Mail Stop 4-6
February 11, 2005
Mr. Douglas G. Bergeron
Chief Executive Officer
VeriFone Holdings, Inc.
2099 Gateway Place, Suite 600
San Jose, California 95110
Re: VeriFone Holdings, Inc.
Registration Statement on Form S-1 filed January 11, 2005
File No. 333-121947
Dear Mr. Bergeron:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. We will process your amendments without price ranges. Since
the
price range triggers a number of disclosure matters, we will need
sufficient time to process the pricing amendment when it is filed.
Please understand that its effect on disclosure throughout the
document may cause us to raise issues on areas not previously
commented upon.
2. We note a number of blank spaces throughout your registration
statement for information that you are not entitled to omit under
Rule 430A. Examples of omitted information you must provide
include
the number of shares to be offered and the number of shares to be
sold by selling stockholders on the cover. Fill in all blanks
throughout the registration statement prior to effectiveness
except
for the specific information that Rule 430A allows you to omit.
Please see Section II.A.7 of Release No. 33-6714. Also, confirm
that
you have not circulated copies of the registration statement and
will
not circulate until you include an estimated price range and
maximum
number of shares, and all other information except information you
may exclude in reliance upon Rule 430A.
Registration Statement Facing Page
3. We note your reference to Rule 457(a) with respect to the
calculation of your registration fee. It appears, however, that
your
registration fee was determined pursuant to Rule 457(o). Please
revise as appropriate.
Inside Front Cover Page
4. Please provide us proofs of the graphic, visual or photographic
information you will use for your inside front cover page prior to
the use of your prospectus. Please note that we may have further
comments regarding this material.
About This Prospectus
5. We note your disclosure in the second paragraph of this page,
which discusses the market data and industry statistics used in
your
prospectus. You have provided market data and industry statistics
by
Mercator Advisory Group, MasterCard International and others to
assist investors in understanding your industry, business and
potential market. As presented, this information receives fairly
prominent discussion in your prospectus, such as in business. As
you
know, market data and industry statistics included in your
prospectus
must be based on reasonable and sound assumptions. We presume you
believe that the information you choose to include is reliable,
and
if so, why do you tell shareholders to limit their reliance?
Please
revise this paragraph to remove any implication that you are not
responsible for assessing the reasonableness and soundness of the
market data and industry statistics presented.
Prospectus Summary
6. With respect to any third-party statements in your prospectus
such
as the market data by Mercator Advisory Group presented in
business,
please supplementally provide us with support for such statements.
To expedite our review, please clearly mark each source to
highlight
the applicable portion or section containing the statistic and
cross-
reference it to the appropriate location in your prospectus.
Also,
supplementally tell us whether the source of each statistic is
publicly available without cost or at a nominal expense. If the
source is not publicly available at nominal or no cost, it appears
that consent of the third party to the use of the information in
the
prospectus and to the reference to that firm should be obtained
and
filed as an exhibit. Please see Rule 436 of Regulation C and Item
601(b)(23) of Regulation S-K for additional guidance.
Alternatively,
you may adopt these statements as your own.
Summary Consolidated Financial Data
7. We note that you have used the non-GAAP measure "EBITDA, as
adjusted" here and on page 23 of your registration statement.
This
measure appears to be calculated differently than that described
as
EBITDA in Release No. 33-8176 and is not exempt from the
prohibition
in Item 10(e)(ii)(A) of Regulation S-K. Accordingly, items
excluded
from this measure that required or will require cash settlement or
would require cash settlement absent an ability to settle in
another
manner may not be excluded from this measure. In addition, it is
unclear whether you are using "EBITDA, as adjusted" as a measure
of
your liquidity or performance. Your narrative disclosures
intended
to comply with Item 10(e)(1)(i)(C) suggest that readers should
consider this measure in assessing your liquidity, but reconciling
to
net income suggests that you consider it a measure of your
performance. This should be clarified and your disclosures
pursuant
to Item 10(e)(1)(i)(C) should be revised to provide more robust
information as required by Question 8 of the Frequently Asked
Questions Regarding Use of Non-GAAP Financial Measures.
Currently,
it is unclear to us why it is useful to investors to exclude each
item from your presentation. Please revise this presentation
substantially.
