baby luau. It is an ancient custom that is still practiced today throughout the South Pacific, including our country's 50th state, Hawaii. Most families celebrate the arrival of a newborn with great pomp and party. Not so with the Polynesians. Their time for rejoicing is one year to the day of the birth of the baby. It dates to a time when it was believed if a baby survived its first year, the child would live on and grow to adulthood. It is a big celebration, a joyous occasion. Family, friends and neighbors are all invited. Lots of food and festivities abound. Guests are encouraged and expected to bring gifts.

Well, it's been one year since the "rebirth" of VeriFone, thanks to the much-publicized acquisition from Hewlett-Packard by Gores Technology Group. The baby luau is well under way and guests bearing gifts have arrived. By far, the biggest gift has come from one of the leading private equity investment firms, GTCR Golder Rauner, LLC. This Chicago-based firm manages more than $4 billion of equity capital, invested in a wide range of companies and industries. Its primary areas of investment focus include transaction processing and payments services, communication services, information technology services, health-care services and outsourced business services investment firms.

On June 18, 2002, GTCR Golder Rauner announced that it had entered into a definitive agreement to recapitalize VeriFone. While no exact figure has been released, industry sources said the amount is well into nine figures. Gores retains a smaller ownership interest in the company.

Another interesting aspect of the deal is that GTCR is also partnered with CEO Douglas Bergeron and senior management of VeriFone. Bergeron is now the largest single investor in VeriFone. Together with his management team, they have taken about 10% ownership of VeriFone, according to industry sources. But make no mistake, GTCR is the majority shareholder of VeriFone.

GTCR's primary reason for this investment is to accelerate VeriFone's growth. With annual revenues of approximately $350 million, VeriFone seems poised to increase that number significantly.

The first of many toasts at the one-year anniversary of the new VeriFone came from GTCR.

"VeriFone occupies an exceptional market position in the payments industry. We believe that the company will continue to grow as it further leverages its brand, customer-service capabilities, and technology to serve the needs of merchants, transaction processors and financial institutions," said Collin Roche, a Principal at GTCR.

"Doug Bergeron and his experienced management team have reinvigorated VeriFone, making the company more entrepreneurial by creating new partnership relationships with its customers and distributors. Many of these managers previously participated in bringing VeriFone from a start-up to a highly successful payment technology company. More recently, Doug and the management team re-established a strong level of profitability at the company and directed their resources to the continual upgrade of the company's product line." Alec Gores, Founder and Chairman of Gores, said, "After completing a successful turnaround of VeriFone, we believe that this is the logical next step in achieving VeriFone's growth strategy and maintaining its market leading position. We are confident that GTCR's significant expertise in the payment industry will add to VeriFone's competitive position."

Like a proud father praising his child's accomplishments, VeriFone CEO Doug Bergeron took this occasion to share accolades as well.

"Our real objective this past year was growth and market share dominance," Bergeron said. "We recognized we had a gold mine. We turned it around much more quickly [than expected] and realized we were ready for repositioning and growth. Our three-year turnaround plan was done in one year. We went from the girl no one asked to the prom to prom queen in one year."

VeriFone welcomes GTCR's gift with open arms. "We wanted to get monies from guys who had strategic experience and influence to help us," Bergeron said. "That was GTCR. Gores on its own was not the best shareholder for a growth turnaround. Gores buys distressed companies with operational talent. GTCR buys strong companies with solid management and growth potential. We weren't looking to sell. We wanted to get to the next level of performance."

According to Bergeron, GTCR will be involved with management and will provide expertise in acquisitions and research. How does this affect VeriFone's relationship with Gores? "We are done with Gores," Bergeron said. "We are an independent company. Gores retains a small yet not insignificant ownership that [shows] their appreciation of the future of this business, and we still enjoy a fantastic relationship with Gores. This recapitalization has been a win-win for everyone involved."

The recapitalization promises another avenue of growth for VeriFone. The gift comes at a time when VeriFone is ready to actively expand through acquisitions.

