<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 1998
REGISTRATION NO. 333-1
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
IVI CHECKMATE CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3577 58-2375201
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation) Classification Code Number) Identification No.)
</TABLE>
1003 MANSELL ROAD
ROSWELL, GEORGIA 30076
(770) 594-6000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
MR. JOHN J. NEUBERT
1003 MANSELL ROAD
ROSWELL, GEORGIA 30076
(770) 594-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
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<S> <C> <C>
M. HILL JEFFRIES MARK A. CONVERY DAVID G. NICHOLS, JR.
ALSTON & BIRD LLP MEIGHEN DEMERS MORGAN, LEWIS & BOCKIUS LLP
ONE ATLANTIC CENTER MERRILL LYNCH CANADA TOWER 101 PARK AVENUE
1201 WEST PEACHTREE STREET 200 KING STREET WEST 46TH FLOOR
ATLANTA, GEORGIA 30309-3424 SUITE 1100 NEW YORK, NEW YORK 10178
(404) 881-7000 TORONTO, ONTARIO (212) 309-6000
CANADA M5H 3T4
(416) 977-8400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE (2) FEE (2)
<S> <C> <C> <C> <C>
18,381,207
Common Stock, par value $.01 per share...... shares $N/A $120,045,760 $35,414
Exchange Rights and other related Rights and
Obligations (3)........................... N/A N/A N/A N/A (4)
</TABLE>
(1) Represents the estimated number of shares of Common Stock, par value $.01
per share ("Company Common Stock"), issuable by the Registrant to the
holders of Common Stock, par value $.01 per share ("Checkmate Common
Stock"), of Checkmate Electronics, Inc. ("Checkmate") and to the holders of
the Common Shares, no par value per share ("IVI Common Shares"), of
International Verifact Inc. ("IVI"), upon consummation of the Transaction,
assuming exercise of all rights to purchase Checkmate Common Stock and IVI
Common Shares. The Transaction is contemplated by the Combination Agreement
described herein.
(2) Estimated solely for purposes of calculating the registration fee and based,
pursuant to Rules 457(f) and (c) under the Securities Act of 1933, as
amended, on the averages of the high and low per share sales prices of
Checkmate Common Stock and IVI Common Shares on the Nasdaq National Market
on May 20, 1998. Pursuant to Rule 457(b), the registration fee has been
reduced by the $25,189 paid under Section 14(g) of the Securities Exchange
Act of 1934, as amended, in connection with the filing of preliminary proxy
materials on March 19, 1998 and May 6, 1998.
(3) These Rights are for the benefit of the holders of the IVI Exchangeable
Shares ("Exchangeable Shares"). The Rights cannot be transferred by the
holders of the Exchangeable Shares, which are exchangeable for Company
Common Stock. The related Rights and other Obligations assure that holders
of Exchangeable Shares have certain dividend, voting and liquidation rights
as if they held shares of Company Common Stock into which the Exchangeable
Shares are exchangeable (see "The Transaction and Description of
Exchangeable Shares;" "Description of Capital Stock-Exchangeable Shares;"
and "Description of Capital Stock-Support Agreement").
(4) No separate registration fee is required for these rights under Rule 457(f).
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
INTERNATIONAL VERIFACT INC.
79 TORBARRIE ROAD
TORONTO, ONTARIO M3L 1G5
May 26, 1998
Dear IVI Shareholder:
We are pleased to invite you to attend the annual and special meeting of
shareholders to be held on June 23, 1998, at 10:00 a.m. (Toronto time), at the
Metropolitan Toronto Convention Center, 255 Front Street West, Toronto, Ontario.
Because of the importance of the business of this meeting, we would like as many
of you as possible either to attend in person or to be represented by sending in
your proxies.
The business of the meeting includes consideration of and voting on
transactions which, effectively, will lead to a combination of International
Verifact Inc. ("IVI") and Checkmate Electronics, Inc. ("Checkmate"). These
transactions will be accomplished pursuant to the terms of a Combination
Agreement dated January 16, 1998 (the "Combination Agreement"), among IVI,
Checkmate, IVI Checkmate Corp., a newly-formed Delaware corporation (the
"Company"), and Future Merger Corporation, a Georgia corporation and wholly
owned subsidiary of the Company. The Combination Agreement provides for a plan
of arrangement (the "Plan of Arrangement"), whereby common stock, par value $.01
per share, of the Company ("Company Common Stock") or exchangeable shares of IVI
("Exchangeable Shares") will be issued to holders of the issued and outstanding
shares of IVI on a one-for-one basis (the transactions contemplated by the
Combination Agreement and the Plan of Arrangement being referred to herein
collectively as the "Transaction"). The Exchangeable Shares will be exchangeable
from time to time at the option of the holder into shares of Company Common
Stock. Holding Exchangeable Shares rather than Company Common Stock may appeal
to IVI's Canadian shareholders for certain Canadian tax reasons, which are
described in the attached Joint Proxy Statement/Prospectus.
The details of the Transaction are included in the Joint Proxy
Statement/Prospectus. Also included is the form of proxy. A Letter of
Transmittal and Election Form is included for use in connection with the Plan of
Arrangement. The Joint Proxy Statement/Prospectus also includes IVI's unaudited
condensed consolidated financial statements for the three months ended March 31,
1998 and audited consolidated financial statements for the fiscal year ended
December 31, 1997, 1996 and 1995, and IVI Management's Discussion and Analysis
of Financial Condition and Results of Operations.
AFTER CONSIDERING MANY DIFFERENT FACTORS (WHICH ARE DESCRIBED IN DETAIL IN
THE JOINT PROXY STATEMENT/ PROSPECTUS), YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
RECOMMENDED THAT YOU VOTE IN FAVOUR OF THE RESOLUTION CONCERNING THE PLAN OF
ARRANGEMENT AND THE COMBINATION OF CHECKMATE AND IVI.
Also at the meeting, shareholders will receive IVI's audited financial
statements for the fiscal year ended December 31, 1997, and will consider and
vote upon the election of directors for the ensuing year and the appointment of
independent auditors. Please review the Joint Proxy Statement/Prospectus
carefully. It has been prepared to help you make an informed decision with
respect to all of the foregoing matters.
We hope that you will be able to attend the meeting. Whether or not you are
able to attend, it is still important that you be represented at the meeting. We
urge you to complete the enclosed form of proxy and return it, no later than the
time specified in the Notice of Annual and Special Meeting of Shareholders, in
the postage-paid envelope provided. Regardless of the number of shares you own,
your vote is important.
Yours very truly,
Your Board of Directors
George Whitton
CHAIRMAN OF THE BOARD
<PAGE>
INTERNATIONAL VERIFACT INC.
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that an annual and special meeting (the "Shareholders
Meeting") of the shareholders of International Verifact Inc. ("IVI") will be
held on June 23, 1998, at 10:00 a.m. (Toronto time), at the Metropolitan Toronto
Convention Center, 255 Front Street West, Toronto, Ontario, for the following
purposes:
1. To consider, pursuant to an order (the "Interim Order") of the Ontario
Court of Justice (General Division) dated February 24, 1998, and, if deemed
advisable, to pass, with or without variation, a special resolution (the
"Arrangement Resolution") to approve an arrangement (the "Arrangement") under
section 192 of the CANADA BUSINESS CORPORATIONS ACT (the "CBCA"), all as more
particularly described in the accompanying Joint Proxy Statement/Prospectus.
2. To receive the financial statements of IVI for the year ended December
31, 1997 and the report of the independent auditors thereon.
3. To elect directors for the ensuing year.
4. To appoint independent auditors of IVI and to authorize the directors to
fix their remuneration.
5. To transact such further or other business as may properly come before
the Shareholders Meeting or any adjournment or adjournments thereof.
Specific details of the matters to be put before the Shareholders Meeting
are set out in the Joint Proxy Statement/ Prospectus, which forms part of this
Notice. The full text of the Arrangement Resolution is attached as Annex B to
the Joint Proxy Statement/Prospectus.
Pursuant to the Interim Order, a copy of which is attached as Annex C to the
Joint Proxy Statement/Prospectus, holders of common shares of IVI ("IVI Common
Shares") have been granted the right to dissent in respect of the Arrangement.
If the Arrangement becomes effective, a dissenting shareholder will be entitled
to be paid the fair value of the IVI Common Shares held by such shareholder if
the Chairman of the Shareholders Meeting shall have received from such
dissenting shareholder at or before the Shareholders Meeting a written objection
to the Arrangement Resolution and the dissenting shareholder shall have
otherwise complied with the provisions of section 190 of the CBCA. The dissent
right is described in the accompanying Joint Proxy Statement/Prospectus and the
text of section 190 of the CBCA is attached as Annex D to the Joint Proxy
Statement/Prospectus. ONLY REGISTERED SHAREHOLDERS MAY DISSENT. FAILURE TO
STRICTLY COMPLY WITH THE REQUIREMENTS SET OUT IN SECTION 190 OF THE CBCA MAY
RESULT IN THE LOSS OF ANY RIGHT OF DISSENT.
Each person who is a holder of record of IVI Common Shares at the close of
business on May 12, 1998 (the "Record Date") is entitled to notice of and to
attend and vote at the Shareholders Meeting and any adjournment or postponement
thereof, provided that, to the extent that a person has transferred any IVI
Common Shares after the Record Date and the transferee of such shares
establishes that such transferee owns such shares and demands not later than
June 12, 1998 to be included in the list of shareholders eligible to vote at the
Shareholders Meeting, such transferee will be entitled to vote such shares at
the Shareholders Meeting.
DATED at Toronto, Ontario, May 26, 1998.
By Order of the Board of Directors
L. Barry Thomson
President and Chief Executive Officer
SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SHAREHOLDERS MEETING.
SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. TO BE EFFECTIVE, PROXIES MUST BE RECEIVED BY
MONTREAL TRUST COMPANY OF CANADA NOT LATER THAN 5:00 P.M. (TORONTO TIME) ON JUNE
19, 1998, OR, IF THE SHAREHOLDERS MEETING IS ADJOURNED, NOT LATER THAN 24 HOURS
(EXCLUDING SATURDAYS, SUNDAYS AND HOLIDAYS) BEFORE THE TIME OF THE SHAREHOLDERS
MEETING, OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
<PAGE>
COURT FILE NO. 98-BK-002263
ONTARIO COURT (GENERAL DIVISION)
COMMERCIAL LIST
IN THE MATTER OF INTERNATIONAL VERIFACT INC.
AND IN THE MATTER OF AN APPLICATION UNDER SECTION 192
OF THE CANADA BUSINESS CORPORATIONS ACT, R.S.C. 1985,
C. C.-44, AS AMENDED
NOTICE OF APPLICATION
A LEGAL PROCEEDING HAS BEEN COMMENCED by the Applicant, International
Verifact Inc. The claim made by the Applicant appears on the following pages.
THIS APPLICATION will come on for a hearing before a judge presiding over
the Commercial List on a date to be determined at 393 University Avenue,
Toronto, Ontario.
IF YOU WISH TO OPPOSE THIS APPLICATION, you or an Ontario lawyer acting for
you must forthwith prepare a notice of appearance in Form 38C prescribed by the
Rules of Civil Procedure, serve it on the applicant's lawyer(s) or, where the
applicant does not have a lawyer, serve it on the applicant and file it, with
proof of service, in this court office and you or your lawyer(s) must appear at
the hearing.