Risk Factors
8. We note your sentence in the introductory paragraph that
"[s]ome
of these risks are described below." This statement reveals
little
on how you selected the risk factors to discuss. You must discuss
all risks that you believe are material at this time. Please see
Item 503(c) of Regulation S-K for additional guidance.
9. We note that certain risk factors you have disclosed identify
potential risks resulting from the described uncertainty or cause.
For example, risk factors on page 11 discuss the risks generally
that
may result from breaches of security and defects in your solution.
Please review your risk factors in light of this comment and
disclose
any material incidence, if any, in which such an event has
occurred
and the actual material effects on your business as a result.
We depend upon third parties to manufacture our products and to
supply the components necessary to manufacture our products, p. 8
10. You reference a single or small number of suppliers upon which
you plan to depend for components. Please elaborate on the nature
of
the dependency and the material terms of the agreements with these
suppliers. Do material limited source suppliers have a right to
terminate and raise prices during the term of the agreement?
Additionally, are there sole or limited source supplier agreements
you depend upon? If so, it appears they should be filed as
exhibits
to the registration statement. Please see Item 601(b)(10)(ii)(B)
of
Regulation S-K. We note your discussion of specific suppliers on
page 56 of your prospectus.
We depend on a limited number of customers, including distributors
and resellers, for sales of a large percentage of our system
solutions. If we do not effectively manage our relationships with
them, our net revenues and operating results will suffer, p. 8
11. Because First Data Corporation contributed a significant
portion
of your revenues, it appears that First Data is a customer upon
which
you are substantially dependent. Please file the agreement with
First Data as an exhibit or tell us why you do not believe this is
not required. Please see Item 601(b)(10)(ii)(B) of Regulation S-
K.
Further, please consider disclosing the duration of your
relationship
with First Data as well as providing a brief discussion of First
Data`s business, such as the general nature of its business and
the
areas where it conducts that business
Our secured credit facility contains restrictive and financial
covenants and, if we are unable to comply with these covenants, we
will be in default. A default could result in the acceleration of
our
outstanding indebtedness, which would have an adverse effect on
our
business and stock price, p. 15
12. In this or a separate risk factor, please discuss any risk
associated with the security interest held by your lenders with
respect to the credit facility. Please also file the security
agreement relating to the security interest. Please see Item
601(b)(10) of Regulation S-K.
If we are unable to improve and maintain the quality of our
internal
controls, any weakness could materially and adversely affect our
ability to provide timely and accurate information about our
company,
which could harm our reputation and share price, page 15
13. You disclose that, on several occasions, your independent
registered public accounting firm identified deficiencies in your
internal controls which rose to the level of "reportable
conditions."
Supplementally, explain the nature of each condition, when it was
identified, the remedial actions taken to correct each deficiency
and
when it was considered corrected.
Use of Proceeds
14. We note that you have disclosed an agreement to purchase
Return
on Investment Corporation`s GO Software business. Will any
proceeds
from this offering be used to finance your acquisition of GO
Software? If so, please revise your disclosure to specify such
use.
Further, please disclose any current discussions with respect to
potential acquisitions of companies and/or technologies.
15. As there appears to be currently no specific plan for a
significant portion of the proceeds from the offering, please
discuss
the principal reasons for the offering. Please see Item 504 of
Regulation S-K.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations
16. Please reconcile your statement on page 26 that the July 2002
recapitalization led to you being the indirect owner of all the
stock
of VeriFone, Inc. with your subsequent statement that you
effectively
acquired 88% of the outstanding common stock of your predecessor.
We
also note your disclosure in Note 3 to your financial statements.
Please confirm to us that you currently own all of VeriFone, Inc.
Further, please specify here and in your prospectus summary
whether
there is a relationship between GTCR and Gores Technology Group.
17. It appears that you have identified several known, material
trends such as the increases in sales and marketing and general
and
administrative expenses that are expected in fiscal year 2005.
Please quantify the expected effects of these and other known,
material trends on your future results to the extent possible in
accordance with Item 303(A)(3)(ii) of Regulation S-K and Section
III.B.3 of Release No. 33-8350.