"This investment does more than change ownership. It increases our capacity to be an acquirer," Bergeron said. "We're always looking at portfolios. For example, while we've never been big advocates of signature capture for masses, we do see it in high-end department store retail space. In some emerging markets, there's potentially a need for lower-value products. There are market share consolidation stories that will make sense with bigger players getting together.

"Without operating leverage, this is a difficult market. If you don't have at least $150 million in annual revenue, if you don't have critical mass and are quite challenged, it makes it difficult to make a profit. With this investment, it increases our opportunity to leverage our brand in a role greater than just a terminal supplier. With our present balance sheet, we can leverage our brand to more of a solutions-based company. That's our Holy Grail."

Bergeron also took this opportunity to look back at the "first" year of VeriFone with pride in VeriFone's accomplishments and praise for his team's transformation of the company. The biggest change he sees is in VeriFone's culture.

"Financiers and accountants will tell you we went from huge red to huge black ink. Reporters will say we went from Internet back to terminal. We say it was a massive cultural revolution this past year," Bergeron said. "People are fired up again. They truly do believe they are the players in this industry [and are] the ones to beat."

According to Bergeron, decisions get made more quickly. VeriFone is once again promoting decisiveness and entrepreneurialism and discouraging groupthink and bureaucracy. It's abolishing slow thinking.

"Eight hundred fifty people have changed their belief system and their work skills," Bergeron said. "We are walking with a swagger, a confidence and a belief in ourselves. This strut and swagger defines the rebirth of this business. Our financial performance speaks for itself."

Bergeron realizes that a cultural turnaround doesn't mean anything unless a business is turned around.

"It's hard to say which is more important," Bergeron said. "I am most proud of what we've accomplished. We needed a financial revolution to provide long-term solvency and solid infrastructure. We've created a lot of believers. We are always going to have challenging product issues and customer issues, but as a result of baptism by fire, our managers know responsiveness and quickness are virtues.

"It is most satisfying for me as a manager to see this radical cultural change. There's nothing more satisfying than looking in the rear-view mirror and saying, `Wow.' Customers and ISOs are not questioning the solvency and viability of VeriFone. We are here as a force to be reckoned with."

What Bergeron does see as remaining the same this past year is the quality of VeriFone's product and the industry sentiment that VeriFone knows a lot about the business.

"ISOs, processors and other industry players all know that our knowledge and expertise was never damaged. It has remained the same," he said. "The key differentiator is our product quality and the industry perception that VeriFone has a 30,000-foot-high view of what's going on."

The perception of one group in particular is of utmost importance to VeriFone: namely, the ISO channel.

"Big companies like VeriFone get lazy during their glory years selling to processors and not to ISOs. We've taken a much more grass-roots approach," Bergeron said. "It is the feet on the street that create the demand, that create a compelling movement. If we can create an ISO awareness channel, even if they don't place the order, they spawn the demand, and that will have a material impact on the industry and re-invigorate the processors."

To kick-start that process in the last year, VeriFone created a designated group of 10 to 20 people who work with no one else but independent sales professionals. They showcase new products to them. They instruct them on how to sell. Bergeron believes that has indirectly created an increased demand at the processor level.

"ISOs are demand-creators. They are not just whipping boys of the processors," Bergeron said. "We put our arms around them. We respect them and will help them. The typical sales rep's perspective is that we're locked in time on our Tranz 330. Our new approach: Let's get new product awareness out there. Let's show our new product capabilities.

"Our new products not only work great, they look great. Our 3750 is a sexy product with an attractive design. All this is fundamental to our marketing strategy for the next year. We have a re-invigorated respect for the ISO community. Our Innovation Awards are evidence of that, as is our ISO Advisory Council."

The last year also has seen renewed focus on merchants by VeriFone.

