds or commission of a material act of fraud, whether prior or subsequent to the date hereof, upon the Company; (iii) gross negligence by the Employee in the scope of the Employee's services to the Company; (iv) a willful breach by the Employee of a material provision of this Agreement; or (v) a willful failure of the Employee to substantially perform his duties hereunder. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause without (i) reasonable notice to the Employee setting forth the reasons for Company's intention to terminate for Cause, and (ii) an opportunity for the Employee, together with his counsel, if any, to be heard before the Board. (B) CURRENT COMPENSATION. "Current Compensation" shall mean an amount equal to the greater of (i) the Employee's base salary and bonus earned in the fiscal year immediately preceding the current fiscal year; or (ii) the Employee's annual base salary for, and any bonus earned at any time during, the current fiscal year. (C) INVOLUNTARY TERMINATION. "Involuntary Termination" shall mean (i) without the Employee's express written consent, a reduction of the Employee's duties, position or responsibilities relative to the Employee's duties, position or responsibilities in effect immediately prior to such reduction, or the removal of the Employee from such position, duties and responsibilities, unless the Employee is provided with comparable duties, position and responsibilities; (ii) without the Employee's express written consent, a reduction of the facilities and perquisites (including office space and location) available to the Employee immediately prior to such reduction; (iii) a reduction by the Company of the Employee's base salary or Target Bonus (as set forth in Section 4) in effect immediately prior to such reduction; (iv) a reduction by the Company in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee's overall benefits package is significantly reduced; (v) without the Employee's express written consent, the relocation of the Employee to a facility or a location more than thirty-five (35) miles from his current location; (vi) any purported termination of the Employee by the Company which is not effected for Cause or for which the grounds relied upon are not valid; or (vii) the failure of the Acquiror or the Company to obtain the assumption of this Agreement by any successors contemplated in Section 11 below. 9. GOLDEN PARACHUTE EXCISE TAX. (A) BENEFITS CAP. In the event that the benefits under this Agreement, when aggregated with any other payments or benefits received by the Employee, or to be received by the Employee, would (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this provision, would be subject to the excise tax imposed by Section 4999 of the Code or any similar or successor provision, then the Employee's benefits shall be reduced to such lesser amount or degree as would result in no portion of such benefits being subject to the excise tax under Section 4999 of the Code. (B) DETERMINATION. Unless the Company and the Employee otherwise agree in writing, any determination required under this Section shall be made in writing by the Company's primary independent public accounting firm (the "Accountants"), whose determination shall be conclusive and binding upon the Employee and the 6 Company for all purposes. For purposes of making the calculations required by this Section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make its determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section. 10. RIGHT TO ADVICE OF COUNSEL. The Employee acknowledges that she has had the right to consult with counsel and is fully aware of her rights and obligations under this Agreement. 11. SUCCESSORS. (A) COMPANY'S SUCCESSORS. Any successor to the Acquiror or the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Acquiror's or the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Acquiror or the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Acquiror" or "Company," as applicable, shall include any successor to the Acquiror's or the Company's business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law. (B) EMPLOYEE'S SUCCESSORS. Without the written consent of the Acquiror and the Company, the Employee shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 12. NOTICE CLAUSE. (A) MANNER. Any notice hereby required or permitted to be given shall be sufficiently given if in writing and upon mailing by registered or certified mail, postage prepaid, to either party at the address of such party or such other address as shall have been designated by written notice by such party to the other party. (B) EFFECTIVENESS. Any notice or other communication required or permitted to be given under this Agreement will be deemed given on the day when delivered in person, or the third business day after the day on which such notice was mailed in accordance with Section 12(a). 13. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal substantive laws, but not the choice of law rules, of the state of California. 14. SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement, or any terms hereof, shall not affect the validity or enforceability of any other provision or term of this Agreement. 15. INTEGRATION. This Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement shall be binding unless in writing and signed by duly authorized representatives of the parties hereto. 16. TAXES. All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes. 7 IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Acquiror and the Company by their duly authorized officers, as of the day and year first above written. DH Technology, Inc. By: _________________________________ Title: ______________________________ AXIOHM SA By: _________________________________ Title: ______________________________ Employee: ------------------------------------- Name 8 DH TECHNOLOGY, INC. EMPLOYMENT AGREEMENT This Agreement is entered into as of , by and among DH Technology, Inc. (the "Company"), Axiohm SA (the "Acquiror") and David Ledwell (the "Employee"). WHEREAS, the Company is proposing to enter into a negotiated business combination with the Acquiror and a subsidiary of the Acquiror which will result in the Acquiror becoming a wholly-owned subsidiary of the Company (the "Transaction"); and WHEREAS, the Acquiror and the Company desire to retain the Employee on a full-time basis in the capacity of [title] of the Company following the Transaction, and the Employee desires to accept such employment; and WHEREAS the parties desire and agree to enter into an employment relationship by means of this Agreement; NOW THEREFORE in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is mutually covenanted and agreed by and among the parties as follows: 1. CONDITION PRECEDENT. This Agreement shall become effective upon the closing of the Transaction (the "Effective Date") and shall supersede any prior agreement or understanding between the Employee and the Company relating to the Employee's employment by the Company. Prior to the Effective Date, this Agreement shall be of no force or effect. 2. POSITION AND DUTIES. The Employee shall be employed, as of the Effective Date, as [title] of the Company, reporting to the Chief Executive Officer of the Company and assuming and discharging such responsibilities as are commensurate with the Employee's position. In performing his basic duties, the Employee shall work at his present location, although the Employee acknowledges that frequent travel may be necessary in carrying out his duties hereunder. The Employee shall perform his duties faithfully and to the best of his ability and shall devote his full business time and effort to the performance of his duties hereunder; provided, however, that the foregoing shall not preclude the Employee from engaging in civic, charitable or religious activities, from devoting a reasonable amount of time to private investments, or from being employed by, rendering services to or serving on the boards of directors of other entities, so long as such activities, employment and/or service do not materially interfere or conflict with his responsibilities to the Company. 3. EMPLOYMENT RELATIONSHIP. The Company and the Employee acknowledge that the Employee's employment is and shall continue to be at-will, as defined under applicable law. If the Employee's employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company's established employee plans and policies at the time of termination. 4. COMPENSATION. (A) BASE SALARY. For all services to be rendered by the Employee pursuant to this Agreement, the Employee shall receive a minimum annual base salary of $ , payable monthly in accordance with the Company's normal payroll practices, increased from time to time by the Board of the Company (the "Board") consistent with past practices. 9 (B) BONUS. Beginning with the Company's current fiscal year, and for each fiscal year thereafter during the term of this Agreement, the Employee shall be eligible to receive a target bonus of $ based on performance of the Company as set forth in the Company's annual operating plan established by the Chief Executive Officer of the Company and the Board (the "Target Bonus"). (C) OPTION. Within six (6) months after the closing of the Transaction, the Company shall grant an option to the Employee for a number of shares of the Company's Common Stock to be determined by the Compensation Committee of the Company's Board (the "Shares"), at a per Share purchase price equal to the then current fair market value of a Share, pursuant to the Company's 1992 Stock Plan (the "1992 Plan") and standard form of stock option agreement. Subject to the terms of the 1992 Plan, fifty percent (50%) of the Shares shall vest on the date twenty-four (24) months after the date of grant, and an additional twenty- five percent (25%) of the Shares shall vest at the end of each year thereafter. (D) AUTOMOBILE ALLOWANCE. During the term of this Agreement, the Company shall provide the Employee with a automobile allowance of not less than $ per month. The Employee agrees to have available for business use a four-door automobile suitable for customers and clients. 5. OTHER BENEFITS. The Employee shall be entitled to participate in the employee benefit plans and programs of the Company, if any, to the extent that his position, tenure, salary, age, health and other qualifications make his eligible to participate in such plans or programs, subject to the rules and regulations applicable thereto. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time. 6. EXPENSES. The Company shall reimburse the Employee for reasonable travel, entertainment or other expenses incurred by the Employee in the furtherance of or in connection with the performance of the Employee's duties hereunder, in accordance with the Company's expense reimbursement policy as in effect from time to time. 7. TERMINATION. (A) INVOLUNTARY TERMINATION. If the Employee's employment with the Company terminates in an Involuntary Termination, then, subject to Section 9: (i) the Employee shall be entitled to receive a severance payment equal to two times the Employee's Current Compensation (one times the Employee's Current Compensation if such Termination occurs after the first anniversary of the Effective Date); and (ii) the vesting and exercisability of all outstanding stock options that were granted to the Employee by the Company prior to the Effective Date shall accelerate in full. Any severance payments to which the Employee is entitled pursuant to this Section 7(a) shall be paid to the Employee in a lump sum within fifteen (15) days of the Employee's Involuntary Termination. (B) DISABILITY. If the Employee's employment with the Company terminates as a result of Disability, the Company shall make available to the Employee and the Employee's spouse and dependents group health, life and other similar insurance plans substantially comparable to the group health, life and other similar insurance plans in which the Employee or such dependents participated on the date of such termination (the "Company Coverage"). The Company Coverage shall be at the Company's expense for twenty-four (24) months following such termination. In addition, the Employee's stock options shall vest in full as provided in clause (ii) of Section 7(a) above. (C) DEATH. In the event of the Employee's death, this Agreement, to the extent it has not already terminated, shall terminate on the last day of the calendar month of the Employee's death. In addition (i) the Employee's estate or beneficiaries shall be eligible for those benefits (if any) as may then be established under the Company's severance and benefits plans and policies existing at the time of the Employee's death, and (ii) the Employee's stock options shall vest in full as provided in clause (ii) of Section 7(a) above. 10 (D) OTHER TERMINATION. If the Employee's employment terminates other than in an Involuntary Termination, or upon the Employee's Death or Disability, then the Employee shall not be entitled to receive severance or other benefits pursuant to this Agreement, but may be eligible for those benefits (if any) as may then be established under the Company's severance and benefits plans and policies existing at the time of such termination. 