IF YOU WISH TO PRESENT AFFIDAVIT OR OTHER DOCUMENTARY EVIDENCE TO THE COURT
OR TO EXAMINE OR CROSS-EXAMINE WITNESSES ON THE APPLICATION, you or your
lawyer(s) must, in addition to serving your notice of appearance, serve a copy
of the evidence on the applicant's lawyer(s) or, where the applicant does not
have a lawyer, serve it on the applicant, and file it, with proof of service, in
the court office where the application is to be heard as soon as possible, but
not later than 2:00 p.m. on the day before the hearing.
IF YOU FAIL TO APPEAR AT THE HEARING, JUDGMENT MAY BE GIVEN IN YOUR ABSENCE
AND WITHOUT FURTHER NOTICE TO YOU.
If you wish to oppose this application but are unable to pay legal fees,
legal aid may be available to you by contacting a local Legal Aid office.
<TABLE>
<S> <C> <C> <C>
Date: February 20, 1998 Issued By: The Registrar of The
Ontario Court
(General Division)
393 University Avenue
Toronto, Ontario
M5H 1E6
</TABLE>
TO: ALL HOLDERS OF COMMON SHARES OF
INTERNATIONAL VERIFACT INC.
AND TO: THE DIRECTOR UNDER THE CBCA
Corporation Directorate
Industry Canada
9th Floor, Journal Tower South
365 Laurier Avenue West
Ottawa, Ontario
K1A 0C8
<PAGE>
APPLICATION
1. International Verifact Inc. ("IVI") makes application for:
(a) an Order approving the arrangement involving IVI and its shareholders
proposed by IVI and described in the Joint Proxy Statement/Prospectus to
be filed and to be distributed to holders of common shares of IVI;
(b) an Interim Order for advice and directions of the Court in connection
with the proposed arrangement; and
(c) such further and other relief as may seem just.
2. THE GROUNDS FOR THE APPLICATION ARE:
(a) IVI proposes a plan of arrangement with the holders of its common shares
which contemplates an amendment of its articles and an exchange of its
common shares;
(b) it is not practicable for IVI to effect fundamental changes of the
nature contemplated by the plan of arrangement under any other provision
of the CBCA;
(c) sections 135 and 192 of the CANADA BUSINESS CORPORATIONS ACT, R.S.C.
1985, c. C-44, as amended;
(d) Rules 3.02, 14.05 (2) and 38 of the RULES OF CIVIL PROCEDURE; and
(e) such further and other grounds as counsel may advise and this Honourable
Court may permit.
3. THE FOLLOWING DOCUMENTARY EVIDENCE will be used at the hearing of the
application:
(a) the Interim Order of this Court;
(b) the Affidavit of Peter H. Henry to be sworn and the exhibits thereto;
(c) the further Affidavit of Peter H. Henry to be sworn, reporting on the
results of the shareholders' meeting to be conducted; and
(d) such further and other material as counsel may advise and this
Honourable Court may permit.
THIS NOTICE OF APPLICATION will be sent to all holders of IVI's common
shares at their addresses as they appear on the books of IVI on the day
immediately preceding the day on which Notice of the special meeting of IVI's
shareholders to approve the arrangement is sent to shareholders including,
pursuant to the provisions of Rule 17.02 (n) and Rule 17.02 (o), shareholders
whose registered addresses are outside the province of Ontario.
MEIGHEN DEMERS
Barristers & Solicitors
P.O. Box 11, 11th Floor
Merrill Lynch Canada Tower
Sun Life Centre
200 King Street West
Toronto, Ontario M5H 3T4
John T. Porter
Tel: (416) 340-6030
Fax: (416) 977-5239
Solicitors for the Applicant
Court File No. 98-BK-002263
<PAGE>
CHECKMATE ELECTRONICS, INC.
1003 MANSELL ROAD
ROSWELL, GEORGIA 30076
May 26, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Checkmate Electronics, Inc. to be held at the Four Points Hotel located at 1850
Cotillion Drive, Atlanta, Georgia, at 10:00 a.m., local time, on June 23, 1998.
At this important meeting, you will be asked to consider and vote upon the
adoption of a Combination Agreement dated as of January 16, 1998, which provides
for the combination of International Verifact Inc., a Canadian corporation
("IVI"), and Checkmate through the merger of a wholly owned subsidiary of IVI
Checkmate Corp., a newly formed Delaware corporation (the "Company"), with and
into Checkmate and the reorganization of IVI under Canadian law. If the proposed
transaction is consummated, Checkmate and IVI will become subsidiaries of the
Company and each outstanding share of Common Stock of Checkmate will be
converted into the right to receive 1.2775 shares of Company Common Stock on the
basis set forth in the Combination Agreement and described in the enclosed Joint
Proxy Statement/ Prospectus.
Adoption of the Combination Agreement by Checkmate requires the affirmative
vote of the holders of a majority of the shares of Checkmate Common Stock
entitled to vote at the Special Meeting. Enclosed are the: (i) Notice of Special
Meeting of Shareholders and (ii) Joint Proxy Statement/Prospectus. The Joint
Proxy Statement/Prospectus describes in more detail the Combination Agreement
and the merger, including a description of the conditions to consummation of the
merger and the effects of the merger on the rights of Checkmate shareholders.
The Joint Proxy Statement/Prospectus also contains financial and other
information about Checkmate and IVI. Please give this information your careful
attention.
The Board of Directors has unanimously approved and adopted the Combination
Agreement and the consummation of the merger and the other transactions
contemplated therein, and unanimously recommends that you vote FOR adoption of
the Combination Agreement.
We look forward to seeing you at the Special Meeting.
Sincerely,
J. Stanford Spence
CHAIRMAN OF THE BOARD
<PAGE>
CHECKMATE ELECTRONICS, INC.
1003 MANSELL ROAD
ROSWELL, GEORGIA 30076
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT 10:00 A.M. ON JUNE 23, 1998
------------------------
May 26, 1998
To the Shareholders of Checkmate Electronics, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Checkmate
Electronics, Inc. will be held at the Four Points Hotel located at 1850
Cotillion Drive, Atlanta, Georgia, at 10:00 a.m., local time, on June 23, 1998.
The purpose of the Special Meeting is to consider and vote upon a proposal to
adopt the Combination Agreement, dated as of January 16, 1998, by and among
Checkmate, International Verifact Inc. ("IVI"), IVI Checkmate Corp. (the
"Company") and Future Merger Corporation ("Sub"). The Combination Agreement
provides that, among other matters, IVI and Checkmate will combine through the
merger of Sub with and into Checkmate and the reorganization of IVI, with
Checkmate and IVI becoming subsidiaries of the Company and each share of
Checkmate Common Stock being converted into the right to receive 1.2775 shares
of Common Stock of the Company, all as more fully described in the accompanying
Joint Proxy Statement/Prospectus. A copy of the Combination Agreement is set
forth in Annex A to the Joint Proxy Statement/Prospectus.
Only shareholders of record at the close of business on April 14, 1998, are
entitled to receive notice of and to vote at the Special Meeting or any
adjournments or postponements thereof. Adoption of the Combination Agreement
requires the affirmative vote of the holders of a majority of the shares of
Checkmate Common Stock entitled to vote at the Special Meeting.
HOLDERS OF CHECKMATE COMMON STOCK WHO GIVE WRITTEN DEMAND FOR APPRAISAL OF
THEIR SHARES BEFORE TAKING OF THE VOTE ON THE COMBINATION AGREEMENT, DO NOT VOTE
IN FAVOR OF ADOPTION OF THE COMBINATION AGREEMENT, AND COMPLY WITH THE FURTHER
PROVISIONS OF APPLICABLE GEORGIA LAW WILL BE ENTITLED TO RECEIVE, IF THE MERGER
IS CONSUMMATED, THE "FAIR VALUE" (AS DEFINED BY GEORGIA LAW) OF THEIR CHECKMATE
COMMON STOCK IN CASH. A VOTE AGAINST ADOPTION OF THE COMBINATION AGREEMENT WILL
NOT CONSTITUTE A DEMAND FOR APPRAISAL RIGHTS, NOR WILL A FAILURE TO VOTE AGAINST
ADOPTION OF THE COMBINATION AGREEMENT CONSTITUTE A WAIVER OF APPRAISAL RIGHTS. A
COPY OF THE APPLICABLE GEORGIA STATUTORY PROVISIONS IS SET FORTH IN ANNEX E TO
THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS, AND A SUMMARY OF SUCH
PROVISIONS IS SET FORTH UNDER "DISSENTING SHAREHOLDERS' RIGHTS" IN THE JOINT
PROXY STATEMENT/PROSPECTUS.
THE BOARD OF DIRECTORS OF CHECKMATE UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" ADOPTION OF THE COMBINATION AGREEMENT.
BY ORDER OF THE BOARD OF DIRECTORS
Margaret Burkett
SECRETARY
<PAGE>
PROXY STATEMENT PROXY STATEMENT
INTERNATIONAL VERIFACT INC. CHECKMATE ELECTRONICS, INC.
PROSPECTUS
IVI CHECKMATE CORP.
COMMON STOCK
This Joint Proxy Statement/Prospectus is being furnished to holders of
Common Shares of International Verifact Inc., a Canadian corporation ("IVI"),
and to holders of Common Stock, $.01 par value per share, of Checkmate
Electronics, Inc., a Georgia corporation ("Checkmate"). This Joint Proxy
Statement/ Prospectus relates to the solicitation of proxies by the IVI Board of
Directors for use at the Shareholders Meeting of IVI to be held at 10:00 a.m.,
local time, on June 23, 1998, at the Metropolitan Toronto Convention Center, 255
Front Street West, Toronto, Ontario, and any adjournments or postponements
thereof, and to the solicitation of proxies by the Checkmate Board of Directors
for use at a special meeting of shareholders of Checkmate to be held at 10:00
a.m., local time, on June 23, 1998, at the Four Points Hotel located at 1850
Cotillion Drive, Atlanta, Georgia, and any adjournments or postponements
thereof.
The primary purpose of both the IVI Shareholders Meeting and the Checkmate
Shareholders Meeting is to consider and vote upon a proposal to adopt the
Combination Agreement dated as of January 16, 1998 (the "Combination
Agreement"), by and among IVI, Checkmate, IVI Checkmate Corp., a newly formed
Delaware corporation (the "Company"), and Future Merger Corporation, a Georgia
corporation and wholly owned subsidiary of the Company ("Sub"). The Combination
Agreement provides for, among other things, an arrangement under Section 192 of
the Canada Business Corporations Act pursuant to which IVI will become a
subsidiary of the Company (the "Arrangement") and the merger of Sub with and
into Checkmate such that Checkmate will become a wholly owned subsidiary of the
Company (the "Merger," together with the Arrangement and the other transactions
contemplated by the Combination Agreement, the "Transaction"). See "Summary,"
"The Transaction" and Annex A to this Joint Proxy Statement/Prospectus.
Upon consummation of the Transaction, each outstanding IVI Common Share
(excluding shares held by shareholders who perfect their statutory dissenters
rights) shall be exchanged for: (i) one share of Common Stock, $.01 par value
per share, of the Company or (ii) one exchangeable share of IVI ("Exchangeable
Share") which is exchangeable on a one-for-one basis for shares of Company
Common Stock at the option of the holder at any time during a period of ten
years or by the Company or IVI upon the occurrence of certain events and which
entitles the holder thereof to certain voting rights consistent with the voting
rights of holders of Company Common Stock (subject to certain adjustments). At
the time of the Shareholders Meetings, the shareholders of IVI and Checkmate
will not know the number of Exchangeable Shares that will be issued in the
Transaction. Also upon consummation of the Transaction, each outstanding share
of Checkmate Common Stock (excluding shares held by shareholders who perfect
their statutory dissenters rights) shall cease to be outstanding and shall be
converted into and exchanged for the right to receive 1.2775 shares of Company
Common Stock.