"We've long been a multilane retail leader in this country. We dominate the market share," Bergeron said. "This year we penetrated into the middle national-discount chain. Winn-Dixie just signed a multimillion-dollar deal. Blockbuster Video was another. This is not a market the ISO channel typically serves. For that reason, we sell directly to those merchants. We have leveraged our historical strength and have gone into the fastest growing segment - midmarket discounters. This retail market is hot."

Employees of VeriFone also have benefited from the rebirth. According to Bergeron, an environment of professional excellence has been created, and VeriFone hasn't had to fire a lot of people. The underachievers have left on their own.

"Make an environment that is fun to work in, and you'll get a lot more productivity," Bergeron said. "We got rid of the dead weight at day one. Since that time we continue to rank people and continue to create a satisfying and financially rewarding environment. This is not a place to work if you don't want to have fun and overachieve."

VeriFone's staffing strategy for the next year, according to Bergeron, is to "prune the bottom and bring in new blood. We will continue to do that. Any company who doesn't do that is wasting a great opportunity to retool with the present soft job market."

One employee campaign in particular has generated much amusement. VeriFone's "Rules of the Road Campaign" is a stinging parody to HP's garage-inspired campaign. The first rule was to "get out of the garage."

"Humor is one of the best mediums for moving a message," Bergeron said. "People knew we just weren't poking fun; we were telling our people that customers move the industry. We got the message out. A company like GTCR doesn't invest money based on just a financial statement. They have to feel the pulse and see the rules of the road themselves. They see that in VeriFone. The investment at the end of the day is a clear measurement that things have changed."

Clearly, what has not changed is Bergeron and his leadership. "My philosophy has stayed the same," Bergeron said. "In fact, I've become even more convinced and bullheaded because it has worked."

Bergeron was considered new to the payment-processing business, but he didn't see it as a detriment a year ago and doesn't see it that way now.

"The industry in general can probably benefit from outsiders now and then, asking dumb questions and being naive," Bergeron said. "You get excellent managers from other businesses and through learning processes can shake things up for the positive, especially those companies in need of radical transformation."

For the opinions of insiders who work with and for VeriFone, read on.

BRUCE SCHRATZ Payment Transaction Solutions Bruce Schratz, President of Payment Transaction Solutions, has been part of the VeriFone ISO family for 3 1/2 years. He remembers what life was like under HP. "VeriFone didn't seem to have a clear mission under HP. There was a lot of bureaucracy, and VeriFone didn't have an identity they could get their arms around," says Schratz. "HP didn't give them support or direction from a corporate level to give them that identity. There was tremendous stagnation because they were so bureaucratic."

Schratz recalled that during HP ownership, VeriFone lost its entrepreneurial and innovative mindset. "At one point they ruled the world," says Schratz. "Then they made a couple of blunders, got bureaucratic in nature, put terminals in wholesale clubs and chased the ISOs away. They weren't coming out with new product, either."

But the past year has brought about change, according to Schratz. "They seem to be putting things together," says Schratz. "I think they are still lacking some from a communication standpoint in terms of telling the industry where they're going and what they're doing. They are making a better attempt to stay focused."

As an example, Schratz explained that his company is a reseller for Valutec, which had been named a 2002 Innovation Award winner from VeriFone. When Schratz called to congratulate the founders of Valutec, they had no idea what the award was about. "Guess VeriFone hasn't quite gotten there," says Schratz.

Schratz also recounted that right after the acquisition there was a fairly lengthy period of silence while VeriFone figured out internally what was going on.

"I served on VeriFone's ISO Advisory Council, and one of the things we really hammered them about over the past couple of years was time to market for new applications. I believe that message has finally gotten through. They fast-tracked the Valutec gift card program on their new programs. They ran with that pretty quickly, and hopefully they will continue to realize they need to fast-track, respond to the marketplace and get out new product.

"VeriFone is cutting out the level of bureaucracy where you had to talk to 12 different committees to get something put on a schedule. Now their time to market is only being hindered by certification from processors." What Schratz sees as remaining the same this past year are some of the VeriFone faces on the street. "There is continuity there, and VeriFone was smart to keep that," says Schratz. "Those people know people and can get through doors. If VeriFone had retooled the entire sales force, it would have increased the challenge. They were bright in keeping their good folks."