8. DEFINITIONS. (A) CAUSE. "Cause" shall mean the occurrence of any one or more of the following: (i) the Employee's conviction by, or entry of a plea of guilty or nolo contendere in, a court of final jurisdiction for any crime which constitutes a felony in the jurisdiction involved (other than a felony traffic offense), which felony materially injures the Company; (ii) the Employee's misappropriation of funds or commission of a material act of fraud, whether prior or subsequent to the date hereof, upon the Company; (iii) gross negligence by the Employee in the scope of the Employee's services to the Company; (iv) a willful breach by the Employee of a material provision of this Agreement; or (v) a willful failure of the Employee to substantially perform his duties hereunder. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause without (i) reasonable notice to the Employee setting forth the reasons for Company's intention to terminate for Cause, and (ii) an opportunity for the Employee, together with his counsel, if any, to be heard before the Board. (B) CURRENT COMPENSATION. "Current Compensation" shall mean an amount equal to the greater of (i) the Employee's base salary and bonus earned in the fiscal year immediately preceding the current fiscal year; or (ii) the Employee's annual base salary for, and any bonus earned at any time during, the current fiscal year. (C) INVOLUNTARY TERMINATION. "Involuntary Termination" shall mean (i) without the Employee's express written consent, a reduction of the Employee's duties, position or responsibilities relative to the Employee's duties, position or responsibilities in effect immediately prior to such reduction, or the removal of the Employee from such position, duties and responsibilities, unless the Employee is provided with comparable duties, position and responsibilities; (ii) without the Employee's express written consent, a reduction of the facilities and perquisites (including office space and location) available to the Employee immediately prior to such reduction; (iii) a reduction by the Company of the Employee's base salary or Target Bonus (as set forth in Section 4) in effect immediately prior to such reduction; (iv) a reduction by the Company in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee's overall benefits package is significantly reduced; (v) without the Employee's express written consent, the relocation of the Employee to a facility or a location more than thirty-five (35) miles from his current location; (vi) any purported termination of the Employee by the Company which is not effected for Cause or for which the grounds relied upon are not valid; or (vii) the failure of the Acquiror or the Company to obtain the assumption of this Agreement by any successors contemplated in Section 11 below. 9. GOLDEN PARACHUTE EXCISE TAX. (A) BENEFITS CAP. In the event that the benefits under this Agreement, when aggregated with any other payments or benefits received by the Employee, or to be received by the Employee, would (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this provision, would be subject to the excise tax imposed by Section 4999 of the Code or any similar or successor provision, then the Employee's benefits shall be reduced to such lesser amount or degree as would result in no portion of such benefits being subject to the excise tax under Section 4999 of the Code. (B) DETERMINATION. Unless the Company and the Employee otherwise agree in writing, any determination required under this Section shall be made in writing by the Company's primary independent public accounting firm (the "Accountants"), whose determination shall be conclusive and binding upon the Employee and the Company for all purposes. For purposes of making the calculations required by this Section, the Accountants 11 may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make its determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section. 10. RIGHT TO ADVICE OF COUNSEL. The Employee acknowledges that he has had the right to consult with counsel and is fully aware of his rights and obligations under this Agreement. 11. SUCCESSORS. (A) COMPANY'S SUCCESSORS. Any successor to the Acquiror or the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Acquiror's or the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Acquiror or the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Acquiror" or "Company," as applicable, shall include any successor to the Acquiror's or the Company's business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law. (B) EMPLOYEE'S SUCCESSORS. Without the written consent of the Acquiror and the Company, the Employee shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 12. NOTICE CLAUSE. (A) MANNER. Any notice hereby required or permitted to be given shall be sufficiently given if in writing and upon mailing by registered or certified mail, postage prepaid, to either party at the address of such party or such other address as shall have been designated by written notice by such party to the other party. (B) EFFECTIVENESS. Any notice or other communication required or permitted to be given under this Agreement will be deemed given on the day when delivered in person, or the third business day after the day on which such notice was mailed in accordance with Section 12(a). 13. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal substantive laws, but not the choice of law rules, of the state of California. 14. SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement, or any terms hereof, shall not affect the validity or enforceability of any other provision or term of this Agreement. 15. INTEGRATION. This Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement shall be binding unless in writing and signed by duly authorized representatives of the parties hereto. 16. TAXES. All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes. 12 IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Acquiror and the Company by their duly authorized officers, as of the day and year first above written. DH Technology, Inc. By: _________________________________ Title: ______________________________ AXIOHM SA By: _________________________________ Title: ______________________________ Employee: ------------------------------------- Name 13 EX-99.(C)(2) 9 FORM OF INDEMNIFICATION AGREEMENT EXHIBIT (C)(2) DH TECHNOLOGY, INC. INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this day of , 19 by and between DH Technology, Inc., a California corporation (the "Company"), and ("Indemnitee"). WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors' and officers' liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other officers and directors of the Company may not be willing to continue to serve as officers and directors without additional protection; and WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as officers and directors of the Company and to indemnify its officers and directors so as to provide them with the maximum protection permitted by law. NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1. INDEMNIFICATION. (a) Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that (i) Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or (ii) with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. (b) Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including 1 attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company and its shareholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine. 2. EXPENSES; INDEMNIFICATION PROCEDURE. (a) Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action or proceeding referenced in Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any such action or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received three business days after the date postmarked if sent by domestic certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) Procedure. Any indemnification provided for in Section 1 shall be made no later than forty-five (45) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Articles of Incorporation or By-laws providing for indemnification, is not paid in full by the Company within forty-five (45) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 12 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. 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 action or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company, and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Subsection 2(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. (d) Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 2(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the 2 commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. (e) Selection of Counsel. In the event the Company shall be obligated under Section 2(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ his counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. (a) Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's By-laws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be, ipso facto, within the purview of Indemnitee's rights and Company's obligations, under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its Board of Directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its By-laws, any agreement, any vote of shareholders or disinterested directors, the California General Corporation Law, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action or other covered proceeding. 4. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. 5. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 6. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of 3 insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors' and officers' liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. 7. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 7. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 8. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) Excluded Acts. To indemnify Indemnitee for any acts or omissions or transactions from which a director may not be relieved of liability under the California General Corporation Law. (b) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; or (c) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; or (d) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of directors' and officers' liability insurance maintained by the Company; or (e) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 9. EFFECTIVENESS OF AGREEMENT. To the extent that the indemnification permitted under the terms of certain provisions of this Agreement exceeds the scope of the indemnification provided for in the California General Corporation Law, such provisions shall not be effective unless and until the Company's Articles of Incorporation authorize such additional rights of indemnification. In all other respects, the balance of this Agreement shall be effective as of the date set forth on the first page and may apply to acts or omissions of Indemnitee which 4 occurred prior to such date if Indemnitee was an officer, director, employee or other agent of the Company, or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at the time such act or omission occurred. 10. CONSTRUCTION OF CERTAIN PHRASES. (a) For purposes of this Agreement, references to the "Company" 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, employees or agents, so that if Indemnitee 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, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company 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. 11. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 13. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 14. NOTICE. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California. 16. CHOICE OF LAW. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of California as applied to contracts between California residents entered into and to be performed entirely within California. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. DH Technology, Inc. By: _________________________________ Title: ______________________________ Address: 15070 Avenue of Science San Diego, CA 92128 AGREED TO AND ACCEPTED: INDEMNITEE: - ------------------------------------- (type name) - ------------------------------------- (signature) - ------------------------------------- - ------------------------------------- (address) 6 EX-99.(C)(6) 10 EMPLOYMENT AREEMENT - WILLIAM H. GIBBS EXHIBIT(C)(6) DH TECHNOLOGY, INC. EMPLOYMENT AGREEMENT This Agreement is entered into as of July 14, 1997, by and between DH Technology, Inc., a California corporation (the "Company") and William H. Gibbs (the "Employee"). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Merger Agreement (defined below). WHEREAS, Axiohm SA, a French corporation ("Axiohm"), Axiohm IPB, Inc., a Delaware corporation and wholly-owned subsidiary of Axiohm ("Purchaser") and the Company have entered into an Agreement and Plan of Merger (the "Merger Agreement") which will result in a change in the ownership and control of the Company and Axiohm becoming a wholly-owned subsidiary of the Company (the "Transaction"); and WHEREAS, the Company desires to retain the Employee on a full-time basis in the capacity of Chief Executive Officer of the Company following the time at which the Purchaser accepts for payment Shares tendered pursuant to the Offer (the "Consummation of the Offer"), and the Employee desires to accept such employment; and WHEREAS the parties desire and agree to enter into an employment relationship by means of this Agreement; NOW THEREFORE in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is mutually covenanted and agreed by and among the parties as follows: 1. Condition Precedent. This Agreement shall become effective upon the Consummation of the Offer and shall supersede in its entirety and without limitation the employment agreement entered into by and between the Employee and the Company on December 3, 1985 (the "Prior Agreement"). Prior to the Consummation of the Offer, this Agreement shall be of no force or effect, and the Employee's employment relationship with the Company shall be governed by the Prior Agreement. 2. Position and Duties. The Employee shall be employed, as of the Consummation of the Offer, as Chief Executive Officer of the Company, reporting to the Company's Board of Directors (the "Board") and assuming and discharging such responsibilities as are commensurate with the Employee's position. In performing his basic duties, the Employee shall work at his current location, although the Employee acknowledges that frequent travel may be necessary in carrying out his duties hereunder. The Employee shall perform his duties faithfully and to the best of his ability and shall devote his full business time and effort to the performance of his duties hereunder; provided, however, that the foregoing shall not preclude the Employee from engaging in civic, charitable or religious activities, from devoting a reasonable amount of time to private investments, or from being employed by, rendering services to or serving on the boards of directors of other entities, so long as such activities, employment and/or service do not materially interfere or conflict with his responsibilities to the Company. 3. Employment Relationship. The Company and the Employee acknowledge that the Employee's employment is and shall continue to be at-will, as defined under applicable law. If the Employee's employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company's established employee plans and policies at the time of termination. 4. Compensation. (a) Base Salary. For all services to be rendered by the Employee pursuant to this Agreement, the Employee shall receive a minimum annual base salary equal to his base salary approved by the Board in the normal course prior to the Transaction, payable monthly in accordance with the Company's normal payroll practices, increased from time to time by the Board consistent with past practices, provided that in no event shall the Employee's annual base salary be less than $225,000. (b) Bonus. Beginning with the Company's current fiscal year, and for each fiscal year thereafter during the term of this Agreement, the Employee shall be eligible to receive a minimum target bonus of 50% of the Employee's annual base salary based on performance of the Company as set forth in the Company's annual operating plan to be agreed upon by the Employee and the Board (the "Target Bonus"). (c) Option. Within six (6) months after the closing of the Transaction, the Company shall grant an option to the Employee, on a date chosen by the Employee and the Compensation Committee of the Board, for a number of shares of the Company's Common Stock to be determined by the Compensation Committee of the Board (the "Shares"), at a per Share purchase price no greater than the then current fair market value of a Share, pursuant to the Company's 1992 Stock Plan (the "1992 Plan") and standard form of stock option agreement. Subject to the terms of the 1992 Plan, fifty percent (50%) of the Shares shall vest on the date twenty-four (24) months after the date of grant, and an additional one forty-eighth ( 1/48th) of the Shares shall vest at the end of each month thereafter. (d) Automobile Allowance. During the term of this Agreement, the Company shall make available to the Employee for his use an automobile purchased by the Company. The Employee shall have the right to purchase the automobile from the Company for $1 after three years from the date first written above. Alternatively, the Company may provide the Employee with a car allowance of not less than $1,200 per month. The Company shall pay the cost of maintenance and other automobile related expenses. 5. Other Benefits. The Employee shall be entitled to participate in the employee benefit plans and programs of the Company, if any, to the extent that his position, tenure, salary, age, health and other qualifications make him eligible to participate in such plans or programs, subject to the rules and regulations applicable thereto. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time. 6. Expenses. The Company shall reimburse the Employee for reasonable travel, entertainment or other expenses incurred by the Employee in the furtherance of or in connection with the performance of the Employee's duties hereunder, in accordance with the Company's expense reimbursement policy as in effect from time to time. 7. Termination. (a) Involuntary Termination. If the Employee's employment with the Company terminates as a result of Involuntary Termination, then, subject to Section 9: (i) the Employee shall be entitled to receive a severance payment equal to two times the Employee's Current Compensation (one and one-half the Employee's Current Compensation if such Termination occurs after the first anniversary of the Consummation of the Offer but on or before the second anniversary of the Consummation of the Offer, and one times the Employee's Current Compensation if such Termination occurs after the second anniversary of the Consummation of the Offer); and (ii) the vesting and exercisability of all outstanding stock options that were granted to the Employee by the Company prior to the Consummation of the Offer shall accelerate in full. Any severance payments to which the Employee is entitled pursuant to this Section 7(a) shall be paid in lieu of any other severance or severance-type benefits to which the Employee may be entitled under any other company-sponsored plan, and shall be paid to the Employee in a lump sum within fifteen (15) days of the Employee's Involuntary Termination. (b) Disability. If the Employee's employment with the Company terminates as a result of Disability, the Company shall make available to the Employee and the Employee's spouse and dependents group health, life and other similar insurance plans substantially comparable to the group health, life and other similar insurance plans in which the Employee or such dependents participated on the date of such termination (the "Company 2 Coverage"). The Company Coverage shall be at the Company's expense for twenty- four (24) months following such termination, and may be continued in the Employee's discretion and at the Employee's expense indefinitely thereafter. In addition, the Employee's stock options shall vest in full as provided in clause (ii) of Section 7(a) above. (c) Death. In the event of the Employee's death, this Agreement, to the extent it has not already terminated, shall terminate on the last day of the calendar month of the Employee's death. In addition (i) the Employee's estate or beneficiaries shall be eligible for those benefits (if any) as may then be established under the Company's severance and benefits plans and policies existing at the time of the Employee's death, and (ii) the Employee's stock options shall vest in full as provided in clause (ii) of Section 7(a) above. (d) Other Termination. If the Employee's employment terminates other than in an Involuntary Termination, or upon the Employee's Death or Disability, then the Employee shall not be entitled to receive severance or other benefits pursuant to this Agreement, but may be eligible for those benefits (if any) as may then be established under the Company's severance and benefits plans and policies existing at the time of such termination. 8. Definitions. (a) Cause. "Cause" shall mean the occurrence of any one or more of the following: (i) the Employee's conviction by, or entry of a plea of guilty or nolo contendere in, a court of final jurisdiction for any crime which constitutes a felony in the jurisdiction involved (other than a felony traffic offense), which felony materially injures the Company, its prospects or its reputation; (ii) the Employee's misappropriation of funds or commission of a material act of fraud, whether prior or subsequent to the date hereof, upon the Company; (iii) gross negligence by the Employee in the scope of the Employee's services to the Company; (iv) a willful breach by the Employee of a material provision of this Agreement; or (v) a willful failure of the Employee to substantially perform his duties hereunder. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause under clause (iii), (iv) or (v) of this Section 8(a) unless the Board delivers a written notice to the Employee setting forth the reasons for the Company's intention to terminate for Cause and specifically identifying the manner in which the Board believes that the Employee has engaged in such conduct, which conduct is not substantially corrected by the Employee within 10 days following his receipt of such notice, and provides the Employee with an opportunity, together with his counsel, if any, to be heard before the Board. (b) Current Compensation. "Current Compensation" shall mean an amount equal to the Employee's three-year average annual base salary and three-year average annual bonus over the three preceding fiscal years. (c) Disability. The Employee shall be considered to have suffered a "Disability" for purposes of this Agreement if, at the end of any calendar month during the term of this Agreement, the Employee is and has been for the four consecutive full calendar months then ending, or for fifty percent or more of the normal working days during the eight consecutive full calendar months then ending, unable due to mental or physical illness or injury to perform his duties under this Agreement in his normal and regular manner. (d) Involuntary Termination. "Involuntary Termination" shall mean (i) without the Employee's express written consent, a reduction by the Board of the Employee's duties, position or responsibilities relative to the Employee's duties, position or responsibilities in effect immediately prior to such reduction, or the removal of the Employee from such position, duties and responsibilities, unless the Employee is provided with comparable duties, position and responsibilities; (ii) without the Employee's express written consent, a reduction by the Board of the Employee's base salary or Target Bonus (as set forth in Section 4) in effect immediately prior to such reduction; (iii) a reduction by the Board in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee's overall benefits package is significantly reduced; (iv) without the Employee's express written consent, the relocation of the Employee by the Board to a facility or a location more than thirty-five (35) miles from his current location; (v) any purported termination of the Employee by the Board which is not effected for Cause or for which the grounds relied upon are not valid; or (vi) the failure of the Company to obtain the assumption of this Agreement by any successors 3 contemplated in Section 11 below; provided, however, that an event described above shall not constitute Involuntary Termination unless it is communicated by the Employee to the Company in writing and is not corrected by the Company in a manner that is reasonably satisfactory to the Employee (including full retroactive correction with respect to any monetary matter) within ten days of the Company's receipt of such written notice from the Employee. 9. Golden Parachute Excise Tax. (a) Benefits Cap. In the event that the benefits under this Agreement, when aggregated with any other payments or benefits received by the Employee, or to be received by the Employee, would (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this provision, would be subject to the excise tax imposed by Section 4999 of the Code or any similar or successor provision, then the Employee's benefits shall be reduced to such lesser amount or degree as would result in no portion of such benefits being subject to the excise tax under Section 4999 of the Code. (b) Determination. Unless the Company and the Employee otherwise agree in writing, any determination required under this Section shall be made in writing by the Company's primary independent public accounting firm (the "Accountants"), whose determination shall be conclusive and binding upon the Employee and the Company for all purposes. For purposes of making the calculations required by this Section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make its determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section. 10. Right to Advice of Counsel. The Employee acknowledges that he has had the right to consult with counsel and is fully aware of his rights and obligations under this Agreement. 