18. In the discussion of your results of operations, you refer to
various factors that have impacted results without quantifying the
impact of each factor. For example, you refer to several factors
that contributed to the material increase in System Solution
revenues
in fiscal year 2004, but give no indication as to the relative
impact
of each factor. Further, we note that your sales and marketing
expense discussion for fiscal year 2003 to 2004 discloses that the
change for the period is attributable to separate factors in
Europe
and North America without quantifying each factor. Please revise
throughout your management`s discussion and analysis to provide
such
quantifications when you indicate that multiple factors
contributed
to a material change. See Section III.D of Release No. 33-6835.
19. We note in your risk factor discussion on page 9 that you plan
to
expand your current markets and enter into new foreign markets.
This
strategy with respect to foreign markets appears to be part of a
known, material trend. Please provide additional disclosure in
this
section regarding the development and status of your strategy to
expand your international revenues and its historical as well as
prospective impact on your results of operations and financial
condition. We note that in your gross profit discussion, your
international gross profit percentage is lower than your gross
profit
percentage in North America. For example, do you expect of plan
for
expansion internationally to contribute to a decreasing gross
profit
percentages going forward?
20. We note your disclosure that you operate in two segments-North
America and International. Please consider discussing in this
section the significance of certain individual markets to your
operations and any known, material trends with respect to such
significant markets. For example, we note that pursuant to your
disclosure you hold a leading position in Russia, Poland and
Mexico
and that Europe constituted 16% of your revenue for the year ended
October 31, 2004. How significant are these markets to your
business
and what material trends and uncertainties affect such markets?
Please consider providing period-to-period information with
respect
to such certain markets or, otherwise, advise us why such
information
need not be disclosed.
21. In your risk factor discussion on page 14 you state that you
are
subject to price erosion and have been subject to price pressures.
In quantitative terms, describe the price erosion you have
experienced over the reported financial statement periods. What
was
the effect of the price declines? To what extent did these price
declines require you to increase product volumes to maintain your
revenues? Consider whether these price pressures constitute a
known,
material trend. How did price pressure impact your business
activities and your financial results? Do you pursue business
strategies that are designed to mitigate or counteract price
erosion
in your market?
Income Taxes, p. 28
22. If you expect the tax charge related to the transfer of your
intangible assets from the United States to one or more non-U.S.
subsidiaries to be material, indicate when you expect to incur
this
charge and quantify it to the extent possible.
Year Ended October 31, 2004 Compared to Year Ended October 21,
2003,
pp. 31-33
23. We note your discussion of EMV standards driving electronic
payment system replacement activity which contributed to increased
net revenues for your System Solutions. This appears to be a
material trend which may benefit from further discussion in your
management`s discussion and analysis. Will this replacement
activity
in Europe contribute to your results in later periods? We further
note from page 50 that compliance with EMV standards are first
required in Europe. How does this impact your North America
operations as well as your other international operations
particularly in light of your strategy to expand internationally?
24. With respect to your Systems Solutions net revenues
discussion,
it is unclear from your disclosure whether higher demand for
consumer-activated system solutions and increased sales of system
solutions utilizing improved communication capabilities
contributed
to increased net revenues in Europe, North America or generally.
We
note that your segment information discussion appears to attribute
such higher demand to your North America segment. Please clarify
and
quantify the amount such factor contributed to your change in net
revenues for the period. Further, are consumer-activated system
solutions the same as PIN-based debit-enabled solutions? Please
also
consider whether the growth of PIN-based transactions, as
mentioned
elsewhere on page 49 and elsewhere, constitutes a material trend
affecting your results of operations.
25. With respect to your other income (expense), net discussion,
supplementally explain to us the nature of the $2.8 million refund
for foreign unclaimed pension benefits in Taiwan. Support your
accounting treatment for this item and explain the extent to which
you offer defined benefit arrangements to your employees at your
non-
U.S. subsidiaries.
26. Please revise your segment information discussions to include
a
table which reconciles the segment measures discussed on pages 33
and
36 to the consolidated measures. In addition, we note that your
discussion of segment results is fairly general. For example, you
disclose that increased operating income in North America is due
to
increased revenue and slightly higher gross profit percentage
offset
by higher operating expenses. Please revise to discuss gross
profit
information as it relates to each segment and the reasons for
variances between segments as well as from one period to the next.