This Joint Proxy Statement/Prospectus also constitutes a Prospectus of the
Company relating to the shares of Company Common Stock issuable in the
Transaction, which shares have been registered under the Securities Act. The
issuance of the Exchangeable Shares by IVI in the Arrangement will not be
registered under the Securities Act, but information regarding the Exchangeable
Shares and the Arrangement also is contained herein in accordance with Canadian
law.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
SHAREHOLDERS IN EVALUATING THE TRANSACTION AND THE COMPANY COMMON STOCK OR
EXCHANGEABLE SHARES, SEE "RISK FACTORS" BEGINNING ON PAGE 15.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR PROVINCIAL SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR PROVINCIAL SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is May 26, 1998, which is
approximately the date that it is first being mailed or otherwise delivered to
shareholders of IVI and Checkmate.
<PAGE>
AVAILABLE INFORMATION
IVI and Checkmate each are subject to the reporting and informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder, and in accordance therewith,
each files reports, proxy statements and other information with the Securities
and Exchange Commission (the "Commission"). Such reports, proxy statements, and
other information filed by IVI and Checkmate with the Commission may be
inspected and copied at the principal office of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should be
available at the Commission's Regional Offices at 7 World Trade Center, New
York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material also may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates and also may be
accessed electronically by means of the Commission's home page on the Internet
at http://www.sec.gov. In addition, reports, proxy statements and other
information concerning IVI and Checkmate may be inspected at the offices of The
Nasdaq Stock Market, Reports Section, 1735 K Street N.W., Washington, D.C.
20006.
IVI is also subject to the reporting and informational requirements of
certain provincial securities laws and The Toronto Stock Exchange (the "TSE").
Materials filed by IVI with the TSE and with the Ontario Securities Commission
(the "OSC") can be obtained directly from the TSE at 2 First Canadian Place,
Toronto, Ontario M5X 1J2 and the OSC at 20 Queen Street West, Toronto, Ontario
M5H 3S8 and may be accessed electronically on the Internet at
http:\\www.sedar.com.
This Joint Proxy Statement/Prospectus constitutes a part of a Registration
Statement on Form S-4 (the "Registration Statement") which has been filed by the
Company with and declared effective by the Commission under the Securities Act
of 1933, as amended (the "Securities Act"), and the rules and regulations
thereunder. As permitted by the rules and regulations of the Commission, this
Joint Proxy Statement/Prospectus omits certain information contained in the
Registration Statement, and reference is hereby made to the Registration
Statement and to the exhibits thereto for further information with respect to
IVI, Checkmate and the Company and the securities to which this Joint Proxy
Statement/Prospectus relates. Statements contained in this Joint Proxy
Statement/Prospectus concerning the provisions of certain documents filed as
exhibits to the Registration Statement are necessarily brief descriptions
thereof, and each such statement is qualified in its entirety by reference to
the full text of such document.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE UPON REQUEST AND WITHOUT CHARGE FROM: INTERNATIONAL VERIFACT INC., 79
TORBARRIE ROAD, TORONTO, ONTARIO M3L 1G5, ATTN: MANAGER, CORPORATE REPORTING,
(416) 245-6700 FOR IVI DOCUMENTS, AND CHECKMATE ELECTRONICS, INC., 1003 MANSELL
ROAD, ROSWELL, GEORGIA 30076, ATTN: CORPORATE SECRETARY, (770) 594-6000 FOR
CHECKMATE DOCUMENTS. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUESTS SHOULD BE MADE NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE
SHAREHOLDERS MEETING FOR IVI OR CHECKMATE, RESPECTIVELY.
All information contained herein with respect to IVI and its subsidiaries
has been supplied by IVI, and all information with respect to Checkmate has been
supplied by Checkmate. All information contained herein with respect to the
Company and Sub has been supplied by IVI and Checkmate.
No person has been authorized to give any information or to make any
representation other than those contained in this Joint Proxy
Statement/Prospectus and, if given or made, such information or representation
should not be relied upon as having been authorized by IVI, Checkmate or the
Company. Neither the delivery of this Joint Proxy Statement/Prospectus nor any
distribution of the securities to which this Joint Proxy Statement/Prospectus
relates shall, under any circumstances, create any implication that there has
been no change in the affairs of IVI, Checkmate or the Company or any of their
respective subsidiaries since the date hereof or that the information contained
herein is correct as of any time
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subsequent to its date. This Joint Proxy Statement/Prospectus does not
constitute an offer to sell, or a solicitation of an offer to purchase, any
securities other than the securities to which it relates or an offer to sell or
a solicitation of an offer to purchase the securities offered by this Joint
Proxy Statement/Prospectus in any jurisdiction in which such an offer or
solicitation is unlawful.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by IVI with the Commission (Commission File
No. 0-20890) under Section 13(a) or 15(d) of the Exchange Act are hereby
incorporated by reference in this Joint Proxy
Statement/Prospectus:
(i) Annual Report on Form 20-F for the year ended December 31, 1997, as
amended; and
(ii) Current Report on Form 6-K dated January 22, 1998; and
(iii) Current Report on Form 6-K dated May 12, 1998.
The following documents filed by Checkmate with the Commission (Commission
File No. 0-22370) under Section 13(a) or 15(d) of the Exchange Act are hereby
incorporated by reference in this Joint Proxy Statement/Prospectus:
(i) Annual Report on Form 10-K for the year ended December 31, 1997, as
amended;
(ii) Current Report on Form 8-K dated January 21, 1998; and
(iii) Quarterly Report on Form 10-Q for the period ended March 31, 1998.
All documents filed by IVI and Checkmate pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Shareholders Meetings are
hereby incorporated by reference in this Joint Proxy Statement/Prospectus and
shall be deemed a part hereof from the date of filing of such document.
Any statement contained herein, in any amendment or supplement hereto or in
any document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein, in any
amendment or supplement hereto or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus or any amendment or supplement hereto. The
information contained in this Joint Proxy Statement/Prospectus should be read in
conjunction with the foregoing materials that are incorporated by reference
herein.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION...................................................................................... ii
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................................................... iii
SUMMARY.................................................................................................... 1
Parties to the Transaction............................................................................... 1
Shareholders Meeting; Record Date........................................................................ 1
The Combination Agreement................................................................................ 3
Reasons for the Transaction.............................................................................. 6
The Companies After the Transaction...................................................................... 9
Opinions of Financial Advisors........................................................................... 11
Interests of Certain Persons in the Transaction.......................................................... 11
Accounting Treatment..................................................................................... 12
Certain Tax Consequences................................................................................. 12
Resale of Exchangeable Shares and Issuance and Resale Company Common Stock............................... 13
Dissenters Rights........................................................................................ 13
Termination of Checkmate Rights Plan..................................................................... 14
Court Approval........................................................................................... 14
RISK FACTORS............................................................................................... 15
Risks Associated with the Integration of the Two Companies............................................... 15
Technological Change and Product Obsolescence; Dependence on New Product Development..................... 15
Reliance on Large Customers.............................................................................. 16
Highly Competitive Industry.............................................................................. 16
Dependence on Proprietary Technology; Limited Protection of Proprietary Technology and Risk of
Infringement........................................................................................... 17
Dependence on Suppliers and Manufacturers................................................................ 17
Potential Fluctuation in Financial Results............................................................... 18
Potential Year 2000 Problems............................................................................. 18
Product Defects.......................................................................................... 18
Government and Industry Regulation....................................................................... 19
Dependence on Key Personnel.............................................................................. 19
Substantial Ownership and Voting Control by Affiliates; Ingenico Relationship............................ 19
Uncertainty of Income Tax Consequences................................................................... 20
Regulatory Approval...................................................................................... 21
Fluctuation in Value Due to Fixed Exchange Ratios........................................................ 21
Effect of Holding Company Structure...................................................................... 21
Volatility of Market Price for Common Stock and Exchangeable Shares...................................... 21
Exchange Rate Risks; Currency Fluctuations............................................................... 21
Dilution................................................................................................. 21
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES............................................................. 22
EXCHANGE RATE OF CANADIAN AND U.S. DOLLARS................................................................. 22
MARKET PRICES AND DIVIDENDS................................................................................ 23
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA............................................................. 24
SELECTED FINANCIAL DATA.................................................................................... 25
SELECTED FINANCIAL DATA OF INTERNATIONAL VERIFACT INC. (HISTORICAL)........................................ 25
SELECTED FINANCIAL DATA OF CHECKMATE ELECTRONICS, INC. (HISTORICAL)........................................ 27
SELECTED PRO FORMA FINANCIAL DATA.......................................................................... 28
GENERAL INFORMATION........................................................................................ 29
The Shareholders Meetings................................................................................ 29
Record Date, Solicitation, and Revocability of Proxies................................................... 29
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Vote Required............................................................................................ 31
Recommendations of Boards of Directors................................................................... 32
Auditors................................................................................................. 32
THE TRANSACTION............................................................................................ 33
Background of the Transaction............................................................................ 33
Reasons for the Transaction.............................................................................. 35
Opinions of Financial Advisors........................................................................... 38
Interests of Certain Persons in the Transaction.......................................................... 49
Employment Agreements.................................................................................... 51
Anticipated Accounting Treatment......................................................................... 51
THE TRANSACTION AND DESCRIPTION OF EXCHANGEABLE SHARES..................................................... 51
The Arrangement.......................................................................................... 51
The Merger............................................................................................... 55
Resale of Exchangeable Shares and Issuance and Resale of Company Common Stock Received in the
Transaction............................................................................................ 55
MATERIAL INCOME TAX CONSIDERATIONS TO IVI SHAREHOLDERS..................................................... 58
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO CHECKMATE SHAREHOLDERS.................................... 67
THE COMBINATION AGREEMENT.................................................................................. 69
Representations, Warranties and Covenants................................................................ 69
Effective Time and Closing Date.......................................................................... 69
Conditions to Consummation............................................................................... 69
Conduct of Business Pending the Transaction.............................................................. 72
Court Approval........................................................................................... 75
Regulatory Approvals..................................................................................... 75
Amendment, Waiver and Termination........................................................................ 75
Expenses and Fees........................................................................................ 77
Distribution of Company Certificates..................................................................... 77
Conversion of Stock Options.............................................................................. 78
Other Agreements......................................................................................... 79
Court Approval of the Arrangement and Completion of the Transaction...................................... 79
Listing of the Company Common Stock and Exchangeable Shares.............................................. 80
Termination of Checkmate Rights Plan..................................................................... 80
THE COMPANIES AFTER THE TRANSACTION........................................................................ 81
Management............................................................................................... 81
Compensation............................................................................................. 83
Company Stock Option Plans............................................................................... 87
Certain Transactions..................................................................................... 88
Stock Ownership.......................................................................................... 88
Plans and Proposals...................................................................................... 90
Proposed Business and Marketing Strategy................................................................. 90
INTERNATIONAL VERIFACT INC................................................................................. 91
Business................................................................................................. 91
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 92
Principal Shareholders................................................................................... 99
Directors' Compensation.................................................................................. 99
Directors' and Officers' Liability Insurance............................................................. 100
Executive Compensation................................................................................... 100
Report on Executive Compensation......................................................................... 100
Summary of Compensation.................................................................................. 101
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Performance Graph........................................................................................ 102
Indebtedness of Directors and Officers of IVI............................................................ 103
Interests of Management of IVI and Others in Certain Transactions........................................ 103
Corporate Governance Practices........................................................................... 103
Mandate of the Board..................................................................................... 103
Constitution of the Board................................................................................ 103
Committees of the Board.................................................................................. 104
Other Corporate Governance Matters....................................................................... 104
CHECKMATE ELECTRONICS, INC................................................................................. 105
Business................................................................................................. 105
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 105
COMPARISON OF STOCKHOLDER RIGHTS........................................................................... 113
Vote Required for Extraordinary Transactions............................................................. 113
Amendment to Governing Documents......................................................................... 115
Dissenters Rights........................................................................................ 115
Stockholder Consent in Lieu of Meeting................................................................... 116
Director Qualifications.................................................................................. 117
Indemnification of Directors and Officers................................................................ 117
Anti-Takeover Provisions and Interested Stockholder Transactions......................................... 118
Dividends and Distributions.............................................................................. 119
Stockholder Inspection Rights............................................................................ 119
DESCRIPTION OF CAPITAL STOCK............................................................................... 120
Company Capital Stock.................................................................................... 120
Checkmate Capital Stock.................................................................................. 121
IVI Share Capital........................................................................................ 121
IVI Common Shares........................................................................................ 121
Exchangeable Shares of IVI............................................................................... 121
Support Agreement........................................................................................ 123
Voting and Exchange Trust Agreement...................................................................... 123
Delivery of Company Common Stock......................................................................... 125
Call Rights.............................................................................................. 125
DISSENTING SHAREHOLDERS' RIGHTS............................................................................ 126
ADDITIONAL MATTERS FOR CONSIDERATION BY IVI SHAREHOLDERS................................................... 130
EXPERTS.................................................................................................... 132
LEGAL MATTERS.............................................................................................. 132
GLOSSARY................................................................................................... 133
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
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ANNEXES:
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ANNEX A-- Combination Agreement
ANNEX B-- Form of Arrangement Resolution
ANNEX C-- Interim Order
ANNEX D-- Certain Provisions of Canadian Law
ANNEX E-- Certain Provisions of Georgia Law
ANNEX F-- Opinion of BancAmerica Robertson Stephens
ANNEX G-- Opinion of BT Alex. Brown Incorporated
ANNEX H-- Form of Voting and Exchange Trust Agreement
ANNEX I-- Form of Support Agreement
ANNEX J-- Special Preferred Voting Stock Provisions
ANNEX K-- Plan of Arrangement
ANNEX L-- Exchangeable Share Provisions
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/ PROSPECTUS. THIS SUMMARY IS NOT INTENDED TO BE A
COMPLETE DESCRIPTION OF THE MATTERS COVERED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, INCLUDING THE ANNEXES HERETO, AND IN THE DOCUMENTS
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THE
COMBINATION AGREEMENT AND CERTAIN EXHIBITS THERETO ARE SET FORTH IN THE ANNEXES
TO THIS JOINT PROXY STATEMENT/PROSPECTUS, AND REFERENCE IS MADE THERETO FOR A
COMPLETE DESCRIPTION OF THE TERMS OF THE ARRANGEMENT AND THE MERGER.