11. Successors. (a) Company's Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Company," shall include any successor to the Company's business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law. (b) Employee's Successors. Without the written consent of the Company, the Employee shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 12. Notice Clause. (a) Manner. Any notice hereby required or permitted to be given shall be sufficiently given if in writing and upon mailing by registered or certified mail, postage prepaid, to either party at the address of such party or such other address as shall have been designated by written notice by such party to the other party. (b) Effectiveness. Any notice or other communication required or permitted to be given under this Agreement will be deemed given on the day when delivered in person, or the third business day after the day on which such notice was mailed in accordance with Section 12(a). 4 13. Disputes. In the event that a dispute arises over the terms or enforcement of this Agreement, the parties agree to submit such dispute to binding arbitration in San Diego, California by a single arbitrator engaged through JAMS-Endispute, Inc., its successor firm or another private dispute resolution firm acceptable to both parties. The arbitrator shall be selected as follows: the arbitration firm shall present its panel of available arbitrators, and each party shall sign rank of preference to each of such panel with number 1 being the highest rank. The person on the panel with the lowest total score shall be the arbitrator for a dispute. The arbitrator shall have absolute discretion or authority to limit discovery relevant to the matter and the length of the proceeding before the arbitrator. The parties may not submit written briefs. The arbitrator shall rule on the dispute in writing within ten (10) days after the close of hearings. The time specified in this Section may be extended upon mutual agreement of the parties. The decision of the arbitrator may be entered or registered in any court of competent jurisdiction for execution and enforcement. The arbitrator shall have the power to allocate between the parties the costs of the proceeding and the attorneys' fees incurred in the proceeding as he or she deems appropriate. 14. Governing Law. This Agreement shall be governed by and construed in accordance with the internal substantive laws, but not the choice of law rules, of the state of California. 15. Severability. The invalidity or unenforceability of any provision of this Agreement, or any terms hereof, shall not affect the validity or enforceability of any other provision or term of this Agreement. 16. Integration. This Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement shall be binding unless in writing and signed by duly authorized representatives of the parties hereto. 17. Taxes. All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes. IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by a duly authorized officer, as of the day and year first above written. DH Technology, Inc. /s/ David T. Ledwell By: _________________________________ Executive Vice President Title: ______________________________ William H. Gibbs: /s/ William H. Gibbs ------------------------------------- 5 EX-99.(C)(7) 11 EMPLOYMENT AGREEMENT - WALTER SOBON EXHIBIT (C)(7) DH TECHNOLOGY, INC. EMPLOYMENT AGREEMENT This Agreement is entered into as of July 14, 1997, by and between DH Technology, Inc., a California corporation (the "Company") and Walter Sobon (the "Employee"). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Merger Agreement (defined below). WHEREAS, Axiohm SA, a French corporation ("Axiohm"), Axiohm IPB, Inc., a Delaware corporation and wholly-owned subsidiary of Axiohm ("Purchaser") and the Company have entered into an Agreement and Plan of Merger (the "Merger Agreement") which will result in a change in the ownership and control of the Company and Axiohm becoming a wholly-owned subsidiary of the Company (the "Transaction"); and WHEREAS, the Company desires to retain the Employee on a full-time basis in the capacity of Chief Financial Officer of the Company following the time at which the Purchaser accepts for payment Shares tendered pursuant to the Offer (the "Consummation of the Offer"), and the Employee desires to accept such employment; and WHEREAS the parties desire and agree to enter into an employment relationship by means of this Agreement; NOW THEREFORE in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is mutually covenanted and agreed by and among the parties as follows: 1. Condition Precedent. This Agreement shall become effective upon the Consummation of the Offer and shall supersede any prior agreement or understanding between the Employee and the Company relating to the Employee's employment by the Company. Prior to the Consummation of the Offer, this Agreement shall be of no force or effect. 2. Position and Duties. The Employee shall be employed, as of the Consummation of the Offer, as Chief Financial Officer of the Company, reporting to the Chief Executive Officer of the Company and assuming and discharging such responsibilities as are commensurate with the Employee's position. In performing his basic duties, the Employee shall work at his current location, although the Employee acknowledges that frequent travel may be necessary in carrying out his duties hereunder. The Employee shall perform his duties faithfully and to the best of his ability and shall devote his full business time and effort to the performance of his duties hereunder; provided, however, that the foregoing shall not preclude the Employee from engaging in civic, charitable or religious activities, from devoting a reasonable amount of time to private investments, or from being employed by, rendering services to or serving on the boards of directors of other entities, so long as such activities, employment and/or service do not materially interfere or conflict with his responsibilities to the Company. 3. Employment Relationship. The Company and the Employee acknowledge that the Employee's employment is and shall continue to be at-will, as defined under applicable law. If the Employee's employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company's established employee plans and policies at the time of termination. 4. Compensation. (a) Base Salary. For all services to be rendered by the Employee pursuant to this Agreement, the Employee shall receive a minimum annual base salary of $160,000, payable monthly in accordance with the Company's normal payroll practices, increased from time to time by the Board of Directors of the Company (the "Board") consistent with past practices. (b) Bonus. Beginning with the Company's current fiscal year, and for each fiscal year thereafter during the term of this Agreement, the Employee shall be eligible to receive a minimum target bonus of $50,000 based on performance of the Company as set forth in the Company's annual operating plan established by the Chief Executive Officer of the Company and the Board (the "Target Bonus"). (c) Option. Within six (6) months after the closing of the Transaction, the Company shall grant an option to the Employee for a number of shares of the Company's Common Stock to be determined by the Compensation Committee of the Board (the "Shares"), at a per Share purchase price no greater than the then current fair market value of a Share, pursuant to the Company's 1992 Stock Plan (the "1992 Plan") and standard form of stock option agreement. Subject to the terms of the 1992 Plan, fifty percent (50%) of the Shares shall vest on the date twenty-four (24) months after the date of grant, and an additional twenty-five percent (25%) of the Shares shall vest at the end of each year thereafter. (d) Automobile Allowance. During the term of this Agreement, the Company shall provide the Employee an automobile allowance of not less than $900 per month. The Employee agrees to have available for business use a four-door automobile suitable for customers and clients. 5. Other Benefits. The Employee shall be entitled to participate in the employee benefit plans and programs of the Company, if any, to the extent that his position, tenure, salary, age, health and other qualifications make him eligible to participate in such plans or programs, subject to the rules and regulations applicable thereto. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time. 6. Expenses. The Company shall reimburse the Employee for reasonable travel, entertainment or other expenses incurred by the Employee in the furtherance of or in connection with the performance of the Employee's duties hereunder, in accordance with the Company's expense reimbursement policy as in effect from time to time. 7. Termination. (a) Involuntary Termination. If the Employee's employment with the Company terminates as a result of Involuntary Termination, then, subject to Section 9: (i) the Employee shall be entitled to receive a severance payment equal to one times the Employee's Current Compensation, (provided, however, that the severance payment shall be one and one-half times the Employee's Current Compensation if such termination occurs in the first year following Consummation of the Offer and William Gibbs' employment with the Company terminates for any reason during such year, or one and one-quarter times the Employee's Current Compensation if such termination occurs in the second year following Consummation of the Offer and William Gibbs employment with the Company terminates for any reason during such year); and (ii) the vesting and exercisability of all outstanding stock options that were granted to the Employee by the Company prior to the Consummation of the Offer shall accelerate in full. Any severance payments to which the Employee is entitled pursuant to this Section 7(a) shall be paid in lieu of any other severance or severance-type benefits to which the Employee may be entitled under any other company-sponsored plan, and shall be paid to the Employee in a lump sum within fifteen (15) days of the Employee's Involuntary Termination. (b) Disability. If the Employee's employment with the Company terminates as a result of Disability, the Company shall make available to the Employee and the Employee's spouse and dependents group health, life and other similar insurance plans substantially comparable to the group health, life and other similar insurance plans in which the Employee or such dependents participated on the date of such termination (the "Company Coverage"). The Company Coverage shall be at the Company's expense for twelve (12) months following such termination. In addition, the Employee's stock options shall vest in full as provided in clause (ii) of Section 7(a) above. (c) Death. In the event of the Employee's death, this Agreement, to the extent it has not already terminated, shall terminate on the last day of the calendar month of the Employee's death. In addition (i) the Employee's 2 estate or beneficiaries shall be eligible for those benefits (if any) as may then be established under the Company's severance and benefits plans and policies existing at the time of the Employee's death, and (ii) the Employee's stock options shall vest in full as provided in clause (ii) of Section 7(a) above. (d) Other Termination. If the Employee's employment terminates other than in an Involuntary Termination, or upon the Employee's Death or Disability, then the Employee shall not be entitled to receive severance or other benefits pursuant to this Agreement, but may be eligible for those benefits (if any) as may then be established under the Company's severance and benefits plans and policies existing at the time of such termination. 8. Definitions. (a) Cause. "Cause" shall mean the occurrence of any one or more of the following: (i) the Employee's conviction by, or entry of a plea of guilty or nolo contendere in, a court of final jurisdiction for any crime which constitutes a felony in the jurisdiction involved (other than a felony traffic offense), which felony materially injures the Company, its prospects or its reputation; (ii) the Employee's misappropriation of funds or commission of a material act of fraud, whether prior or subsequent to the date hereof, upon the Company; (iii) gross negligence by the Employee in the scope of the Employee's services to the Company; (iv) a willful breach by the Employee of a material provision of this Agreement; or (v) a willful failure of the Employee to substantially perform his duties hereunder. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause under clause (iii), (iv) or (v) of this Section 8(a) unless the Chief Executive Officer of the Company delivers a written notice to the Employee setting forth the reasons for the Company's intention to terminate for Cause and specifically identifying the manner in which the Chief Executive Officer believes that the Employee has engaged in such conduct, which conduct is not substantially corrected by the Employee within 10 days following his receipt of such notice, and provides the Employee with an opportunity, together with his counsel, if any, to be heard before the Board. (b) Current Compensation. "Current Compensation" shall mean an amount equal to the sum of (i) the Employee's average annual (or annualized) base salary over the three preceding fiscal years (or such lesser number of years as may be applicable to the Employee); and (ii) the Employee's average annual (or annualized) bonus over the three preceding fiscal years; provided, however that if there are fewer than three years of actual bonus history, the Employee's average bonus shall be calculated by including the Employee's Target Bonus for the fiscal year in which the termination occurs. For example, if the termination occurs in 1999, average bonus shall be calculated based on actual bonuses earned for 1997 and 1998 and Target Bonus for 1999. (c) Disability. The Employee shall be considered to have suffered a "Disability" for purposes of this Agreement if, at the end of any calendar month during the term of this Agreement, the Employee is and has been for the four consecutive full calendar months then ending, or for fifty percent or more of the normal working days during the eight consecutive full calendar months then ending, unable due to mental or physical illness or injury to perform his duties under this Agreement in his normal and regular manner. (d) Involuntary Termination. "Involuntary Termination" shall mean (i) without the Employee's express written consent, a reduction of the Employee's duties, position or responsibilities relative to the Employee's duties, position or responsibilities in effect immediately prior to such reduction, or the removal of the Employee from such position, duties and responsibilities, unless the Employee is provided with comparable duties, position and responsibilities; (ii) without the Employee's express written consent, a reduction of the Employee's base salary or Target Bonus (as set forth in Section 4) in effect immediately prior to such reduction; (iii) a reduction in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee's overall benefits package is significantly reduced; (iv) without the Employee's express written consent, the relocation of the Employee to a facility or a location more than thirty-five (35) miles from his current location; (v) any purported termination of the Employee which is not effected for Cause or for which the grounds relied upon are not valid; or (vi) the failure of the Company to obtain the assumption of this Agreement by any successors contemplated in Section 11 below; provided, however, that an event described above shall not constitute Involuntary Termination unless it is communicated by the Employee to the Company 3 in writing and is not corrected by the Company in a manner that is reasonably satisfactory to the Employee (including full retroactive correction with respect to any monetary matter) within ten days of the Company's receipt of such written notice from the Employee. 9. Golden Parachute Excise Tax. (a) Benefits Cap. In the event that the benefits under this Agreement, when aggregated with any other payments or benefits received by the Employee, or to be received by the Employee, would (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this provision, would be subject to the excise tax imposed by Section 4999 of the Code or any similar or successor provision, then the Employee's benefits shall be reduced to such lesser amount or degree as would result in no portion of such benefits being subject to the excise tax under Section 4999 of the Code. (b) Determination. Unless the Company and the Employee otherwise agree in writing, any determination required under this Section shall be made in writing by the Company's primary independent public accounting firm (the "Accountants"), whose determination shall be conclusive and binding upon the Employee and the Company for all purposes. For purposes of making the calculations required by this Section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make its determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section. 10. Right to Advice of Counsel. The Employee acknowledges that he has had the right to consult with counsel and is fully aware of his rights and obligations under this Agreement. 11. Successors. (a) Company's Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Company," shall include any successor to the Company's business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law. (b) Employee's Successors. Without the written consent of the Company, the Employee shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 12. Notice Clause. (a) Manner. Any notice hereby required or permitted to be given shall be sufficiently given if in writing and upon mailing by registered or certified mail, postage prepaid, to either party at the address of such party or such other address as shall have been designated by written notice by such party to the other party. (b) Effectiveness. Any notice or other communication required or permitted to be given under this Agreement will be deemed given on the day when delivered in person, or the third business day after the day on which such notice was mailed in accordance with Section 12(a). 4 13. Disputes. In the event that a dispute arises over the terms or enforcement of this Agreement, the parties agree to submit such dispute to binding arbitration in San Diego, California by a single arbitrator engaged through JAMS-Endispute, Inc., its successor firm or another private dispute resolution firm acceptable to both parties. The arbitrator shall be selected as follows: the arbitration firm shall present its panel of available arbitrators, and each party shall sign rank of preference to each of such panel with number 1 being the highest rank. The person on the panel with the lowest total score shall be the arbitrator for a dispute. The arbitrator shall have absolute discretion or authority to limit discovery relevant to the matter and the length of the proceeding before the arbitrator. The parties may not submit written briefs. The arbitrator shall rule on the dispute in writing within ten (10) days after the close of hearings. The time specified in this Section may be extended upon mutual agreement of the parties. The decision of the arbitrator may be entered or registered in any court of competent jurisdiction for execution and enforcement. The arbitrator shall have the power to allocate between the parties the costs of the proceeding and the attorneys' fees incurred in the proceeding as he or she deems appropriate. 14. Governing Law. This Agreement shall be governed by and construed in accordance with the internal substantive laws, but not the choice of law rules, of the state of California. 15. Severability. The invalidity or unenforceability of any provision of this Agreement, or any terms hereof, shall not affect the validity or enforceability of any other provision or term of this Agreement. 16. Integration. This Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement shall be binding unless in writing and signed by duly authorized representatives of the parties hereto. 17. Taxes. All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes. IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by a duly authorized officer, as of the day and year first above written. DH Technology, Inc. /s/ David T. Ledwell By: _________________________________ Executive Vice President Title: ______________________________ Walter Sobon /s/ Walter Sobon ------------------------------------- 5 EX-99.(C)(8) 12 FORM OF EMPLOYMENT AGREEMENT - JANET SHANKS EXHIBIT (C)(8) DH TECHNOLOGY, INC. EMPLOYMENT AGREEMENT This Agreement is entered into as of , by and among DH Technology, Inc. (the "Company"), Axiohm SA (the "Acquiror") and Janet Shanks (the "Employee"). WHEREAS, the Company is proposing to enter into a negotiated business combination with the Acquiror and a subsidiary of the Acquiror which will result in the Acquiror becoming a wholly-owned subsidiary of the Company (the "Transaction"); and WHEREAS, the Acquiror and the Company desire to retain the Employee on a full-time basis in the capacity of [title] of the Company following the Transaction, and the Employee desires to accept such employment; and WHEREAS the parties desire and agree to enter into an employment relationship by means of this Agreement; NOW THEREFORE in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is mutually covenanted and agreed by and among the parties as follows: 1. CONDITION PRECEDENT. This Agreement shall become effective upon the closing of the Transaction (the "Effective Date") and shall supersede any prior agreement or understanding between the Employee and the Company relating to the Employee's employment by the Company. Prior to the Effective Date, this Agreement shall be of no force or effect. 2. POSITION AND DUTIES. The Employee shall be employed, as of the Effective Date, as [title] of the Company, reporting to the Chief Executive Officer of the Company and assuming and discharging such responsibilities as are commensurate with the Employee's position. In performing her basic duties, the Employee shall work out at her current location, although the Employee acknowledges that frequent travel may be necessary in carrying out her duties hereunder. The Employee shall perform her duties faithfully and to the best of her ability and shall devote her full business time and effort to the performance of her duties hereunder; provided, however, that the foregoing shall not preclude the Employee from engaging in civic, charitable or religious activities, from devoting a reasonable amount of time to private investments, or from being employed by, rendering services to or serving on the boards of directors of other entities, so long as such activities, employment and/or service do not materially interfere or conflict with her responsibilities to the Company. 3. EMPLOYMENT RELATIONSHIP. The Company and the Employee acknowledge that the Employee's employment is and shall continue to be at-will, as defined under applicable law. If the Employee's employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company's established employee plans and policies at the time of termination. 4. COMPENSATION. (A) BASE SALARY. For all services to be rendered by the Employee pursuant to this Agreement, the Employee shall receive a minimum annual base salary of $ , payable monthly in accordance with the Company's normal payroll practices, increased from time to time by the Board of the Company (the "Board") consistent with past practices. 1 (B) BONUS. Beginning with the Company's current fiscal year, and for each fiscal year thereafter during the term of this Agreement, the Employee shall be eligible to receive a target bonus of $ based on performance of the Company as set forth in the Company's annual operating plan established by the Chief Executive Officer of the Company and the Board (the "Target Bonus"). (C) OPTION. Within six (6) months after the closing of the Transaction, the Company shall grant an option to the Employee for a number of shares of the Company's Common Stock to be determined by the Compensation Committee of the Company's Board (the "Shares"), at a per Share purchase price equal to the then current fair market value of a Share, pursuant to the Company's 1992 Stock Plan (the "1992 Plan") and standard form of stock option agreement. Subject to the terms of the 1992 Plan, fifty percent (50%) of the Shares shall vest on the date twenty-four (24) months after the date of grant, and an additional twenty-five percent (25%) of the Shares shall vest at the end of each year thereafter. (D) AUTOMOBILE ALLOWANCE. During the term of this Agreement, the Company shall provide the Employee with an automobile allowance of not less than $ per month. The Employee agrees to have available for business use a four- door automobile suitable for clients and customers. 5. OTHER BENEFITS. The Employee shall be entitled to participate in the employee benefit plans and programs of the Company, if any, to the extent that her position, tenure, salary, age, health and other qualifications make her eligible to participate in such plans or programs, subject to the rules and regulations applicable thereto. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time. 6. EXPENSES. The Company shall reimburse the Employee for reasonable travel, entertainment or other expenses incurred by the Employee in the furtherance of or in connection with the performance of the Employee's duties hereunder, in accordance with the Company's expense reimbursement policy as in effect from time to time. 7. TERMINATION. (A) INVOLUNTARY TERMINATION. If the Employee's employment with the Company terminates in an Involuntary Termination, then, subject to Section 9: (i) the Employee shall be entitled to receive a severance payment equal to one times the Employee's Current Compensation (one-half times the Employee's Current Compensation if such Termination occurs after the first anniversary of the Effective Date); and (ii) the vesting and exercisability of all outstanding stock options that were granted to the Employee by the Company prior to the Effective Date shall accelerate in full. Any severance payments to which the Employee is entitled pursuant to this Section 7(a) shall be paid to the Employee in a lump sum within fifteen (15) days of the Employee's Involuntary Termination. (B) DISABILITY. If the Employee's employment with the Company terminates as a result of Disability, the Company shall make available to the Employee and the Employee's spouse and dependents group health, life and other similar insurance plans substantially comparable to the group health, life and other similar insurance plans in which the Employee or such dependents participated on the date of such termination (the "Company Coverage"). The Company Coverage shall be at the Company's expense for twelve (12) months following such termination. In addition, the Employee's stock options shall vest in full as provided in clause (ii) of Section 7(a) above. (C) DEATH. In the event of the Employee's death, this Agreement, to the extent it has not already terminated, shall terminate on the last day of the calendar month of the Employee's death. In addition (i) the Employee's estate or beneficiaries shall be eligible for those benefits (if any) as may then be established under the Company's severance and benefits plans and policies existing at the time of the Employee's death, and (ii) the Employee's stock options shall vest in full as provided in clause (ii) of Section 7(a) above. 