Year Ended October 31, 2003 Compared to Year Ended October 21,
2002,
pp. 34-36
27. With reference to your discussion of Systems Solutions gross
profit, supplementally tell us more about the $1.9 million
settlement
you received from a contract manufacturer in 2003 that provided
for
reduced procurement costs in the future. Provide us with the
material terms of the settlement agreement and support your
accounting treatment to recognize this amount at the time of
settlement and as a reduction to cost of revenue. In addition,
tell
us and disclose how these reductions affected fiscal year 2004
results and, if material, revise to quantify the effect.
Additionally, tell us how this reduction affects future periods
and
when it expires.
Liquidity and Capital Resources, pp. 39-40
28. Your discussion of operating cash flows is a recitation of
items
identified on the face of the statement of cash flows. This does
not
appear to contribute to an understanding of your cash flows;
rather
it repeats items that are readily determinable from the financial
statements. Revise to address the material changes in the
underlying
drivers. For example, you disclose that net operating assets and
liabilities used $17.7 million of cash in fiscal year 2004, but
provide no information as to why these balance sheet items
changed.
In addition, you explain that the substantial increase in cash
provided by operations in fiscal year 2004 is largely attributable
to
"improved working capital efficiencies" with no further
explanation.
Please see Section IV.B.1 of Release No. 33-8350 for further
guidance.
29. Revise to discuss long-term and short-term needs and sources
of
capital pursuant to FRC 501.03. Please revise the discussion on
page
40 to clarify what is meant by "the foreseeable future" in more
definitive terms relative to short-term and long-term liquidity.
Use
of the phrase "foreseeable future" does not clearly convey to the
reader on a quantified basis the lengths and periods of time that
you
are contemplating in your discussion of cash needs and sources of
funds.
Secured Credit Facility, pp. 40-41
30. We note your discussion of certain financial ratios to be
maintained pursuant to financial covenants under your credit
facility. Please disclose your senior leverage, maximum leverage
and
fixed charge ratios as of October 31, 2004.
Business
31. We note your disclosure elsewhere in your prospectus regarding
your international operations. Please provide in this section the
disclosure specifically required by Item 101(d) of Regulation S-K.
Alternatively, you may provide a cross-reference to your financial
statements as permitted by Item 101(d)(2) of Regulation S-K.
Our Growth Strategy, p. 52
32. We note your statement under "Capitalize on High Growth
Opportunities in Emerging Markets" that you hold "a leading
position
[in] Russia, Poland and Mexico." Please supplementally provide us
with support for this statement. Additionally, expand your
disclosure to state concisely the basis on which the leadership
claim
is made. In your response tell us how you compare to your
competitors in quantitative or qualitative terms and consider
appropriate disclosure in this respect.
Technology, pp. 54-55
33. With respect to your discussion on libraries and development
tools, please specifically discuss how the rapid growth in
deployment
of third party, value-added applications contributes to your
business.
34. With respect to your remote management system discussion,
please
clarify who maintains remote management of electronic payment
systems
as well as how your solution allows financial institutions and
payment processors to communicate directly with their customers.
Global Outsourcing Operations, p. 56
35. The extent of your dependency on the suppliers you describe in
this section is unclear because you provide very little
quantitative
information about the importance of the supplier to your
operations.
For instance, what is the significance of the lower volume, high-
value product lines that are supplied by Sammina-SCI, and to what
extent have you sold products in Brazil and other Latin American
countries.
Proprietary Rights, p. 59
36. We note that you do not appear to have relied upon patents or
registered copyrights to protect your proprietary rights. Please
elaborate upon your proprietary rights protection strategy and, if
applicable, the risks associated with the lack of patent
protection.
Please discuss any plans to rely on patents and/or registered
copyrights to protect your current solutions.
37. We note your discussion of your technology agreement and
license
with HP and NCR, respectively. In understandable terms, please
explain the importance of these technology assets to your
business.
If so, the agreement and license may need to be filed as an
exhibit
to your registration statement. Please see Item 601(b)(10)(ii)(B)
of
Regulation S-K.
Legal Proceedings, p. 60
38. Please expand your disclosure to include the date the lawsuits
were instituted. Please supplementally provide us copies of the
complaint, answer and any significant pleadings for our review.
Please see Item 103 of Regulation S-K.
Management
39. Please ensure that your disclosure conforms to the
requirements
of Item 401 of Regulation S-K. We note, for example, that Dr.