SHAREHOLDERS ARE URGED TO READ CAREFULLY THE ENTIRE JOINT PROXY
STATEMENT/PROSPECTUS, INCLUDING THE ANNEXES.
AS USED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, THE TERM THE "COMPANY"
REFERS TO IVI CHECKMATE CORP. AFTER GIVING EFFECT TO THE TRANSACTION, UNLESS THE
CONTEXT REQUIRES OTHERWISE. CERTAIN OTHER CAPITALIZED TERMS USED HEREIN ARE
DEFINED IN THE "GLOSSARY" INCLUDED ON PAGE 134.
IN THIS JOINT PROXY STATEMENT/PROSPECTUS, UNLESS OTHERWISE INDICATED, ALL
DOLLAR AMOUNTS ARE EXPRESSED IN U.S. DOLLARS.
PARTIES TO THE TRANSACTION
INTERNATIONAL VERIFACT INC.
IVI is engaged in the design, development and sale of electronic payment
solutions for retailers, financial institutions, governments and other
businesses. IVI's hardware and software products include debit, credit,
electronic funds transfer ("EFT") and electronic benefits transfer ("EBT")
terminals, check readers, smart card readers, point-of-sale ("POS") printers and
secure personal identification number ("PIN") entry devices and related
software. IVI's shares are traded on the TSE under the symbol "IVI" and on the
Nasdaq National Market under the symbol "IVIAF." IVI is a Canadian corporation.
Its principal executive offices are located at 79 Torbarrie Road, Toronto,
Ontario M3L 1G5, and its telephone number is (416) 245-6700.
CHECKMATE ELECTRONICS, INC.
Checkmate develops, manufactures and markets payment automation solutions.
Checkmate's Payment System(2000TM) includes systems and terminals for check
reading and magnetic debit/credit card processing, signature capture and
verification, and magnetic ink character recognition ("MICR") quality analyzing.
Checkmate sells directly to large POS users and financial institutions in North
America, and distributes products through resellers and original equipment
manufacturer ("OEM") relationships in the United States and worldwide.
Checkmate's shares are traded on the Nasdaq National Market under the symbol
"CMEL." Checkmate is a Georgia corporation. Its principal executive offices are
located at 1003 Mansell Road, Roswell, Georgia 30076, and its telephone number
is (770) 594-6000.
SHAREHOLDERS MEETINGS; RECORD DATE
DATE, TIME, PLACE AND PURPOSE
IVI SHAREHOLDERS MEETING. This Joint Proxy Statement/Prospectus is being
furnished by IVI to its shareholders in connection with the solicitation of
proxies by the Board of Directors of IVI from holders of the outstanding IVI
Common Shares for use at the Annual and Special Meeting of Shareholders of IVI
to be held at 10:00 a.m., local time, on June 23, 1998, at the Metropolitan
Toronto Convention Center, 255 Front Street West, Toronto, Ontario, and at any
adjournments and postponements thereof. The primary purpose of the IVI
Shareholders Meeting is to consider and vote upon: (i) a special resolution to
approve the Combination Agreement; (ii) the election of nine directors to IVI's
Board of Directors, each to hold
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office until his successor is elected and qualified or until his resignation or
removal; (iii) a proposal to appoint Coopers & Lybrand, Chartered Accountants,
as IVI's independent auditors for the current fiscal year and to authorize the
directors to fix their remuneration; and (iv) such further or other business as
may properly come before the IVI Shareholders Meeting or any adjournments or
postponements thereof.
CHECKMATE SHAREHOLDERS MEETING. This Joint Proxy Statement/Prospectus is
being furnished by Checkmate to its shareholders in connection with the
solicitation of proxies by the Board of Directors of Checkmate from holders of
the outstanding Checkmate Common Stock for use at the Checkmate Shareholders
Meeting to be held at 10:00 a.m., local time, on June 23, 1998, at the Four
Points Hotel located at 1850 Cotillion Drive, Atlanta, Georgia, and at any
adjournments and postponements thereof. The purpose of the Checkmate
Shareholders Meeting is to consider and vote upon a proposal to approve the
Combination Agreement and the consummation of the Merger and the other
transactions contemplated therein.
RECORD DATE, VOTING RIGHTS AND QUORUM
IVI. The IVI Board of Directors has fixed the close of business on May 12,
1998, as the record date for determining the IVI shareholders entitled to
receive notice of and to vote at the IVI Shareholders Meeting (the "IVI Record
Date"). Only holders of record of IVI Common Shares as of the IVI Record Date
are entitled to notice of and to vote at the IVI Shareholders Meeting. As of the
IVI Record Date, there were 9,255,131 IVI Common Shares issued and outstanding
held by 481 holders of record. Holders of IVI Common Shares are entitled to one
vote for each IVI Common Share held of record at the close of business on the
IVI Record Date. The quorum required at the IVI Shareholders Meeting is two
persons present in person, each being a shareholder entitled to vote thereat or
a duly appointed proxyholder for a shareholder so entitled, representing not
less than 20% of the issued and outstanding IVI Common Shares.
CHECKMATE. The Checkmate Board of Directors has fixed the close of business
on April 14, 1998, as the record date for determining the Checkmate shareholders
entitled to receive notice of and to vote at the Checkmate Shareholders Meeting
(the "Checkmate Record Date"). Only holders of record of Checkmate Common Stock
as of the Checkmate Record Date are entitled to notice of and to vote at the
Checkmate Shareholders Meeting. As of the Checkmate Record Date, there were
5,434,188 shares of Checkmate Common Stock issued and outstanding and held by
358 holders of record. Holders of Checkmate Common Stock are entitled to one
vote for each share of Checkmate Common Stock held of record at the close of
business on the Checkmate Record Date. The presence, in person or by properly
executed proxy, of the holders of a majority of the outstanding shares of
Checkmate Common Stock entitled to vote at the Checkmate Shareholders Meeting is
necessary to constitute a quorum.
VOTE REQUIRED
IVI. The approval and adoption of the Arrangement, the Combination
Agreement and the other transactions contemplated therein pursuant to an
arrangement resolution (the "Arrangement Resolution") requires the affirmative
vote of at least two-thirds of the votes cast in person or by proxy at the IVI
Shareholders Meeting. Members of the IVI Board of Directors will be elected by a
plurality of the votes cast by the holders of the IVI Common Shares present (in
person or by proxy) and entitled to vote at the IVI Shareholders Meeting. The
appointment of Coopers & Lybrand, Chartered Accountants, as independent auditors
of IVI must be approved by the affirmative vote of a majority of the votes cast
by the holders of IVI Common Shares present (in person or by proxy) and entitled
to vote at the IVI Shareholders Meeting. As of the IVI Record Date, IVI's
directors and executive officers, and its and their affiliates held
approximately 18% of the outstanding IVI Common Shares entitled to vote at the
IVI Shareholders Meeting. Pursuant to a Shareholders Agreement, Checkmate has
the power to vote approximately 16.7% of the outstanding IVI Common Shares in
favor of adoption of the Combination Agreement and approval of the Arrangement.
As of the IVI Record Date, Checkmate, its directors and executive officers, and
their
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affiliates did not hold any IVI Common Shares. See "The Combination
Agreement -- Other Agreements -- Shareholders Agreements."
CHECKMATE. Adoption of the Combination Agreement and consummation of the
Merger and the other transactions contemplated therein requires the affirmative
vote of the holders of a majority of the outstanding shares of Checkmate Common
Stock entitled to vote at the Checkmate Shareholders Meeting. As of the
Checkmate Record Date, Checkmate's directors and executive officers and its and
their affiliates held approximately 22.7% of the outstanding shares of Checkmate
Common Stock entitled to vote at the Checkmate Shareholders Meeting. Pursuant to
a Shareholders Agreement, IVI has the power to vote approximately 22.0% of the
outstanding shares of Checkmate Common Stock in favor of adoption of the
Combination Agreement and approval of the Merger. As of the Checkmate Record
Date, IVI, its directors and executive officers and their affiliates did not
hold any shares of Checkmate Common Stock. See "The Combination
Agreement -- Other Agreements -- Shareholder Agreements."