2 (D) OTHER TERMINATION. If the Employee's employment terminates other than in an Involuntary Termination, or upon the Employee's Death or Disability, then the Employee shall not be entitled to receive severance or other benefits pursuant to this Agreement, but may be eligible for those benefits (if any) as may then be established under the Company's severance and benefits plans and policies existing at the time of such termination. 8. DEFINITIONS. (A) CAUSE. "Cause" shall mean the occurrence of any one or more of the following: (i) the Employee's conviction by, or entry of a plea of guilty or nolo contendere in, a court of final jurisdiction for any crime which constitutes a felony in the jurisdiction involved (other than a felony traffic offense), which felony materially injures the Company; (ii) the Employee's misappropriation of funds or commission of a material act of fraud, whether prior or subsequent to the date hereof, upon the Company; (iii) gross negligence by the Employee in the scope of the Employee's services to the Company; (iv) a willful breach by the Employee of a material provision of this Agreement; or (v) a willful failure of the Employee to substantially perform his duties hereunder. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause without (i) reasonable notice to the Employee setting forth the reasons for Company's intention to terminate for Cause, and (ii) an opportunity for the Employee, together with his counsel, if any, to be heard before the Board. (B) CURRENT COMPENSATION. "Current Compensation" shall mean an amount equal to the greater of (i) the Employee's base salary and bonus earned in the fiscal year immediately preceding the current fiscal year; or (ii) the Employee's annual base salary for, and any bonus earned at any time during, the current fiscal year. (C) INVOLUNTARY TERMINATION. "Involuntary Termination" shall mean (i) without the Employee's express written consent, a reduction of the Employee's duties, position or responsibilities relative to the Employee's duties, position or responsibilities in effect immediately prior to such reduction, or the removal of the Employee from such position, duties and responsibilities, unless the Employee is provided with comparable duties, position and responsibilities; (ii) without the Employee's express written consent, a reduction of the facilities and perquisites (including office space and location) available to the Employee immediately prior to such reduction; (iii) a reduction by the Company of the Employee's base salary or Target Bonus (as set forth in Section 4) in effect immediately prior to such reduction; (iv) a reduction by the Company in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee's overall benefits package is significantly reduced; (v) without the Employee's express written consent, the relocation of the Employee to a facility or a location more than thirty-five (35) miles from his current location; (vi) any purported termination of the Employee by the Company which is not effected for Cause or for which the grounds relied upon are not valid; or (vii) the failure of the Acquiror or the Company to obtain the assumption of this Agreement by any successors contemplated in Section 11 below. 9. GOLDEN PARACHUTE EXCISE TAX. (A) BENEFITS CAP. In the event that the benefits under this Agreement, when aggregated with any other payments or benefits received by the Employee, or to be received by the Employee, would (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this provision, would be subject to the excise tax imposed by Section 4999 of the Code or any similar or successor provision, then the Employee's benefits shall be reduced to such lesser amount or degree as would result in no portion of such benefits being subject to the excise tax under Section 4999 of the Code. (B) DETERMINATION. Unless the Company and the Employee otherwise agree in writing, any determination required under this Section shall be made in writing by the Company's primary independent public accounting firm (the "Accountants"), whose determination shall be conclusive and binding upon the Employee and the 3 Company for all purposes. For purposes of making the calculations required by this Section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make its determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section. 10. RIGHT TO ADVICE OF COUNSEL. The Employee acknowledges that she has had the right to consult with counsel and is fully aware of her rights and obligations under this Agreement. 11. SUCCESSORS. (A) COMPANY'S SUCCESSORS. Any successor to the Acquiror or the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Acquiror's or the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Acquiror or the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Acquiror" or "Company," as applicable, shall include any successor to the Acquiror's or the Company's business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law. (B) EMPLOYEE'S SUCCESSORS. Without the written consent of the Acquiror and the Company, the Employee shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 12. NOTICE CLAUSE. (A) MANNER. Any notice hereby required or permitted to be given shall be sufficiently given if in writing and upon mailing by registered or certified mail, postage prepaid, to either party at the address of such party or such other address as shall have been designated by written notice by such party to the other party. (B) EFFECTIVENESS. Any notice or other communication required or permitted to be given under this Agreement will be deemed given on the day when delivered in person, or the third business day after the day on which such notice was mailed in accordance with Section 12(a). 13. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal substantive laws, but not the choice of law rules, of the state of California. 14. SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement, or any terms hereof, shall not affect the validity or enforceability of any other provision or term of this Agreement. 15. INTEGRATION. This Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement shall be binding unless in writing and signed by duly authorized representatives of the parties hereto. 16. TAXES. All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes. 4 IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Acquiror and the Company by their duly authorized officers, as of the day and year first above written. DH Technology, Inc. By: _________________________________ Title: ______________________________ AXIOHM SA By: _________________________________ Title: ______________________________ Employee: ------------------------------------- Name 5 EX-99.(C)(9) 13 FORM OF EMPLOYMENT AGREEMENT - DAVID LEDWELL EXHIBIT (C)(9) DH TECHNOLOGY, INC. EMPLOYMENT AGREEMENT This Agreement is entered into as of , by and among DH Technology, Inc. (the "Company"), Axiohm SA (the "Acquiror") and David Ledwell (the "Employee"). WHEREAS, the Company is proposing to enter into a negotiated business combination with the Acquiror and a subsidiary of the Acquiror which will result in the Acquiror becoming a wholly-owned subsidiary of the Company (the "Transaction"); and WHEREAS, the Acquiror and the Company desire to retain the Employee on a full-time basis in the capacity of [title] of the Company following the Transaction, and the Employee desires to accept such employment; and WHEREAS the parties desire and agree to enter into an employment relationship by means of this Agreement; NOW THEREFORE in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is mutually covenanted and agreed by and among the parties as follows: 1. CONDITION PRECEDENT. This Agreement shall become effective upon the closing of the Transaction (the "Effective Date") and shall supersede any prior agreement or understanding between the Employee and the Company relating to the Employee's employment by the Company. Prior to the Effective Date, this Agreement shall be of no force or effect. 2. POSITION AND DUTIES. The Employee shall be employed, as of the Effective Date, as [title] of the Company, reporting to the Chief Executive Officer of the Company and assuming and discharging such responsibilities as are commensurate with the Employee's position. In performing his basic duties, the Employee shall work at his present location, although the Employee acknowledges that frequent travel may be necessary in carrying out his duties hereunder. The Employee shall perform his duties faithfully and to the best of his ability and shall devote his full business time and effort to the performance of his duties hereunder; provided, however, that the foregoing shall not preclude the Employee from engaging in civic, charitable or religious activities, from devoting a reasonable amount of time to private investments, or from being employed by, rendering services to or serving on the boards of directors of other entities, so long as such activities, employment and/or service do not materially interfere or conflict with his responsibilities to the Company. 3. EMPLOYMENT RELATIONSHIP. The Company and the Employee acknowledge that the Employee's employment is and shall continue to be at-will, as defined under applicable law. If the Employee's employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company's established employee plans and policies at the time of termination. 4. COMPENSATION. (A) BASE SALARY. For all services to be rendered by the Employee pursuant to this Agreement, the Employee shall receive a minimum annual base salary of $ , payable monthly in accordance with the Company's normal payroll practices, increased from time to time by the Board of the Company (the "Board") consistent with past practices. 1 (B) BONUS. Beginning with the Company's current fiscal year, and for each fiscal year thereafter during the term of this Agreement, the Employee shall be eligible to receive a target bonus of $ based on performance of the Company as set forth in the Company's annual operating plan established by the Chief Executive Officer of the Company and the Board (the "Target Bonus"). (C) OPTION. Within six (6) months after the closing of the Transaction, the Company shall grant an option to the Employee for a number of shares of the Company's Common Stock to be determined by the Compensation Committee of the Company's Board (the "Shares"), at a per Share purchase price equal to the then current fair market value of a Share, pursuant to the Company's 1992 Stock Plan (the "1992 Plan") and standard form of stock option agreement. Subject to the terms of the 1992 Plan, fifty percent (50%) of the Shares shall vest on the date twenty-four (24) months after the date of grant, and an additional twenty-five percent (25%) of the Shares shall vest at the end of each year thereafter. (D) AUTOMOBILE ALLOWANCE. During the term of this Agreement, the Company shall provide the Employee with a automobile allowance of not less than $ per month. The Employee agrees to have available for business use a four-door automobile suitable for customers and clients. 5. OTHER BENEFITS. The Employee shall be entitled to participate in the employee benefit plans and programs of the Company, if any, to the extent that his position, tenure, salary, age, health and other qualifications make his eligible to participate in such plans or programs, subject to the rules and regulations applicable thereto. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time. 6. EXPENSES. The Company shall reimburse the Employee for reasonable travel, entertainment or other expenses incurred by the Employee in the furtherance of or in connection with the performance of the Employee's duties hereunder, in accordance with the Company's expense reimbursement policy as in effect from time to time. 7. TERMINATION. (A) INVOLUNTARY TERMINATION. If the Employee's employment with the Company terminates in an Involuntary Termination, then, subject to Section 9: (i) the Employee shall be entitled to receive a severance payment equal to two times the Employee's Current Compensation (one times the Employee's Current Compensation if such Termination occurs after the first anniversary of the Effective Date); and (ii) the vesting and exercisability of all outstanding stock options that were granted to the Employee by the Company prior to the Effective Date shall accelerate in full. Any severance payments to which the Employee is entitled pursuant to this Section 7(a) shall be paid to the Employee in a lump sum within fifteen (15) days of the Employee's Involuntary Termination. (B) DISABILITY. If the Employee's employment with the Company terminates as a result of Disability, the Company shall make available to the Employee and the Employee's spouse and dependents group health, life and other similar insurance plans substantially comparable to the group health, life and other similar insurance plans in which the Employee or such dependents participated on the date of such termination (the "Company Coverage"). The Company Coverage shall be at the Company's expense for twenty-four (24) months following such termination. In addition, the Employee's stock options shall vest in full as provided in clause (ii) of Section 7(a) above. (C) DEATH. In the event of the Employee's death, this Agreement, to the extent it has not already terminated, shall terminate on the last day of the calendar month of the Employee's death. In addition (i) the Employee's estate or beneficiaries shall be eligible for those benefits (if any) as may then be established under the Company's severance and benefits plans and policies existing at the time of the Employee's death, and (ii) the Employee's stock options shall vest in full as provided in clause (ii) of Section 7(a) above. 2 (D) OTHER TERMINATION. If the Employee's employment terminates other than in an Involuntary Termination, or upon the Employee's Death or Disability, then the Employee shall not be entitled to receive severance or other benefits pursuant to this Agreement, but may be eligible for those benefits (if any) as may then be established under the Company's severance and benefits plans and policies existing at the time of such termination. 8. DEFINITIONS. (A) CAUSE. "Cause" shall mean the occurrence of any one or more of the following: (i) the Employee's conviction by, or entry of a plea of guilty or nolo contendere in, a court of final jurisdiction for any crime which constitutes a felony in the jurisdiction involved (other than a felony traffic offense), which felony materially injures the Company; (ii) the Employee's misappropriation of funds or commission of a material act of fraud, whether prior or subsequent to the date hereof, upon the Company; (iii) gross negligence by the Employee in the scope of the Employee's services to the Company; (iv) a willful breach by the Employee of a material provision of this Agreement; or (v) a willful failure of the Employee to substantially perform his duties hereunder. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause without (i) reasonable notice to the Employee setting forth the reasons for Company's intention to terminate for Cause, and (ii) an opportunity for the Employee, together with his counsel, if any, to be heard before the Board. (B) CURRENT COMPENSATION. "Current Compensation" shall mean an amount equal to the greater of (i) the Employee's base salary and bonus earned in the fiscal year immediately preceding the current fiscal year; or (ii) the Employee's annual base salary for, and any bonus earned at any time during, the current fiscal year. (C) INVOLUNTARY TERMINATION. "Involuntary Termination" shall mean (i) without the Employee's express written consent, a reduction of the Employee's duties, position or responsibilities relative to the Employee's duties, position or responsibilities in effect immediately prior to such reduction, or the removal of the Employee from such position, duties and responsibilities, unless the Employee is provided with comparable duties, position and responsibilities; (ii) without the Employee's express written consent, a reduction of the facilities and perquisites (including office space and location) available to the Employee immediately prior to such reduction; (iii) a reduction by the Company of the Employee's base salary or Target Bonus (as set forth in Section 4) in effect immediately prior to such reduction; (iv) a reduction by the Company in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee's overall benefits package is significantly reduced; (v) without the Employee's express written consent, the relocation of the Employee to a facility or a location more than thirty-five (35) miles from his current location; (vi) any purported termination of the Employee by the Company which is not effected for Cause or for which the grounds relied upon are not valid; or (vii) the failure of the Acquiror or the Company to obtain the assumption of this Agreement by any successors contemplated in Section 11 below. 9. GOLDEN PARACHUTE EXCISE TAX. (A) BENEFITS CAP. In the event that the benefits under this Agreement, when aggregated with any other payments or benefits received by the Employee, or to be received by the Employee, would (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this provision, would be subject to the excise tax imposed by Section 4999 of the Code or any similar or successor provision, then the Employee's benefits shall be reduced to such lesser amount or degree as would result in no portion of such benefits being subject to the excise tax under Section 4999 of the Code. (B) DETERMINATION. Unless the Company and the Employee otherwise agree in writing, any determination required under this Section shall be made in writing by the Company's primary independent public accounting firm (the "Accountants"), whose determination shall be conclusive and binding upon the Employee and the Company for all purposes. For purposes of making the calculations required by this Section, the Accountants 3 may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make its determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section. 10. RIGHT TO ADVICE OF COUNSEL. The Employee acknowledges that he has had the right to consult with counsel and is fully aware of his rights and obligations under this Agreement. 11. SUCCESSORS. (A) COMPANY'S SUCCESSORS. Any successor to the Acquiror or the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Acquiror's or the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Acquiror or the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Acquiror" or "Company," as applicable, shall include any successor to the Acquiror's or the Company's business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law. (B) EMPLOYEE'S SUCCESSORS. Without the written consent of the Acquiror and the Company, the Employee shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 12. NOTICE CLAUSE. (A) MANNER. Any notice hereby required or permitted to be given shall be sufficiently given if in writing and upon mailing by registered or certified mail, postage prepaid, to either party at the address of such party or such other address as shall have been designated by written notice by such party to the other party. (B) EFFECTIVENESS. Any notice or other communication required or permitted to be given under this Agreement will be deemed given on the day when delivered in person, or the third business day after the day on which such notice was mailed in accordance with Section 12(a). 13. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal substantive laws, but not the choice of law rules, of the state of California. 14. SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement, or any terms hereof, shall not affect the validity or enforceability of any other provision or term of this Agreement. 15. INTEGRATION. This Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement shall be binding unless in writing and signed by duly authorized representatives of the parties hereto. 16. TAXES. All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes. 4 IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Acquiror and the Company by their duly authorized officers, as of the day and year first above written. DH Technology, Inc. By: _________________________________ Title: ______________________________ AXIOHM SA By: _________________________________ Title: ______________________________ Employee: ------------------------------------- Name 5 EX-99.(C)(10) 14 PAGES 2-7 OR THE COMPANY'S PROXY STATEMENT EXHIBIT (C)(10) PROPOSAL NO. I ELECTION OF DIRECTORS NOMINEES AND VOTE REQUIRED A board of five (5) directors is to be elected at the meeting. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the five nominees named below, all of whom are presently directors of the Company. In the event that any such nominee is unable or declines to serve as a director at the time of the Annual Meeting of Shareholders, the proxies will be voted for any nominee who shall be designated by the present Board of Directors to fill the vacancy. In the event that additional persons are nominated for election as directors, the proxy holders intend to vote all proxies received by them in such a manner in accordance with cumulative voting as will assure the election of as many of the nominees listed below as possible, and, in such event, the specific nominees to be voted for will be determined by the proxy holders. The five nominees for director receiving the highest number of affirmative votes of the shares entitled to be voted for them shall be elected as directors. Votes withheld from any director are counted for purposes of determining the presence or absence of a quorum, but have no other legal effect under California law. It is not expected that any nominee will be unable or will decline to serve as a director. The term of office of each person elected as a director will continue until the next Annual Meeting of Shareholders or until a successor has been elected and qualified. The Board of Directors recommends the election of the nominees listed below. The names of the nominees, and certain information about them as of the record date, are set forth below.
DIRECTOR NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE --------------- --- -------------------- -------- William J. Bowers 68 Private Investor 1990 William H. Gibbs 53 President, Chief Executive Officer and 1985 Chairman of the Board of Directors of the Company Bruce G. Klass 64 Private Investor and Attorney 1983 Don M. Lyle 57 Independent Consultant 1992 George M. Ryan 75 Private Investor 1983
Mr. Bowers was Chief Executive Officer and Chairman of MSI Data Corporation, a data collection company, for more than five years prior to 1988. He retired from that position in 1988 and is now a private investor. Mr. Bowers is also a director of Quality Systems, Inc. Mr. Gibbs has been the President and Chief Executive officer of the Company since November 1985 and became Chairman of the Board of Directors of the Company in February 1987. Mr. Klaas is a private investor and a patent lawyer. He has been of counsel to the law firm of Klaas, Law, O'Meara and Malkin, P.C., Denver, Colorado, one of the Company's patent counsels, since December 1990, when he retired from the active practice of law. Mr. Lyle has been an independent consultant since 1983 to a number of technology-based companies in the United States, Europe and Japan. From 1984 through 1987, Mr. Lyle was President and Chief Executive Officer of Data Electronics, Inc. Mr. Lyle is also a director of Emulex Network Systems. Mr. Ryan is a private investor. BOARD MEETINGS AND COMMITTEES The Board of Directors of the Company held a total of four meetings during 1996. No director attended fewer than 75% of such meetings or of committee meetings held while such director was a member of the Board or of a committee. The Board of Directors has a Nominating Committee, an Audit Committee and a Compensation Committee. The Nominating Committee recommends new members for the Company's Board of Directors. The Committee consists of William J. Bowers and William H. Gibbs. Thus far, the functions of the Nominating Committee have been performed by the Board of Directors. The Nominating Committee held no meetings in 1996. The Audit Committee recommends engagement of the Company's independent auditors, approves services performed by such auditors and reviews and evaluates the Company's accounting system and its system of internal accounting controls. This Committee, consisting of George M. Ryan and William J. Bowers, held one meeting during 1996. The Compensation Committee reviews and administers the compensation of the officers of the Company and administers the Company's 1992 Stock Plan and, to the extent necessary with respect to outstanding options, the Company's 1983 Incentive Stock Option Plan. This Committee, currently consisting of Bruce G. Klaas and Don M. Lyle, held one meeting during 1996. COMPENSATION OF DIRECTORS Retainer and Meeting Fees All non-employee directors received a $6,000 annual retainer plus $1,250 for each Board of Directors meeting attended and for each committee meeting which did not occur on a regularly scheduled date. Director Warrant Plan The Company's Director Warrant Plan (the "Warrant Plan") was adopted in December 1985 by the Board of Directors and approved by the shareholders in April 1986 for the purpose of issuing Common Stock Purchase Warrants (the "Warrants") to directors of the Company who are otherwise ineligible under the Company's stock option programs. A total of 225,000 shares of Common Stock are reserved for issuance under the Warrant Plan. Under the Warrant Plan as currently in effect, each non-employee director automatically receives a Warrant to purchase 15,000 shares of the Company's Common Stock upon first becoming a director (the "Initial Warrant") and each non-employee director automatically receives an additional Warrant to purchase 5,250 shares each year (the "Annual Warrant") beginning in the fifth year after the grant of such Initial Warrant. On August 12, 1996, grants of Annual Warrants to purchase 5,250 shares of the Company's Common Stock were made to Messrs. Bowers, Klaas and Ryan at an exercise price of $23.38. The exercise price of the Warrants granted under the Warrant Plan is equal to the fair market value of the Company's Common Stock on the date of the grant. Each Initial Warrant vests as to 1/48th of the shares subject thereto for each full calendar month after the date of grant that the holder of such Initial Warrant remains a member of the Board of Directors. Each Annual Warrant vests one year after the date of grant, subject to the holder of such Annual Warrant remaining a member of the Board of Directors during such one- year period. Initial Warrants and Annual Warrants may be exercised with respect to unvested shares if a repurchase agreement is executed between the warrantholder and the Company. The repurchase agreement grants the Company the right to repurchase unvested shares at the original purchase price in the event the warrantholder ceases to be a member of the Board of Directors. Warrants may be exercised within three months after the date the holder ceases to serve as a director and expire five years after grant. The Warrants are not transferable by their holders other than by will or laws of descent and may be exercised during the lifetime of the holder only by the holder. In the event of a change-in-control, all Warrants outstanding under the Warrant Plan will become fully vested as to all shares subject to the Warrant. A "change-in- control" is defined to include the following events: A. Any of the following that are approved by the requisite vote of the shareholders of the Company: 1. a transaction or series of transactions occurring within three years resulting, in more than 50% of the Company's voting stock being transferred to new shareholders; 2 2. a transaction or series of transactions occurring within three years resulting in more than 50% of the assets of the Company being sold or disposed of; or 3. a dissolution or liquidation of the Company, or a partial liquidation involving more than 50% of its assets; B. The acquisition of beneficial ownership by any person of more than 50% of the voting power of the outstanding capital stock of the Company; and C. A change in the majority of the members of the Board of Directors in a three-year period for reasons other than death, disability or voluntary resignation. PROPOSAL NO. 2 RATIFICATION OF INDEPENDENT AUDITORS Upon the recommendation of the Audit Committee and subject to the ratification by the shareholders, the Board of Directors appointed KPMG Peat Marwick LLP, independent public auditors to serve for the fiscal year ending December 31, 1997. The Board of Directors recommends that the shareholders vote for ratification of the appointment of KPMG Peat Marwick LLP as the Company's independent auditors to audit the financial statements for the Company for the year ending December 31, 1997. In the event of a negative vote on such ratification, the Board of Directors will reconsider its selection. Representatives of KPMG Peat Marwick LLP are expected to be present at the meeting with the opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions. VOTE REQUIRED The affirmative vote of a majority of the Votes Cast will be required to ratify KPMG Peat Marwick LLP as the Company's independent auditors. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT AUDITORS. 3 EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION TABLES The following table shows the total compensation of (i) the Chief Executive Officer and (ii) all other executive officers of the Company who earned over $100,000 in salary and bonus in 1996 (together the "Named Executive Officers"), as well as the total compensation paid to each such individual for the Company's two previous fiscal years. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ----------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS ----------------------------------- --------------------- ------- RESTRICTED SECURITIES OTHER ANNUAL STOCK UNDERLYING LTIP NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS ALL OTHER POSITION YEAR ($) ($) ($) ($) (#) ($) COMPENSATION ------------------ ---- --------- ------- ------------ ---------- ---------- ------- ------------ William H. Gibbs........ 1996 $$285,000 $44,599 -- -- -- -- $1,784 Chief Executive Officer 1995 274,998 155,000 -- -- 150,000 -- 1,510 1994 257,986 138,000 -- -- 150,000 -- 1,357 David T. Ledwell........ 1996 $132,981 $35,000 -- -- -- -- $ 959 Executive Vice Presi- dent 1995 121,831 42,500 -- -- 22,500 -- 820 Transactions Products 1994 115,283 31,000 -- -- 7,500 -- 982 Janet W. Shanks......... 1996 $ 85,488 $20,000 -- -- -- -- $ 568 Corporate Controller 1995 67,575 20,500 -- -- 15,000 -- 474 Chief Accounting Offi- cer 1994 69,087 11,000 -- -- 7,500 -- 576
- -------- (1) Represents payments of insurance premiums on behalf of the Named Executive Officers. The following tables set forth certain information for the Named Executive Officers with respect to exercises in 1996 of options to purchase Common Stock of the Company: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS SHARES VALUE AT FISCAL YEAR END (#) AT FISCAL YEAR END (1)($) ACQUIRED ON REALIZED ------------------------- ------------------------- NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- -------- ----------- ------------- ----------- ------------- William H. Gibbs........ -- -- 542,807 154,693 $8,278,844 $1,227,381 David T. Ledwell........ -- -- 33,750 22,500 484,687 168,436 Janet W. Shanks......... -- -- 12,000 16,125 141,622 126,308
- -------- (1) Market value of underlying securities at year-end minus the exercise price multiplied by the number of shares. EMPLOYMENT AGREEMENT AND CHANGE-IN-CONTROL ARRANGEMENTS The Company has an employment agreement with William H. Gibbs under which the Company has a continuing obligation to employ Mr. Gibbs. The employment agreement provides that Mr. Gibbs will receive a base salary determined annually by the Board of Directors, such salary in any event not to be less than $12,500 per month. Mr. Gibbs is also entitled to bonuses of up to 50% of his annual base salary based upon performance of the Company as set forth in the annual operating plan agreed to by the Board of Directors and Mr. Gibbs. In the event that Mr. Gibbs is terminated without cause, the Company is obligated to continue to pay Mr. Gibbs' 4 salary until the earlier of (i) commencement of employment with a new employer or (ii) six months from the date of termination. In the event of termination due to resignation, for cause, disability or death, no severance pay will be due, but the Company will continue to pay for medical benefits in certain situations for periods not exceeding two years. In the event of a change-in- control, Mr. Gibbs may resign and have his resignation treated as a termination without cause. A change-in-control, for purposes of Mr. Gibbs' employment agreement, is defined to be (i) a merger or consolidation which has the result that voting securities of the Company are canceled, converted for cash or cash equivalents, securities of another entity or non-voting securities of the Company, (ii) a sale of the Company's assets, or (iii) securities representing more than 50% of the voting power of the Company are acquired by a person or entity. Vesting of all options held by officers under the 1992 Stock Plan of the Company is subject to the acceleration provisions thereof in the event of a change in control. Vesting of all options held by officers under the 1983 Incentive Stock Option Plan of the Company is subject to the acceleration provisions thereof in the event of a merger or consolidation. REPORT OF THE COMPENSATION COMMITTEE The Compensation Committee of the Board of Directors establishes the compensation plans and policies and the specific compensation levels for executive officers, and administers the Company's stock option plans. Compensation Policies The Compensation Committee reviews and approves the salaries of executive officers primarily by reference to data contained in the American Electronics Association (AEA) survey of executive compensation in the electronics industry. The Committee establishes base salaries that are within the range of salaries for persons holding positions of similar responsibility at comparably-sized technology companies. In addition, the Committee considers factors such as relative Company performance, the individual's past performance, his or her future potential and the individual's experience and ability as judged by the Committee. Effective July 1, 1996, the Compensation Committee approved base salary increases averaging approximately 11.1% for executive officers other than the Chief Executive Officer, William H. Gibbs. Annual bonuses for executive officers are primarily based on the achievement of performance targets set forth in the Company's operating plan for the year. The annual cash bonus for executives other than Mr. Gibbs, is based on four elements: (i) pretax profits in relation to the Company's operating plan; (ii) the operating results of the businesses or functions reporting to the executive, (iii) achievement of specific, measurable objectives related to the executive's area of responsibilities, and (iv) a factor based on Mr. Gibbs' subjective judgment of the executive's performance. Bonus payments to executive officers other than Mr. Gibbs averaged approximately 25% of such officers' base salaries for 1996. The Committee believes this to be commensurate with overall performance against the objectives utilized in the executive bonus program. The Compensation Committee believes that stock options are an effective incentive device for attracting and retaining employees, and also serve to align the interests of the executive officers with those of the shareholders. In determining stock option grants, the Committee considers ranges of options granted to executives at various levels in other companies and the relationship of such grants to the number of vested options then held. While this data is somewhat imprecise, the Compensation Committee feels comfortable that the ranges are reasonable. All options are granted at the market price of the Common Stock on the date of grant. During 1996, the Compensation Committee granted no options to executive officers. Compensation of Chief Executive Officer The Company has an employment agreement with Mr. Gibbs which provides that he will receive a base salary determined annually by the Board of Directors, in any event not to be less than $12,500 per month. The 5 Compensation Committee believes that his total compensation (salary and bonus) should be heavily influenced by the performance of the Company. In establishing his base salary, the Committee also considers the salaries of chief executive officers of comparable companies and their performance, according to the AEA data referred to above. Mr. Gibbs received no increase in 1996. Mr. Gibbs is also entitled to a bonus of up to 50% of his annual base salary based on the Company meeting certain objectives as set by the Board of Directors. Mr. Gibbs received a bonus of $44,599 for 1996, representing approximately 30% of his bonus target and approximately 16% of his base salary. Mr. Gibbs was granted no options in 1996. Deductibility of Executive Compensation The Internal Revenue Code limits the federal income tax deductibility of compensation paid to the Company's Chief Executive Officer and to each of the other four most highly compensated executive officers. For this purpose, compensation can include, in addition to cash compensation, the difference between the exercise price of stock options and the value of the underlying stock on the date of exercise. Under the new legislation, the Company may deduct compensation with respect to any of these individuals only to the extent that during any fiscal year such compensation does not exceed $1.0 million or meets certain other conditions (such as shareholder approval). Based on the Company's current compensation plans and policies, the Company and the Committee believe that, for the near future, there is little risk that the Company will lose any significant tax deduction for executive compensation. Don M. Lyle, Member Bruce G. Klaas, Member of the Compensation Committee of the Compensation Committee COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee is composed of Don M. Lyle and Bruce G. Klaas who are non-employee directors with no interlocking relationships as defined by the Securities and Exchange Commission. 6 -----END PRIVACY-ENHANCED MESSAGE-----