Denend`s disclosure does not appear to fully account for the past
five years with respect to his business experience. With respect
to
Dr. Denend`s disclosure, please clarify when Dr. Denend was a
partner
at McKinsey and Company and when he served in the White House.
Composition of our Board of Directors, p. 63
40. Please file the stockholders agreement as an exhibit to your
registration statement. Please see Items 601(b)(9) and
601(b)(10)(ii)(A) of Regulation S-K. Your disclosure suggests
that
the certain portions of the stockholders agreement will still be
effective after consummation of the offering.
Summary Compensation Table, p. 65
41. Please revise your disclosure of the restricted stock awarded
to
your named executive officers to provide information in accordance
with Item 402(b)(2)(iv) of Regulation S-K. Please see
Instructions 1
and 2 for additional guidance.
Stock Option Grants in the Year Ended October 31, 2004, pp. 65-66
42. We note that you have no existing trading market for your
shares.
With respect to calculating your potential realizable values,
please
see Instruction 7 to Item 402(c) of Regulation S-K. Please also
see
Release No. 33-7009 and Interpretations J.16 and 17 of our July
1997
Manual of Publicly Available Telephone Interpretations. Please
either use the midpoint of your offering price range until your
initial public offering price is determined or discuss in a
footnote
the valuation method and assumptions used in determining the fair
market value of the options.
Benefit Plans, p. 69
43. We note that your New Founders` Stock Option Plan permits
grants
to executives and key employees. Please clarify whether this plan
is
available to generally all of your employees. Otherwise, please
provide additional disclosure as to what constitutes a `key`
employee.
Certain Relationships and Related Party Transactions
44. Please provide disclosure with respect to your certain
relationships and related party transactions since October 31,
2001.
Please see Instruction 2 to Item 404 of Regulation S-K. We note
that
your 2002 acquisition falls within this timeframe. Please provide
clear and understandable disclosure with respect to the various
transactions that comprise your 2002 acquisition.
45. Please provide disclosure with respect to the grants of
restricted stock to your executive officers, including the date of
the grant, the number of shares subject to each grant, the fair
value
of the shares at the time of grant, the purchase price of the
restricted stock and the vesting schedule for the grants.
Transactions with Certain Affiliates of GTCR, p. 70
46. Please disclose whether your agreements with Driver Alliant
Insurance Services and Horn Murdock Cole contained terms
comparable
to terms that would have been obtained in an arms-length
transaction,
and summarize the basis for your conclusion in this respect.
Registration Rights Agreement, pp. 70-72
47. Please disclose in your prior discussion of Mr. Bergeron`s
senior
management agreement the specified exception to the general
prohibition on transferring shares of common stock mentioned in
this
section.
Shares Eligible for Future Sale
Stock Options, p. 79
48. Please confirm that your New Founders` Stock Option Plan is
your
only stock option plan. The second sentence of this paragraph
suggests that you have more than one stock option plan.
Underwriting
49. Please disclose the circumstances under which Credit Suisse
First
Boston and J.P. Morgan Securities will either shorten or waive the
lock-up arrangements with respect to (1) you and (2) your officers
and directors.
50. Please reconcile your disclosure on page 40 in which you state
that Banc of America Securities and Credit Suisse First Boston led
the syndicate of financial institutions in connection with your
secured credit facility with your statement here that neither of
them
currently hold any portion of your indebtedness. Did they
previously
hold a portion of your indebtedness and, if so, how much? Was
their
consideration provided for their services as agents? We may have
further comments.
51. Please tell us whether any member of the underwriting
syndicate
will engage in any electronic offer, sale or distribution of the
shares and describe their procedures to us supplementally. If you
become aware of any additional members of the underwriting
syndicate
that may engage in electronic offers, sales or distributions after
you respond to this comment, promptly supplement your response to
identify those members and provide us with a description of their
procedures. Briefly describe any electronic distribution in the
filing, and confirm, if true, that the procedures you will follow
with respect to any electronic distribution will be consistent
with
those previously described to the Office of Chief Counsel.
52. Please tell us whether you or the underwriters have any
arrangements with a third party to host or access your preliminary
prospectus on the Internet. If so, identify the party and the Web
site, describe the material terms of your agreement, and provide
us
with a copy of any written agreement. Provide us also with copies
of
all information concerning you or your prospectus that has
appeared
on their Web site. Again, if you subsequently enter into any such
arrangements, promptly supplement your response.