THE COMBINATION AGREEMENT
THE ARRANGEMENT. The Combination Agreement and the Plan of Arrangement
provide for the Arrangement whereby IVI will be reorganized to become a
subsidiary of the Company. At the Effective Time (as defined below) of the
Transaction, each issued and outstanding IVI Common Share (with certain
exceptions) will be exchanged with, at the option of the IVI shareholder, (i)
the Company for shares of Company Common Stock or (ii) IVI for Exchangeable
Shares, in each case on a one-for-one basis as set forth in the Combination
Agreement (the "IVI Exchange Ratio"). If a shareholder of IVI does not make an
election, then such shareholder will be deemed to have elected to receive
Exchangeable Shares. The Exchangeable Shares entitle holders thereof to
dividends and other rights economically equivalent to those of holders of shares
of Company Common Stock and, through a voting trust, the right to vote at
meetings of the Company's stockholders. See "The Transaction and Description of
Exchangeable Shares -- The Arrangement."
Holders of the Exchangeable Shares will be entitled, at any time following
the date the Transaction becomes effective (the "Effective Date"), to require
IVI and the Company to exchange such Exchangeable Shares for an equivalent
number of shares of Company Common Stock. Upon the tenth anniversary of the
Effective Date, or earlier in certain circumstances, there shall be an automatic
exchange of all then-outstanding Exchangeable Shares for an equivalent number of
shares of Company Common Stock. The one-to-one exchange ratio of the
Exchangeable Shares is subject to certain adjustments to maintain the economic
equivalence of the IVI Exchange Ratio as of the Effective Date. See "The
Transaction and Description of Exchangeable Shares -- The Arrangement."
THE MERGER. The Combination Agreement also provides for the merger of Sub,
a wholly owned subsidiary of the Company, with and into Checkmate, with
Checkmate as the corporation surviving the Merger and thereby becoming a wholly
owned subsidiary of the Company. At the Effective Time, each share of issued and
outstanding Checkmate Common Stock (with certain exceptions) shall cease to be
outstanding and shall be converted into and exchanged for the right to receive
1.2775 shares of Company Common Stock (the "Checkmate Exchange Ratio"). See "The
Transaction and Description of Exchangeable Shares -- The Merger." No holder of
Checkmate Common Stock will be entitled to elect to receive Exchangeable Shares.
FRACTIONAL SHARES. No fractional shares of Company Common Stock or
Exchangeable Shares will be issued in the Transaction, and no certificate will
be issued therefor. In addition, no consideration will be delivered in exchange
for fractional shares. Any holder of IVI Common Shares or shares of Checkmate
Common Stock who would otherwise receive a fractional share of Company Common
Stock or a fraction of an Exchangeable Share shall, upon surrender of his
certificate or certificates representing IVI Common Shares or Checkmate Common
Stock, receive a share certificate adjusted to the next lower whole number of
shares of Company Common Stock or Exchangeable Shares.
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EFFECTIVE TIME AND CLOSING DATE. If the Combination Agreement is adopted by
the requisite votes of the IVI shareholders and the Checkmate shareholders, all
required court and other consents and approvals are obtained, and the other
conditions to the obligations of the parties to consummate the Transaction are
either satisfied or waived (as permitted), (i) the Arrangement will be
consummated and will become effective on the date and at the time that a
Certificate of Arrangement reflecting the Arrangement is issued by the Director
under the Canada Business Corporations Act, as amended (the "CBCA"), and (ii)
the Merger will be consummated and effective on the date and at the effective
time specified in a Certificate of Merger, reflecting the Merger, filed with the
Secretary of State of the State of Georgia (the "Effective Time"). It is
anticipated that the Effective Time will occur on a date within two business
days of the obtaining of shareholder approvals and the required court approval,
provided all other conditions to the consummation of the Transaction are either
satisfied or waived. Court approval is expected on the day after the
Shareholders Meetings or shortly thereafter. Each of IVI and Checkmate has the
right, acting unilaterally, to terminate the Combination Agreement should the
Arrangement and the Merger not be consummated by July 31, 1998. See "The
Combination Agreement -- Effective Time and Closing Date" and "-- Amendment,
Waiver and Termination."
DELIVERY OF CERTIFICATES. In conjunction with the distribution of this
Joint Proxy Statement/Prospectus, each record holder of IVI Common Shares will
be mailed a Letter of Transmittal and Election Form (with instructions) to use
in effecting the surrender and cancellation of their certificates of IVI Common
Shares in exchange for certificates representing shares of Company Common Stock,
Exchangeable Shares or a combination thereof. Promptly after the Effective Time,
each record holder of Checkmate Common Stock will be mailed a Letter of
Transmittal to use in effecting the surrender and cancellation of their
certificates of Checkmate Common Stock in exchange for certificates representing
shares of Company Common Stock.
The Company will not be obligated to deliver the consideration to which any
former holder of IVI Common Shares or Checkmate Common Stock is entitled until
such holder surrenders such holder's certificate or certificates representing
such holder's IVI Common Shares or Checkmate Common Stock for exchange. The
certificate or certificates so surrendered must be duly endorsed as the exchange
agent may require. See "The Combination Agreement -- Distribution of
Certificates."
LISTING OF THE COMPANY COMMON STOCK AND EXCHANGEABLE SHARES. Listing of the
Company Common Stock on the Nasdaq National Market and listing of the Company
Common Stock and the Exchangeable Shares on the TSE are conditions to the
obligations of IVI and Checkmate to consummate the Transaction. The Company has
reserved the symbol "CMIV" for listing the Company Common Stock on the Nasdaq
National Market and the symbol "IVC" for listing the Company Common Stock on the
TSE. IVI intends to use its current symbol "IVI" for listing the Exchangeable
Shares on the TSE. IVI will not list the Exchangeable Shares on the Nasdaq
National Market or any U.S. national securities exchange.
CONVERSION OF STOCK OPTIONS. Upon consummation of the Arrangement and the
Merger, all rights with respect to IVI Common Shares and Checkmate Common Stock
pursuant to stock options granted by IVI and Checkmate under their respective
existing stock option plans, which are outstanding at the Effective Time,
whether or not exercisable, shall be converted into and become rights with
respect to Company Common Stock, and the Company shall assume each such option,
in accordance with the terms of the respective plan and stock option agreement
by which it is evidenced, after giving effect to the Exchange Ratios. See "The
Combination Agreement -- Conversion of Stock Options."
CONDITIONS TO CONSUMMATION. Consummation of the Transaction is subject to
various conditions, including among other matters, the following: (i) no stop
order suspending the effectiveness of the Registration Statement shall have been
issued and not withdrawn by the Commission and no litigation for that purpose or
similar proceeding in respect to the Joint Proxy Statement/Prospectus shall have
been initiated or threatened by the Commission or the OSC; (ii) adoption of the
Combination Agreement and the Arrangement or Merger, as the case may be, by the
requisite votes of the IVI shareholders and the
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Checkmate shareholders; (iii) receipt of all governmental and other consents,
approvals and rulings necessary to permit consummation of the Transaction,
including approval by the Ontario Court of Justice (General Division) (the
"Court") and all necessary rulings from the OSC and other relevant Canadian,
provincial and state securities regulatory authorities; (iv) the Company Common
Stock shall have been approved for listing on the Nasdaq National Market and the
TSE, subject to the fulfillment of all the requirements of the Nasdaq National
Market and the TSE; (v) the Exchangeable Shares shall have been approved for
listing on the TSE, subject to the fulfillment of all the requirements of the
TSE; (vi) neither IVI nor Checkmate shall have received notice of shareholders'
dissenters rights with respect to its shareholders which would prevent
pooling-of-interests accounting treatment under U.S. generally accepted
accounting principles ("U.S. GAAP") for the Transaction; (vii) execution of
affiliate agreements by all affiliates of IVI and Checkmate in the form provided
as an exhibit to the Combination Agreement (the "Affiliate Agreements"); (viii)
the representations and warranties of IVI and Checkmate contained in the
Combination Agreement shall be true and correct in all material respects as of
the Effective Date; (ix) there shall not have been a material adverse change
affecting IVI or Checkmate since the date of the Combination Agreement; (x) each
of IVI and Checkmate shall have received a letter from IVI's independent
auditors dated as of the Effective Date in a form satisfactory to them relating
to the availability of pooling-of-interests accounting treatment for the
Transaction; and (xi) satisfaction of certain other conventional conditions. The
foregoing are the material conditions to the consummation of the Transaction.
See "The Combination Agreement -- Conditions to Consummation."
CONDUCT OF BUSINESS PENDING THE TRANSACTION. Pursuant to the Combination
Agreement, IVI and Checkmate have agreed, among other things, to operate their
businesses prior to the Effective Date only in the ordinary course and in a
manner consistent with past practice. In addition, IVI and Checkmate have each
agreed not to take certain actions relating to the operation of IVI and
Checkmate, respectively, pending consummation of the Transaction without the
prior written consent of the other party, except as otherwise permitted by the
Combination Agreement, including among other things not to: (i) amend or change
its corporate governing documents; (ii) issue, sell, pledge, dispose of or
encumber any shares of its capital stock and other rights thereto; (iii) sell,
dispose of or encumber any properties other than in the ordinary course of
business; (iv) amend or change the period or exercisability of options or
authorize cash payments in exchange for options; (v) declare or pay dividends or
other distributions on, split, combine or reclassify, or amend, repurchase,
redeem or otherwise acquire, any of its or its subsidiaries' capital stock; (vi)
sell, license or otherwise transfer any of its intellectual property rights;
(vii) acquire any other Person (as defined below); (viii) incur indebtedness,
except in the ordinary course of business; (ix) authorize capital expenditures
in excess of $1 million; (x) increase compensation payable to its officers or
employees, except in the ordinary course of business; (xi) enter into any
employment or severance agreements or establish, adopt, terminate or amend any
employee benefit plans, except in the ordinary course of business; (xii) change
accounting policies; (xiii) make any tax election inconsistent with past
practices; (xiv) pay, discharge or satisfy any material litigation or other
liabilities; (xv) modify, amend or terminate or waive or assign its rights under
any material contracts; (xvi) take any action which would jeopardize pooling-of-
interests accounting treatment under U.S. GAAP; and (xvii) take any action which
would make any of the representations and warranties made by such party untrue
in any material respect or would prevent the party from performing its covenants
under the Combination Agreement for the Transaction. See "The Combination
Agreement -- Conduct of Business Pending the Transaction."
TERMINATION. The Combination Agreement can be terminated and the
Transaction abandoned: (i) by mutual written consent of the parties; (ii) by
either party if the Transaction shall not have been consummated by July 31,
1998; (iii) by either party if a court of competent jurisdiction or other
governmental entity shall have issued a non-appealable final order or taken any
other action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Transaction; (iv) by either party, if, at
either of the Shareholders Meetings, the requisite affirmative vote of the
shareholders of such party shall not have been obtained; (v) by either party if
(a) the board of directors of the other company shall withdraw, modify or change
its recommendation of the Combination Agreement or the
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Transaction in a manner adverse to the other party or shall have failed to call
a special meeting; or (b) the board of directors of the other company shall have
taken a "neutral" position with respect to (or shall have failed to reject as
inadequate, or shall have failed to reaffirm its recommendation of the
Combination Agreement and the Transaction within 10 business days after the
public announcement or commencement of) an Acquisition Proposal (as defined
below); (vi) by either company upon a breach of any representation, warranty,
covenant or agreement on the part of the other company set forth in the
Combination Agreement or if any representation or warranty of a company shall
have become untrue, in either case, such that the conditions to closing could
not be satisfied after a specified period for curing such breach or inaccuracy;
(vii) by either company by written notice to the other company, at any time
prior to the Effective Time, that a Person has made a Superior Proposal (as
defined below), provided that the other company does not make, within five
business days of the aforesaid notice, an offer that the board of directors of
the company subject to such Superior Proposal believes, in its good faith
judgment, is at least as favorable, from a financial point of view, to the
shareholders of such company as such Superior Proposal; and (viii) by either
company by written notice to the other company if prior to the Effective Time
the board of directors of such company shall have withdrawn or modified or
amended, in a manner adverse to the other company, its approval of the
Combination Agreement or its recommendation that the shareholders of such
company adopt and approve the Combination Agreement in order to permit such
company to execute a definitive agreement providing for the consummation of a
Superior Proposal with respect to such company, provided that such party has
complied with the no solicitation provisions of the Combination Agreement. See
"The Combination Agreement -- Amendment, Waiver and Termination."