Another plus Schratz sees in doing business with VeriFone is that it has an open architecture that allows developers to integrate and develop product on their platforms where historically other manufacturers didn't. Schratz also cites the reliability and endurance of VeriFone products as a benefit. VeriFone technology that is 15 to 20 years old still works today. But that is a hindrance as well, according to Schratz.

"They continue to manufacture old technology for too long," says Schratz. "There are literally hundreds of thousands of VeriFone terminals in refurbished markets, and VeriFone is still continuing to market its Tranz 330 - probably because people keep buying them, particularly financial institutions and smaller community banks."

What Schratz definitely doesn't see as a hindrance is VeriFone's leadership. "Bergeron seems to be a bright guy, smart, knows where he wants to take the company," says Schratz. "Based on the surface, VeriFone seems to be in a good partnership with GTCR and Gores. They're agile, wanting to move forward, saying all the right things. It's a little too early to know if they're going to walk the dog. I believe they will. From a market perspective, they need to. We need multiple, strong players to keep the market robust."

BILL BLAKEY Electronic Data Resources Bill Blakey is President/CEO of Electronic Data Resources, which has been a member of the VeriFone ISO family since 1988 and has been there through the ups and downs. "The company lost its entrepreneurial ability and considerable amount of agility under HP," says Blakey. "Frankly, they lost their identity, which happens when [it is] taken over by a large company. They became more like Hewlett-Packard and less like the company we had worked with for 15 years."

Blakey continues, "Now, the old VeriFone is back. The simple analysis: The people running VeriFone are excited to have their business back. They are aggressive and getting back into the market with new product rollout and delivery. What you are seeing is back to the future with VeriFone."

The biggest change Blakey has seen has been the response by VeriFone to the marketplace and the end users. He says it is more dedicated to delivering product and service. "The biggest drawback under HP was bureaucracy, not letting people meet their time frame. Now VeriFone is making good on their commitment."

Blakey is grateful that familiar faces have remained at VeriFone. The seasoned management team that EDR has worked with in the past is still in place, and Blakey believes it is at the forefront of the market.

"VeriFone understands the market, point-of-sale products and legacy products," says Blakey. "They have a real handle on where the market is going. They're committed to regaining their lost market share with innovative products over the next year. I don't see any downside to working with VeriFone. They are all rededicated to purpose."

ROB CONNELLY VeriFone Rob Connelly, General Manager of VeriFone's North American Financial Group, believes his company went well beyond all expectations and effected an amazing turnaround - a turnaround that didn't go unnoticed by GTCR. "I think Gores was happy and would have been happy keeping us," says Connelly. "We did what they wanted us to do. We were profitable. We didn't take their cash. They then saw an opportunity vs. a `hey, this thing is broke beyond repair' issue. GTCR is not into turnarounds like Gores. GTCR is in it for the long haul. I'm only speaking from outside perspective, but I see GTCR as very positive for our customers. There is incredible focus to deliver value, and if we deliver value everyone will be happy."

An employee since 1984, Connelly started in the week that VeriFone introduced the ZON Jr., the product many claim put VeriFone on the map. Connelly witnessed the rapid growth of VeriFone over the next 17 years and also experienced the HP overhaul - or underhaul, depending on how one looks at it.

"HP was not a bad company," says Connelly. "The problem was that we were never really a part of HP. They bought us for a reason, seeing Internet payments as a huge opportunity. We had done a lot of work and had invested a lot of money in the whole set. But they had a lot of changes in mind, and we basically became a division and never really integrated."

Connelly recalls there were lots of promises but no real benefits. What VeriFone did get was the negatives of a large bureaucratic organization.