53. Do you or the underwriters intend to engage in a directed
share
program? If so, supplementally describe to us the mechanics of
how
and when these shares were or will be offered and sold to
investors
in the directed share program for this offering. For example,
tell
us how the prospective recipients and number of reserved shares is
determined. Tell us how and when you and the underwriters
notified
or will notify the directed share investors, including the types
of
communications used. Discuss the procedures these investors must
follow in order to purchase the offered securities, including how
and
when any communications are sent or received or funds are received
by
the underwriters or you. How do the procedures for the directed
share program differ from the procedures for the general offering
to
the public? Provide us with copies of all written communications
with prospective purchasers about the directed share program.
Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies
Revenue Recognition, pp. F-8 to F-9
54. We note that your electronic payment devices run your
proprietary
operating systems, security and encryption software and certified
payment software. We further note that your disclosures appear to
indicate that both you and your customers believe that software
may
be more than incidental to your systems, but you do not appear to
be
recognizing revenue in accordance with SOP 97-2. If our
understanding is correct regarding your application of SOP 97-2,
explain how you concluded that software is incidental to your
products and services in accordance with paragraph 2 and footnote
2
of SOP 97-2. If our understanding is incorrect, indicate this and
we
may have further comment.
55. Supplementally, indicate whether you sell your value-added
applications or other software separately and explain how your
revenue recognition policies for these sales and your software
development contracts comply with SOP 97-2.
56. Currently, disclosure regarding your revenue recognition
policy
is general in nature and does not appear to provide sufficient
specific disclosure with respect to the nature of the products or
services you provide or the terms of the arrangements under which
you
provide them. For example, you indicate that, "net revenues from
Systems Solutions sales to end-users, resellers, value-added
resellers and distributors is recognized upon shipment, delivery,
or
customer acceptance of the product as required pursuant to the
customer arrangement." Supplementally, please provide us with the
following:
* Clearly identify the products or services from which you derive
material amounts of revenue;
* Describe the material terms of the arrangements (payment,
shipment,
etc.) under which you provide your products or services. Please
include descriptions of terms that you consider to be non-standard
and/or non-routine and distinguish between terms offered to direct
and indirect customers;
* Identify the elements included in each material type of sales
transaction;
* Identify all criteria considered in determining when to
recognize
revenue and explain how you determine when each of the identified
criteria have been met;
* For transactions with multiple elements, indicate how you
determine
the criteria have been met to be considered a separate unit of
accounting and how the timing and amount of revenue attributable
to
individual elements is determined;
* Identify all authoritative literature that you have relied on in
developing your revenue recognition policies. Indicate your basis
for concluding that the identified literature is applicable and
that
your policies comply with that literature; and
* Identify any contingencies such as rights of return, stock
rotation
rights, price protection, conditions of acceptance, warranties,
etc.
Explain the material terms of such provisions in your arrangements
and describe how these contingencies affect revenue recognition.
We
note that you currently use the term "generally" with respect to
several of these contingencies in your current disclosure.
Please be specific in your response and revise your disclosures as
appropriate.
Research and Development Costs, p. F-13
57. Supplementally tell us where in your statements of operations
you
classify amortization of software development costs capitalized in
accordance with SFAS 86. Note that amortization and impairment of
these capitalized software costs should be reported as a component
of
cost of sales pursuant to Question 17 of the FASB Staff
Implementation Guide to SFAS 86.
Note 3 - Acquisition of VeriFone, Inc., pp. F-17 to F-19
58. We note your statements that you were organized as the
"indirect"
owner of all the stock of the Predecessor and that you
"effectively"
acquired 88% of the outstanding common stock of the Predecessor in
the 2002 acquisition transaction. Supplementally, clarify these
statements and explain your basis for concluding that each is
true.
Provide us with an analysis that identifies the owners and
provides
the related ownership percentages of both the Predecessor and
Successor and highlight any common ownership. Indicate the
shareholder(s) that controlled each entity and support your
conclusion that a change in control occurred in the 2002
transaction.