EXPENSES AND FEES. The Combination Agreement provides that, except as
otherwise set forth in the no solicitation provision of the Combination
Agreement (as described in the next sentence), each of IVI and Checkmate shall
be responsible for the fees and expenses of its own legal counsel, accountants,
investment bankers and other professional advisors in connection with the
Combination Agreement and the Transaction. If (i) a third party has made an
Acquisition Proposal, (ii) the Combination Agreement is terminated because the
board of directors of the company subject to the Acquisition Proposal takes
certain actions favorable to the adoption of the Acquisition Proposal or
unfavorable to the adoption of the Combination Agreement or determines that such
Acquisition Proposal is a Superior Proposal and the other company does not match
such proposal, or because the other company has breached a representation,
warranty or covenant contained in the Combination Agreement and (iii) a
transaction related to any Acquisition Proposal is consummated within twelve
months following the termination of the Combination Agreement, then the party to
whom such Acquisition Proposal was made shall pay to the other party a fee of
$3,000,000, as liquidated damages and not as a penalty, together with
reimbursement of all reasonable out-of-pocket costs, fees and expenses,
including without limitation, the reasonable fees and disbursements of banks,
investment banks, accountants and legal counsel and the expenses of any
litigation incurred in connection with collecting such fee. See "The Combination
Agreement -- Conduct of Business Pending the Transaction -- No Solicitation."
All fees and expenses incurred in connection with the Combination Agreement
and the Transaction by the Company and Sub, including, without limitation, fees
and expenses incurred with respect to the incorporation and organization of each
of them and fees paid for the preparation of, and registration fees and filing
fees paid with respect to, the Registration Statement and Joint Proxy
Statement/Prospectus shall be shared on an equal basis by IVI and Checkmate,
whether or not the Transaction is consummated. See "The Combination Agreement --
Expenses and Fees."
REASONS FOR THE TRANSACTION
JOINT REASONS FOR THE TRANSACTION
IVI and Checkmate believe that the combination of the two companies will
allow them to combine their individual resources to enhance their ability to
compete in the market for payment automation
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solutions. The combined companies expect to benefit from more effectively
utilizing each company's respective strengths, including IVI's Canadian
presence, Checkmate's U.S. presence and IVI's and Checkmate's distinct product
lines, and from anticipated ongoing cost savings and efficiencies in operations
of approximately $3 million following the Transaction which are expected to
result primarily from the combination of the Company's U.S. operations and the
consequent reduction in U.S. personnel.
IVI'S REASONS FOR THE TRANSACTION; RECOMMENDATION OF THE IVI BOARD OF
DIRECTORS
The Board of Directors of IVI, with the assistance of outside financial and
legal advisors, has reviewed the proposed Transaction and has concluded that the
Transaction is fair to, and in the best interests of, IVI and its shareholders.
Accordingly, the IVI Board has unanimously approved the Combination Agreement,
the Arrangement and the other transactions contemplated thereby and recommends
that IVI shareholders vote FOR the Arrangement Resolution. Certain members of
the Board of Directors of IVI have conflicting interests in the Transaction. See
"The Transaction -- Interests of Certain Persons in the Transaction" and "The
Companies After the Transaction."
The Board of Directors of IVI considered the following material factors in
reaching its decision:
(a) the respective businesses, financial condition, results of
operations, management teams and business prospects of IVI and Checkmate
before and after giving effect to the Transaction, and the potential savings
inherent in eliminating redundant operations and administrative overhead by
closing IVI's Boulder, Colorado facility and consolidating the
administrative operations of the two companies;
(b) the complementary products, markets and strategic outlooks of the
two companies;
(c) the Board's belief that this strategic combination will result in a
larger combined company which will be more competitive on a North American
and international basis, and will be in a stronger position than IVI
operating independently in a competitive industry undergoing consolidation
to deal with suppliers, customers and distributors;
(d) the fact that the Company will offer a broader product line which
the Board believes will enhance the Company's ability to compete with other
companies in its industry;
(e) the Board's belief that the Company will benefit from the sharing of
technological knowledge between IVI and Checkmate;
(f) the current and historical market prices, volatility and trading
information of the stock of the two companies, the consideration to be paid
to Checkmate shareholders, including any premium represented by that
consideration, and the possible dilution to IVI shareholders resulting from
the Transaction;
(g) the anticipated accounting and Canadian/U.S. tax treatment of the
Transaction;
(h) IVI's and Checkmate's per share earnings (loss) before interest and
taxes and certain other important financial measurements;
(i) the terms of the Combination Agreement, including the parties'
mutual representations, warranties and covenants, and the conditions to the
respective obligations, including the accounting for the Transaction as a
pooling-of-interests under U.S. GAAP and the fact that, if the Transaction
is not consummated for certain reasons, IVI may have an obligation to
reimburse Checkmate for expenses;
(j) the financial analysis and written opinion of BancAmerica Robertson
Stephens ("Robertson Stephens") dated January 15, 1998, to the Board of
Directors of IVI that, as of such date and based on the matters described
therein, the Checkmate Exchange Ratio (in light of the IVI Exchange Ratio)
is
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fair to IVI, from a financial point of view. See "The Transaction --
Opinions of Financial Advisors -- Robertson Stephens Opinion;"
(k) after consummation of the Transaction, the Company Common Stock will
have a significantly larger market float and greater liquidity than the IVI
Common Shares;
(l) the fact that the Exchangeable Shares provide a holder with a
security of a Canadian issuer having economic and voting rights which are,
as nearly as practicable, equivalent to those of a share of Company Common
Stock and the fact that the Exchangeable Shares generally may be received on
a tax deferred rollover basis and will not constitute "foreign property"
under the Canadian Tax Act (as defined below). See "Income Tax
Considerations to IVI Shareholders;"
(m) the need to build upon the foundation laid with the acquisition of
Soricon Corporation in 1994 to increase IVI's penetration into the U.S.
market where opportunities for growth are greater than in the Canadian
market; and
(n) the risk that the potential benefits set forth above may not be
realized;
(o) the risk that there may be unexpected costs associated with
realizing such benefits;
(p) the risk that the integration of the operations of the two companies
may not be successfully completed in a timely or cost-effective manner; and
(q) the potential adverse effects of the reduction in the number of
qualified employees due to the Transaction. See "Risk Factors."
The Board of Directors of IVI did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weight to the specific factors
considered in making its determination to enter into the Combination Agreement.
See "The Companies After the Transaction -- Plans and Proposals."
CHECKMATE'S REASONS FOR THE TRANSACTION; RECOMMENDATION OF THE CHECKMATE
BOARD OF DIRECTORS
The Board of Directors of Checkmate has reviewed and evaluated the proposed
Transaction and has concluded that the Transaction is fair to, and in the best
interests of, Checkmate and its shareholders and has unanimously approved the
Combination Agreement and the Transaction. The Checkmate Board of Directors
recommends that Checkmate shareholders vote FOR approval of the Combination
Agreement and the Transaction. Certain members of the Board of Directors of
Checkmate have conflicting interests in the Transaction. See "The Transaction --
Interests of Certain Persons in the Transaction" and "The Companies After the
Transaction."
The evaluation by the Board of Directors of Checkmate was conducted with the
assistance of outside financial and legal advisors. In reaching its decision,
the Board considered the following material factors:
(a) the Board's belief that the Transaction (i) will provide Checkmate a
larger market in North America for distribution of its products, and
potential international distribution through Ingenico S.A., a French public
company which manufactures smart card products and a holder of approximately
16.7% of the IVI Common Shares ("Ingenico"); (ii) will enhance Checkmate's
engineering and product development efforts, which is critical in the market
for payment automation equipment because the primary source of revenues in
such market is in the initial sale of equipment to customers; and (iii) will
provide a broader, deeper and more experienced management team;
(b) the Checkmate Board's belief that the combined company should (i) be
able to offer a broader product line than Checkmate alone would be able to
offer; (ii) have enhanced bargaining strength in dealing with its suppliers,
customers, distributors and software licensors; (iii) benefit from sharing
technical knowledge between Checkmate and IVI; and (iv) be able to
reallocate its resources to areas with greater potential for revenue growth
as a result of reductions in personnel costs, facility costs and other costs
resulting from the consolidation of the operations of the two companies;
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(c) IVI's and Checkmate's respective businesses, assets, technology,
management, competitive position and prospects and current conditions and
trends in the markets and industries in which they operate;
(d) Checkmate's prospects as an independent entity;
(e) the financial condition, results of operations and businesses of IVI
and Checkmate before and after giving effect to the Transaction;
(f) current market conditions and historical market prices, volatility
and trading information with respect to the IVI Common Shares and the shares
of Checkmate Common Stock;
(g) the market value of the IVI Common Shares and the shares of
Checkmate Common Stock and both companies' per share earnings (loss) before
interest and taxes and certain other important financial measurements;
(h) a comparison of selected acquisition transactions within the
computer peripheral manufacturing sector (See "The Transaction -- Opinions
of Financial Advisors");
(i) the terms of the Combination Agreement, including the parties'
mutual representations, warranties and covenants, the conditions to their
respective obligations and the accounting for the Transaction as a
pooling-of-interests under U.S. GAAP;
(j) the oral advice and written opinion of BT Alex. Brown Incorporated
("BT Alex. Brown") as to the fairness, from a financial point of view, of
the Checkmate Exchange Ratio to Checkmate's shareholders;
(k) the risk that the potential benefits set forth above may not be
realized;
(l) the risk that there may be higher than expected costs associated
with realizing such benefits;
(m) the risk that the integration of the operations of the two companies
may not be successfully completed in a timely and cost-effective manner; and
(n) the potential adverse effects of the reduction in the number of
qualified employees due to the Transaction. See "Risk Factors."
The Board of Directors of Checkmate did not find it practicable to, and did
not, quantify or otherwise attempt to assign relative weights to the specific
factors considered in making its determination.
THE COMPANIES AFTER THE TRANSACTION
The Company currently conducts no business other than in connection with the
Transaction. If the Transaction is consummated, IVI and Checkmate will become
subsidiaries of the Company. Upon completion of the Transaction, the Company's
business will be to own all of the voting capital stock of IVI and all of the
capital stock of Checkmate and to manage the businesses of IVI and Checkmate and
their subsidiaries. See "Risk Factors -- Effect of Holding Company Structure."
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The following are two charts which describe the current organizational
structure of the Company, IVI and Checkmate and their subsidiaries and the
structure of such entities after giving effect to the Transaction:
[LOGO]
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On the Effective Date, the Company's Board of Directors will be comprised of
nine members, including three designees of IVI, three designees of Checkmate and
three independent directors mutually agreed upon by IVI and Checkmate which will
include up to two nominees of Ingenico.