"If you have 100,000 employees, process becomes more important than results, or at least more of a focus," says Connelly. "That was so foreign to how VeriFone had grown up. We were a small entrepreneurial company. Within HP, it was just a much different environment where it was difficult to get decisions made. It was just a big old elephant to move."

During that time, Connelly felt as if VeriFone wasn't VeriFone anymore but wasn't really a part of HP, either. "There was opportunity for lots of possibilities, but it never seemed to happen," says Connelly. "Then as HP got challenged, it became more of a situation where they didn't know what to do with us.

"Under Gores, VeriFone was able to bring back a feeling of how we were before. At first it was fairly traumatic. A lot of good people lost their jobs. The jobs they were doing weren't relevant to the business at hand. It was for the best of the business, but it was hard to see them go."

Connelly recognizes it was important for VeriFone to regain its focus and get profitable. "If you get past the emotional side, you can get in the position where expenses match the business," says Connelly. "It was a definite improvement over HP. Once the business was resized, the business was handed back to us. Gores gave it back to us. We had freedom again. VeriFone was allowed to be VeriFone. We had a culture and a great company, but there was a blanket thrown over us. Gores took off the blanket."

The biggest challenge Connelly sees now is staying focused and letting people know what VeriFone is going through and why.

"The economy and the world are pretty crazy," says Connelly. "Business is difficult and we have tough competitors. It goes beyond Gores and GTCR. We're in a tough environment with a lot of uncertainty. Where are we going? What does it all mean?

"Getting refocused on customers is something we feel comfortable with. We're focused on being the best terminal provider, the best solutions provider. We're focused on how to help our customers sell more products and put more transactions out there for their merchants as well as how to help our customers retain their merchants."

Along those lines, how has VeriFone helped to retain its employees this past year?

"We're trying to reward performers and not tolerate mediocrity. We're trying to figure out how we can make this thing successful," says Connelly. "We have created an environment that allows the employee to make a difference. That was missing under HP. What was exciting in the early days of VeriFone was that you were in an environment that came together as a team, made a difference and won. We now have that dynamic environment again and are rewarding people who want to get involved."

And that is what Connelly likes most about working at VeriFone. "What I like most is I feel I am given a chance to make a difference and have an impact on our business," he says. "Interacting with customers, I have an opportunity to make things happen. That's exciting."

Like many other VeriFone employees, Connelly is planning on staying for the long haul. "There were times under HP that I questioned staying because I didn't think we mattered," says Connelly. "I love the industry, but I got to the point where it was too tough to be in an environment where you didn't know if you were going to have any impact. Now, there's nobody I'd rather be with than VeriFone."

Clearly, a big part of Connelly's commitment is his boss. "Doug has been great," says Connelly. "He's a very bright guy, very candid, externally and internally. He lays it out. You don't have to guess. He also has a unique perspective. Since he's not been in the forest for a long time, he can challenge the status quo. It's very exciting to look at things a different way. He's helped me to look at how things can be done. He's done a tremendous job. Doug Bergeron has turned this company around."

LORI BREITZKE VeriFone Lori Breitzke joined VeriFone seven years ago and has worked in several divisions. She currently is VeriFone's Latin American Solutions Manager. "Life was slow under HP, but there were good things," says Breitzke. "VeriFone had gotten some policies in place from HP, but it got to the point where that was all that we were doing, and it was bogging down the system. Paperwork became overwhelming, and we just couldn't get things done.

"Under Gores, it's been good. There's been a renewed sense of teamwork. The old entrepreneurial spirit of VeriFone is back. Things are getting done quicker that couldn't have been fast-tracked with HP."

Breitzke sees the renewed sense of teamwork at VeriFone as the biggest change this past year. "Under HP we were in silos," says Breitzke. "We weren't all working together. Now the walls are broken down and the aim is moving forward. Management is now closer to reality."

What has remained the same for Breitzke is VeriFone's commitment.

"We always had the commitment to do the best job. Everyone worked hard under HP. We continued to work hard under Gores and now will certainly work just as hard with GTCR. ... Right now it's all about the excitement of being able to bring ourselves back to the dominant player we once were.