59. We note that you allocated a significant portion of the
purchase
price of VeriFone, Inc. to acquired in-process research and
development. Revise your disclosures to provide the following:
* Provide an overview of the projects acquired;
* Describe the stage of completeness, complexity or uniqueness of
the
work completed at the acquisition date;
* Disclose, by project, the nature, timing and costs of the
remaining efforts to develop the acquired technology into a
commercially viable product; and
* Disclose the material assumptions used to determine the value of
the purchased in-process research and development including the
discount rates used.
60. Supplementally, explain how you complied with the provisions
of
EITF 01-03 in assigning value and determining the classification
of
the assumed liability related to deferred revenue in your
acquisition
of VeriFone, Inc.
Note 5 - Financing
Promissory Notes Payable to Stockholders, p. F-24
61. We note that you issued warrants to purchase shares of your
common and preferred stock in connection with the issuance of
notes
payable. Supplementally, describe the basis for your
determination
of the fair value of these warrants. Include the material
assumptions used and provide us with the detailed calculations.
Note 7 - Nonvoting Class A Redeemable Convertible Preferred Stock,
pp. F-28 to F-29
62. Supplementally, support your classification of this preferred
stock in "mezzanine equity" prior to redemption in June 2004.
Identify the accounting literature that you relied on for
classification and measurement and discuss how you considered both
the provisions and effective date of SFAS 150.
Note 8 - Stockholders` Deficit, pp. F-29 to F-31
63. We note your disclosure on page F-31 related to the
modification
of your stock options after the equity restructuring. Please tell
us
and disclose any impact on your results of operations that
occurred
due to applying the look-back and look-forward guidance to the
429,615 options that were deemed to be issued and cancelled.
64. Supplementally provide us the following information in
chronological order for stock option grants and other equity-
related
transactions for the one-year period preceding the filing of the
registration statement:
* The type of security;
* The date of grant/issuance;
* Description/name of option or equity holder;
* The reason for the grant or equity related issue;
* The number of options or equity instruments granted or issued;
* The exercise price or conversion price;
* The fair value of underlying shares of common stock;
* The total amount of compensation deferred, beneficial conversion
feature and expense recognized and reconciled to your financial
statement disclosures and the magnitude and timing of the
amortization expense; and
* Reference the authoritative accounting guidance relied upon for
each non-option grant equity transaction.
Continue to provide us with updates to the requested information
for
all equity-related transactions subsequent to this request through
the effective date of the registration statement.
65. Please tell us how you determined fair value of the underlying
shares of common stock at each grant date. Where you have used
valuation methods to determine common stock fair value, tell us
whether you used a third-party valuation specialist and when the
valuation was performed. Describe the material assumptions used
in
your valuations. Highlight any transactions with unrelated
parties
believed by management to be particularly strong evidence of an
objective fair value per share determination. Please discuss and
quantify the impact on your fair value of any events which
occurred
between the date of equity-related issues were granted and the
date
the registration statement was filed. Your response should
clarify
the reasons for any difference between the fair value at the
transaction date and the estimated initial public offering price
range. Describe significant intervening events within the company
and the broader market that explain the significant changes in
fair
value of your common stock.
66. In addition, tell us your proposed initial public offering
price,
when you first initiated discussions with underwriters and when
the
underwriters first communicated their estimated price range for
your
stock.
67. Supplementally, support your accounting for the sale of
approximately 7.1 million shares of restricted common stock to
related parties on July 1, 2002 and the sale of an additional
729,947
shares in February and March 2003. Please provide an analysis
regarding your determination of fair value and support for your
accounting for these securities with reference to the
authoritative
accounting literature and its specific application. In addition,
explain to us and disclose the method used to recognize
amortization
of the related deferred compensation.
Note 10 - Commitments and Contingencies, pp. F-32 to F-33
68. Please tell us more about the self-insurance arrangements you
have for employee health and dental costs. Tell us how much you
recorded in your statements of operations in the periods presented
and how much you have accrued for these liabilities at October 31,
2003 and 2004. Additionally, tell us how the estimates you have
made
related to these liabilities have compared to the actual costs
incurred and explain your basis for excluding such estimates from
your discussion of critical accounting estimates beginning on page
43
of your management`s discussion and analysis.
Note 11 - Related-Party Transactions, p. F-34
69. On page F-34 you disclose that you recorded commissions of
$1.6
million and $2.9 million to "an affiliate of a stockholder" for
services related to your debt and equity financings. Revise your
disclosure on page F-34 to identify the related party and explain
how
you allocated the commission between debt and equity issuance
costs.