Upon consummation of the Transaction, Mr. J. Stanford Spence (Chairman of
the Board and Chief Executive Officer of Checkmate) will become Chairman of the
Board of the Company, Mr. George Whitton (Chairman of the Board of IVI) will
become Vice Chairman of the Board of the Company, Mr. L. Barry Thomson
(President and Chief Executive Officer of IVI) will become President and Chief
Executive Officer of the Company and Mr. John J. Neubert (Senior Vice President
- -- Finance and Administration and Chief Financial Officer of Checkmate) will
become Executive Vice-President and Chief Financial Officer of the Company. See
"The Companies After the Transaction" and "The Transaction -- Interests of
Certain Persons in the Transaction."
It is anticipated that, upon the consummation of the Transaction, the
Company will implement the IVI Checkmate Corp. 1998 Long-Term Incentive Plan for
employees (the "Incentive Plan") and the IVI Checkmate Corp. 1998 Directors
Stock Option Plan for non-employee directors (the "Director Plan"). The Company
has reserved 2,500,000 and 250,000 shares of Company Common Stock to be issued
pursuant to the exercise of options and other awards granted under the Incentive
Plan and Director Plan, respectively. See "The Companies After The
Transaction--Company Stock Option Plans."
After consummation of the Transaction, the principal executive offices and
headquarters of the Company will be 1003 Mansell Road, Roswell, Georgia 30076,
and the telephone number will be (770) 594-6000.
OPINIONS OF FINANCIAL ADVISORS
Robertson Stephens, the financial advisor to IVI, delivered its opinion,
dated January 15, 1998 (the "Robertson Stephens Opinion"), that, as of such date
and based on the assumptions made, matters considered and limitations of review
set forth therein, the Checkmate Exchange Ratio (in light of the IVI Exchange
Ratio) is fair to IVI, from a financial point of view. BT Alex. Brown, the
financial advisor to Checkmate, delivered a written opinion dated January 16,
1998 (the "BT Alex. Brown Opinion"), that, as of such date, the Checkmate
Exchange Ratio is fair, from a financial point of view, to Checkmate's
shareholders. The full texts of the Robertson Stephens Opinion and the BT Alex.
Brown Opinion, which describe the procedures followed, assumptions made,
limitations on the review taken and other matters considered in connection with
rendering such opinions, are set forth in Annex F and Annex G, respectively, to
this Joint Proxy Statement/Prospectus and should be read in their entirety by
the IVI shareholders and the Checkmate shareholders, respectively. For
additional information regarding the opinions of Robertson Stephens and BT Alex.
Brown, and a discussion of the qualifications of each financial advisor, see
"The Transaction -- Opinions of Financial Advisors."
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Certain members of the management and the Boards of Directors of IVI and
Checkmate, as well as Ingenico, have interests in the Transaction in addition to
their interests as shareholders of IVI or Checkmate generally. These include,
among other things, the assumption by the Company of the contractual rights and
obligations of IVI with respect to Ingenico, including the right of Ingenico to
maintain up to a 15% stock ownership interest in the Company, provisions in the
Combination Agreement relating to indemnification and eligibility for certain
Company employee benefits and provisions in agreements between IVI or Checkmate
and certain of their respective executive officers regarding severance. See "The
Companies After the Transaction" and "The Transaction -- Interests of Certain
Persons in the Transaction."
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ACCOUNTING TREATMENT
It is anticipated that the Transaction will be accounted for under the
pooling-of-interests method of accounting under U.S. GAAP. See "The
Transaction--Anticipated Accounting Treatment."
CERTAIN TAX CONSEQUENCES
IVI CANADIAN SHAREHOLDERS. It is the opinion of Meighen Demers, Canadian
counsel to IVI, that Canadian resident holders of IVI Common Shares who exchange
all, but not less than all, of their IVI Common Shares for Exchangeable Shares
should not realize a capital gain for the purposes of the Canadian Tax Act on
such exchange. On the exchange of an Exchangeable Share by the holder thereof
with the Company for a share of Company Common Stock, the holder should realize
a capital gain (or a capital loss) equal to the amount by which the proceeds of
disposition of the Exchangeable Share, net of any reasonable costs of
disposition, exceed (or are exceeded by) the adjusted cost base to the holder of
the Exchangeable Share. The U.S. Internal Revenue Service (the "Service") may
assert that U.S. withholding tax is payable with respect to dividends paid on
the Exchangeable Shares to Canadian holders. Holders of IVI Common Shares who
dissent from the Arrangement in the manner set out in Section 190 of the CBCA
will be entitled, in the event that the Arrangement becomes effective, to be
paid by IVI the fair value of their IVI Common Shares. Such shareholder will
generally be considered to have realized a deemed dividend and capital gain (or
capital loss) based on redemption proceeds equal to such fair value. Dissenting
IVI shareholders should consult their own tax advisors in respect of the
treatment of such deemed dividends. See "Material Income Tax Considerations to
IVI Shareholders -- Canadian Federal Income Tax Considerations."
IVI U.S. SHAREHOLDERS. It is the opinion of Morgan, Lewis & Bockius LLP,
U.S. counsel to IVI, that U.S. holders of IVI Common Shares that receive shares
of Company Common Stock pursuant to the Arrangement should qualify for
nonrecognition of gain or loss under Section 351 of the Internal Revenue Code of
1986, as amended (the "Code"). There is, however, no direct authority addressing
the proper treatment of the Arrangement for United States federal income tax
purposes, and, therefore, such conclusion is subject to uncertainty. If the
exchange of IVI Common Shares for shares of Company Common Stock does not
qualify for nonrecognition treatment under Section 351, then a U.S. holder that
exchanges IVI Common Shares for Company Common Stock will recognize gain or loss
equal to the difference between the fair market value of the shares of Company
Common Stock and such U.S. holder's tax basis in the IVI Common Shares exchanged
therefor. See "Material Income Tax Considerations to IVI Shareholders -- United
States Federal Income Tax Considerations."
THE TAX CONSEQUENCES ARISING ON THE RECEIPT OF COMPANY COMMON STOCK WILL
DIFFER MATERIALLY FROM THE TAX CONSEQUENCES ARISING ON THE RECEIPT OF
EXCHANGEABLE SHARES, VOTING RIGHTS AND EXCHANGE RIGHTS. UNITED STATES HOLDERS
ARE URGED TO REVIEW THESE TAX CONSIDERATIONS WITH THEIR OWN TAX ADVISORS PRIOR
TO MAKING ANY ELECTION UNDER THE ARRANGEMENT. SEE "MATERIAL INCOME TAX
CONSIDERATIONS TO IVI SHAREHOLDERS -- UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS."
EACH UNITED STATES HOLDER AND CANADIAN HOLDER IS ADVISED TO CONSULT ITS OWN
TAX ADVISOR IN DETERMINING THE SPECIFIC CONSEQUENCES TO SUCH HOLDER OF THE
ARRANGEMENT AND THE OWNERSHIP AND DISPOSITION OF IVI COMMON SHARES, COMPANY
COMMON STOCK, EXCHANGEABLE SHARES, VOTING RIGHTS AND EXCHANGE RIGHTS, INCLUDING
THE APPLICATION TO ITS PARTICULAR SITUATION OF THE TAX CONSIDERATIONS DISCUSSED
HEREIN, AS WELL AS THE APPLICATION OF STATE, PROVINCIAL, LOCAL OR OTHER TAX
LAWS. SEE "MATERIAL INCOME TAX CONSIDERATIONS TO IVI SHAREHOLDERS."
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CHECKMATE SHAREHOLDERS. It is the opinion of Alston & Bird LLP, counsel to
Checkmate, that the Merger will qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Code. No Service private letter ruling
regarding the United States tax consequences of the Merger has been or will be
secured in connection with the Merger. Assuming that the Merger qualifies as a
tax-free reorganization, no gain or loss will be recognized for federal income
tax purposes by Checkmate shareholders as a result of the Merger, except that
gain or loss will be recognized by Checkmate shareholders who receive cash as a
result of the exercise of dissenters rights. A discussion of matters regarding
qualification for tax-free reorganization treatment of the Merger is set forth
in "Material U.S. Federal Income Tax Consequences to Checkmate Shareholders."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER AND OTHER FACTORS, AND BECAUSE
VARIOUS FACTUAL MATTERS MUST BE RESOLVED FAVORABLY FOR TAX-FREE REORGANIZATION
TREATMENT TO APPLY, EACH HOLDER OF CHECKMATE COMMON STOCK IS URGED TO CONSULT
SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES OF
THE MERGER TO SUCH HOLDER (INCLUDING THE APPLICATION AND EFFECT OF FOREIGN,
STATE AND LOCAL INCOME AND OTHER TAX LAWS).
RESALE OF EXCHANGEABLE SHARES AND COMPANY COMMON STOCK
In the United States, the Company Common Stock and Exchangeable Shares
issued in connection with the Transaction will be freely transferable by the
holders of such shares, except for those holders who may be deemed to be
"affiliates" (generally including directors, certain executive officers and
holders of 10% or more of the outstanding capital stock) of IVI, Checkmate or
the Company under applicable federal securities laws. In addition, prior to the
consummation of the Transaction, the Company, IVI and Checkmate will enter into
Affiliate Agreements with their affiliates (as such term is defined pursuant to
Rule 145 under the Securities Act, "Affiliates"), respectively, pursuant to
which such persons will agree that they will not sell, transfer or otherwise
dispose of Company Common Stock or Exchangeable Shares unless such transaction
is permitted by Rule 145 of the Securities Act, such transaction is registered
under the Securities Act or such transaction is exempt from registration under
the Securities Act. The issuance of Company Common Stock to IVI shareholders
will be effected pursuant to statutory exemptions from the prospectus and
registration requirements of applicable provincial securities legislation. The
Company and IVI have applied for and expect to receive rulings or orders of
certain provincial securities regulatory authorities in Canada to permit the
issuance to IVI shareholders of the Exchangeable Shares and Company Common Stock
issuable in exchange for Exchangeable Shares and to permit resale of the
Exchangeable Shares and Company Common Stock in such provinces without
restriction by a shareholder other than a "control person," which is defined
generally to include a person or company that alone or in combination with
others holds more than 20% of the outstanding voting securities of the issuer.
See "The Transaction -- Resale of Exchangeable Shares and Company Common Stock
Received in the Transaction" and "The Combination Agreement -- Other Agreements
- -- Affiliate Agreements."
DISSENTERS RIGHTS
IVI. Registered shareholders of IVI Common Shares are permitted to dissent
from the Arrangement in the manner set out in Section 190 of the CBCA. A
dissenting IVI shareholder will be entitled, in the event the Arrangement
becomes effective, to be paid by IVI the "fair value" of the IVI Common Shares
held by such holder determined as of the appropriate date. The procedures to be
followed by dissenting shareholders are summarized under "Dissenting
Shareholders' Rights," and a copy of the applicable CBCA statutory provisions is
set forth in Annex D to this Joint Proxy Statement/Prospectus. Failure to follow
such provisions precisely may result in the loss of appraisal rights.
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CHECKMATE. Each holder of Checkmate Common Stock who perfects his
dissenters rights is entitled to the rights and remedies of a dissenting
shareholder under Title 14, Chapter 2, Article 13 of the Georgia Business
Corporation Code (the "GBCC"), subject to compliance with the procedures set
forth therein. Among other things, a dissenting shareholder who has perfected
his dissenters rights is entitled to receive an amount in cash equal to the
"fair value" of such holder's shares. A copy of Title 14, Chapter 2, Article 13
of the GBCC is set forth in Annex E of this Joint Proxy Statement/Prospectus,
and a summary thereof is included under "Dissenting Shareholders' Rights." To
perfect dissenters rights, a shareholder must comply with Title 14, Chapter 2,
Article 13 of the GBCC which requires the shareholder, among other things, to
deliver to Checkmate, prior to the vote of the shareholders at the Checkmate
Shareholders Meeting, written notice of such holder's intention to demand
payment for his shares if the Merger is effectuated and not to vote such
holder's shares in favor of the Combination Agreement or the Merger. Any
Checkmate shareholder who returns a signed proxy but fails to provide
instructions as to the manner in which such holder's shares are to be voted will
be deemed to have voted in favor of the Combination Agreement and the Merger and
thus will not be entitled to assert dissenters rights.