"I've been in the industry for 15 years. I've seen us at our peak, and I can see the goal again of being back where we were. We're listening to our customers more. During the HP days, we were thinking about procedures and not what the customers needed." Like Connelly, Breitzke also felt a sadness for the loss of co-workers in the last year. "It's sad when we lose people," says Breitzke. "It's sad to see friends go. It is also hard for us who are still here. With less people, there's more work. We've had to recover quickly and figure out who's going to do what."

Breitzke credits Bergeron for getting them through the transition. "He's very professional, different from past management, actually," says Breitzke. "He is very serious, and his world is VeriFone. You can learn so much from him. He has a tremendous amount of respect for everyone. He listens to the customers. He knows what they want. He knows VeriFone. He knows where we're going. He knows his path, and you want a CEO like that to be able to follow that strong path."

ROB REGAN VeriFone Though not a longtime employee, Rob Regan was especially impressed with VeriFone's accomplishments of the last year. He originally joined VeriFone in January 1996 but left in 2000. He returned in December 2001 for a good reason - his belief in what VeriFone has done and what it is poised to do.

Regan is part of VeriFone's Global Business Development Team. At the outset, he thought life would be cool in some respects under HP - being associated with a big, high-flying company and all. However, he never really felt part of HP.

"We seemed to be in VeriFone's world, but not really," says Regan. "Every time we got plugged in with HP and got paid some lip service, it never translated to anything concrete. Our parent really didn't understand us. We knew who we were. But it appeared we were only a kind of window dressing for HP. It wasn't what we hoped it would be."

Regan left VeriFone for a start-up opportunity. After awhile, when he talked with his friends who stayed through the HP times into the Gores acquisition, he was impressed with the change.

"I talked to guys I knew for years and respected and couldn't get over their new attitude and perception," says Regan. "They kept saying, `Wait 'til you meet these new guys. They're sharp. It's exciting again. There's a lot that's uncertain, but you come out of these meetings and are fired up like it was 10 years ago.' So ... I went back." Since his return, Regan can sum up in one word the biggest difference. "Focused is the word that comes to mind," says Regan. "It didn't take long to figure out what we are trying to do. There's not a lot of gray area. We are meeting our customers' needs as well as financial goals."

The difference, Regan says, is leaning toward customers instead of concentrating solely on making money. "Ultimately, there's a real focus, not just lip service at a management level," says Regan. "Our approach now is if the customers don't love us the way they used to, let's pull out all stops to get them back."

Regan admits there has been a lot of personnel turmoil, but a positive attitude and an enthusiasm for the mission ultimately has emerged with a sense of re-energized excitement. The reason, in his view: new leadership and a return to old management values.

"It's all about execution," says Regan. "Defining goals clearly, executing them and measuring performance - that's fundamental management style. If you don't measure up, make changes. Ask questions. Are we achieving our goals financially? Are we meeting our customers' needs? VeriFone's leadership asks questions, and when they talk about execution, they talk about focus. There's lots of credibility there."

Evaluating employees has been part of the reform as well. "We all are being measured more closely than in the past," says Regan. "For some that's threatening if they've been able to coast along. The focus now is on exactly what are you supposed to be doing. VeriFone has made it clear they are going to evaluate performance. A lot of definition is being put into this personnel-performance aspect, and it's brought clarity and focus to our goals. It's very fair but very demanding."

Is Regan happy he returned to VeriFone? Most definitely. "It's a very exciting time now," says Regan. "My position is a lot of fun. It's nice to be part of a company that provides valuable product in the market. I feel good that we can bring products to the market that people need and want. With management and performance infrastructure in place that can't fail, we all have confidence that our leadership team will take us to a good place. There's no sense of gray. It's not a question of what's going to happen to us, it's a matter of what can we achieve."

Regan summed it all up when he said: "I'm really pumped up for work now. Thanks for giving us this opportunity to talk about VeriFone."