Note 14 - Segment and Geographic Information, pp. F-36 to F-38
70. We note that operating losses allocated to "Corporate" within
your segment disclosures appear to significantly affect the
profitability of both operating segments. Supplementally, tell us
more about why you measure your segments in this manner. Confirm
whether this is how your chief operating decision maker, or CODM,
reviews your segments when allocating resources and assessing
performance. Please explain how such decisions are made without
considering the significant corporate losses that appear to relate
to
both segments. Supplementally, quantify and explain the amounts
included in the corporate operating losses and indicate whether
your
CODM reviews information organized in any manner other than
geographically and, if so, how you determined that your current
presentation is appropriate. Provide us with copies of reports
reviewed by your CODM for the year ended October 31, 2004 and
refer
to the applicable sections of SFAS 131 in your response.
Item 15. Recent Sales of Unregistered Securities.
71. We note your disclosure on page F-24 suggesting that the
warrants
discussed herein have since been exercised. Please provide
separate
disclosure pursuant to Item 701 of Regulation S-K with respect to
each transaction resulting in the issuance of shares upon exercise
of
these warrants. We further note that the warrants issued to
affiliates of TCW/Crescent Mezzanine should be for an aggregate of
2,577,102 shares of common stock, as consistent with your prior
disclosure, rather than the 2,577,162 shares disclosed.
72. Please confirm in your response whether the issuance of an
aggregate of 36,978,209 shares to GTCR and TCW/Crescent Mezzanine
is
the same as the issuance of common stock for an aggregate
consideration of $1,000,000 as disclosed in Note 3 to your
financial
statements.
73. With respect to your disclosure of sales of shares to your
executives, it appears that the transactions with Mr. Bergeron and
his affiliate on July 1, 2002 have been aggregated therein.
Please
separately disclose the securities transactions with Mr. Bergeron
and
his affiliate. Please supplementally advise of the facts
supporting
your reliance on Rule 701 for Mr. Bergeron`s securities
transactions.
Item 16. Exhibits.
74. We note that there are a number of material exhibits to be
filed
by amendment. We further note that the professional services
agreement with GTCR and the amendment to your registration rights
agreement each previously mentioned in your disclosure are not
reflected in your exhibit table, but may need to be filed as
exhibits
pursuant to Item 601 of Regulation S-K. Further, please note our
prior comments with respect to your material supplier agreements,
First Data agreement, stockholders agreement and agreements with
HP
and NCR. Please ensure that all exhibits required to be filed
under
Item 601 are included in your registration statement. We will
need
sufficient time to process the amendment when the exhibits are
included. Please understand that the filing of these exhibits may
cause us to raise issues on areas not previously commented upon.
Exhibit 23.1. Consent of Independent Accountant
75. We note that your auditors have included their opinion on the
financial statement schedule in their consent. Article 12 of
Regulation S-X requires that the auditors` report refer to any
supplemental schedules or a separate report on those schedules
should
be included. Tell us how inclusion of the opinion on the
financial
statement schedule in the consent complies with Article 12 of
Regulation S-X.
* * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts related to your disclosure, they are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert the staff comments and the
declaration
of effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of your registration statement as a confirmation of
the fact that those requesting acceleration are aware of their
respective responsibilities under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, as
they
relate to the proposed public offering of the securities specified
in
the above registration statement. We will act on the request and,
pursuant to delegated authority, grant acceleration of the
effective
date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Chris Davis at (202) 942-2894, or Mark
Kronforst at (202) 842-5341, if you have questions or comments on
the
financial statements and related matters. Please contact Daniel
Lee
at (202) 942-1871 for assistance on other matters. If you need
further assistance, you may contact me at (202) 942-1818 or
Barbara
Jacobs, Assistant Director, at (202) 942-1800.
Sincerely,
Mark P. Shuman
Branch Chief - Legal
cc: Via Facsimile
Scott D. Miller, Esq.
Sullivan & Cromwell LLP
1870 Embarcadero Road
Palo Alto, California 94303
Telephone: (560) 461-5600
Facsimile: (560) 461-5700
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Mr. Douglas G. Bergeron
February 11, 2005
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