TERMINATION OF CHECKMATE RIGHTS PLAN
Pursuant to the Combination Agreement, Checkmate has agreed to terminate, as
of the Effective Date, all rights outstanding under the Shareholder Rights
Protection Plan dated as of October 13, 1997, by and between Checkmate and First
Union National Bank, as rights agent, as amended (the "Checkmate Rights Plan").
COURT APPROVAL
In addition to approval by IVI shareholders, the Arrangement requires
approval by the Court. Prior to the mailing of this Joint Proxy
Statement/Prospectus, IVI obtained an interim order of the Court (the "Interim
Order") providing for the calling and holding of the IVI Shareholders Meeting
and other procedural matters. Subject to approval of the Arrangement by the IVI
shareholders at the IVI Shareholders Meeting, the hearing in respect of the
final order of the Court (the "Final Order") is scheduled to take place on June
25, 1998 at 10:00 a.m. (Toronto time) in the Court. All IVI shareholders who
wish to participate or be represented or to present evidence or arguments at
that hearing must serve and file a notice of appearance as set out in the Notice
of Petition for the Final Order and satisfy any other requirements. At the
hearing of the application in respect of the Final Order, the Court will
consider, among other things, the fairness and reasonableness of the
Arrangement. The Court may approve the Arrangement as proposed or as amended in
any manner the Court may direct, subject to compliance with such terms and
conditions, if any, as the Court deems fit. If the Court were to amend the
Arrangement such that an amendment to the Combination Agreement would be
necessary or desirable, such amendment may be made by the parties' respective
Boards of Directors, provided that no such amendment would require further
approval under applicable law. If the Court makes a determination that the terms
and conditions of the exchange provided for in the Arrangement are fair and
approves the Arrangement, the issuance of the Exchangeable Shares by IVI under
the Arrangement to IVI shareholders in exchange for IVI Common Shares shall be
exempt from registration under the Securities Act pursuant to Section 3(a)(10)
thereof.
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RISK FACTORS
AN INVESTMENT IN THE COMPANY COMMON STOCK OR EXCHANGEABLE SHARES INVOLVES A
HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE TRANSACTION, THE COMPANY COMMON STOCK AND THE EXCHANGEABLE
SHARES. THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS" RELATING TO, WITHOUT LIMITATION, FUTURE ECONOMIC PERFORMANCE, PLANS
AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS AND OTHER FINANCIAL ITEMS
THAT ARE BASED ON THE BELIEFS OF, AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION
CURRENTLY KNOWN TO, MANAGEMENT OF IVI AND CHECKMATE. THE WORDS "MAY," "WOULD,"
"COULD," "WILL," "EXPECT," "ESTIMATE," "ANTICIPATE," "BELIEVE," "INTENDS,"
"PLANS" AND SIMILAR EXPRESSIONS AND VARIATIONS THEREOF ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THE CAUTIONARY STATEMENTS SET FORTH IN THIS "RISK
FACTORS" SECTION AND ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS IDENTIFY
IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS, INCLUDING
CERTAIN RISKS AND UNCERTAINTIES, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS.
RISKS ASSOCIATED WITH THE INTEGRATION OF THE TWO COMPANIES
The Combination Agreement, the Arrangement and the Assignment, Assumption
and Consent Agreement contemplate the combination of the business activities of
IVI and Checkmate under the Company. The Transaction will result in the
integration of IVI and Checkmate, which have previously operated independently.
The consolidation of functions, the integration of departments, systems and
procedures, and the relocation and loss of essential employees present
significant management challenges. There can be no assurance that such actions
will be successfully accomplished as rapidly as currently expected. Moreover,
although one of the primary purposes of the Transaction is to realize direct
cost savings and other operating efficiencies, there can be no assurance of the
extent to which any such cost savings and efficiencies will be achieved. Failure
to successfully integrate the operations of IVI and Checkmate in a timely manner
and to realize cost savings and other operating efficiencies could have a
material adverse effect on the financial condition and results of operations of
the Company. In addition, such integration may require the licensing or other
transfer of proprietary or currently licensed rights as well as the assumption
of certain obligations by and between the various parties that may give rise to
adverse tax consequences both immediately and on an ongoing basis. See "The
Companies After the Transaction" and "-- Dependence on Key Personnel."
TECHNOLOGICAL CHANGE AND PRODUCT OBSOLESCENCE; DEPENDENCE ON NEW PRODUCT
DEVELOPMENT
The EFT/POS and transaction automation markets in which IVI and Checkmate
compete have been characterized by rapid and significant technological change,
frequent new product introductions and relatively short product life cycles.
There can be no assurance that technological developments will not render IVI's
and Checkmate's existing products either uneconomical or obsolete, or that the
Company will be able to respond to the market's demand for new products or
improved technology. The Company's future sales and profitability will depend on
its ability to continue to develop and market new and improved products that can
achieve significant market acceptance. Current competitors or new market
entrants could introduce new or enhanced products with features which render the
Company's products obsolete or less marketable. Each of IVI and Checkmate
continually seeks to enhance and improve its products and develop new products,
particularly in the area of software. Substantial start-up costs are associated
with the introduction of new products, which could cause the Company to incur
operating losses or experience a reduced level of profitability in periods
following their introduction. Further, unanticipated technical or other
development problems could result in material delays in new product
commercialization or significantly increased costs. There can be no assurance
that any new product will receive market acceptance or that the product can be
sold at a profit. The ability of the Company to compete successfully will depend
on its ability to maintain a technically competent research and development
staff and to adapt to technological changes and advances in the industry. In
addition, future demand for the products of IVI
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<PAGE>
and Checkmate will depend on their ability to enhance and improve existing
products and successfully develop and market new products. There can be no
assurance that after the Transaction the Company will be able to successfully
enhance its existing products or develop new products or that any such enhanced
or new products will be commercially acceptable. See "International Verifact
Inc." and "Checkmate Electronics, Inc."
RELIANCE ON LARGE CUSTOMERS
IVI and Checkmate have historically relied upon a small number of large
financial institution and retail customers, each with a large number of POS
stations, for a significant percentage of their respective revenues. In 1996 and
1997, 43% and 28%, respectively, of IVI's total revenues were derived from two
Canadian chartered banks, which in turn market and distribute this equipment to
end users and provide continuing service on such equipment. If either of these
banks ceased to be a customer, it could have a material adverse effect on the
Company's financial position. Checkmate's two largest customers are Wal-Mart
Corporation and Kmart Corporation, sales to which accounted for 17% and 10% of
Checkmate's total net revenues in 1997, respectively. During 1996, sales to two
of Checkmate's customers accounted for 28% of Checkmate's total net revenues.
IVI, except with respect to its bank customers, and Checkmate derive most of
their respective revenues from the initial installation of products. IVI and
Checkmate do, however, derive additional revenues as their customers expand
their operations to new locations or install other products. Accordingly, the
Company's future success will depend on its continued ability to successfully
market its products to retail customers with a large number of POS stations and
to large financial institutions. There can be no assurance that the Company will
continue to secure the business of a significant number of new customers or that
demand for the Company's products will be sufficient to ensure a broad and
sustainable source of revenue. In addition, the timing of orders from large
customers, and shipments against those orders, can result in significant quarter
to quarter variations in revenue and profit. See "International Verifact Inc.,"
"Checkmate Electronics, Inc." and "The Companies After the Transaction."
HIGHLY COMPETITIVE INDUSTRY
The industry in which IVI and Checkmate operate is highly competitive. The
Company's sales and potential profitability will be affected by competition from
other businesses, including established firms with greater financial resources
and more experience, as well as by competition from other forms of data entry.
IVI faces intense competition from others in the EFT/POS industry, such as
VeriFone, Inc. and Hypercom Corp. in the U.S. market and NBS Technologies Inc.
and VeriFone, Inc. in Canada. Checkmate also faces significant competition from
VeriFone, Inc. and is aware of at least five other competitors which market
check readers, including four with MICR reading capabilities. In addition,
payment authorization systems, signature capture and verification products and
specialized document readers are marketed by a number of competitors and
additional competitors may enter the market as the demand for these types of
products expands. Some of these existing and potential competitors have
significantly larger financial, technical and marketing resources than the
Company, even after the Transaction, and there can be no assurance that the
Company will be able to compete successfully with them in the future.
IVI and Checkmate anticipate that the Company will continue its efforts to
lower the cost of its products through manufacturing efficiencies and other cost
saving measures to maintain competitive prices for its products. The Company's
continuing sales and marketing efforts will be critical as it faces competition
in the marketplace. There can be no assurance that the Company will be able to
develop or sustain a competitive position for its products. Although IVI and
Checkmate have no specific information regarding the plans of their competitors,
they assume that their competitors are continuously working on product
enhancements, improved technologies and alternative products. There can be no
assurance that a competitor will not develop improved or alternative products in
the future which could have a material
16
<PAGE>
adverse effect on the Company's business, financial condition or results of
operations. See "International Verifact Inc." and "Checkmate Electronics, Inc."
DEPENDENCE ON PROPRIETARY TECHNOLOGY; LIMITED PROTECTION OF PROPRIETARY
TECHNOLOGY AND RISK OF INFRINGEMENT
IVI and Checkmate each rely on technologies that are protected by a
combination of patents, trademarks, trade secrets, copyrights and employee
nondisclosure agreements. While IVI currently holds several U.S. and Canadian
patents, IVI mainly relies on copyright to protect its operating system and
various other software programs. Checkmate's hand readers incorporate technology
covered by a U.S. patent that expires in 2008. The technique employed to enable
Checkmate's readers to use "parasitic" power from lower power sources
incorporates technology covered by a U.S. patent that expires in 2013. Upon the
expiration of these patents, the Company's competitors may be able to
incorporate the technology covered by these patents into their products which
could have a material adverse effect on the Company's business, financial
condition or results of operations. See "International Verifact Inc." and
"Checkmate Electronics, Inc."
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. There can be
no assurance that the Company's means of protecting its proprietary rights will
be adequate. The Company does not believe that any of its products infringe the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to current
or future products, and IVI and Checkmate have agreed, and the Company is
expected, to indemnify many of its customers against such claims. The Company
anticipates that the number of infringement claims will increase as the number
of electronic commerce products and services increase and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming to address, result in costly litigation,
and may not be resolved on terms acceptable to the Company, or at all, which
could have a material adverse effect on the Company's business, financial
condition or results of operations.
DEPENDENCE ON SUPPLIERS AND MANUFACTURERS
Checkmate currently assembles most of its products at its manufacturing
facility in Roswell, Georgia. However, certain components used in these products
are manufactured by and are available from only a limited number of sources. In
addition, all components used in IVI's products are purchased from third party
sources, and all of IVI's products, and some of Checkmate's products, are
manufactured by third parties. Certain of these components and products are
currently purchased from single suppliers, and the failure of any such supplier
to meet its commitment on schedule could adversely affect the Company. IVI and
Checkmate maintain additional inventory of certain products and continually
evaluate alternative sources of supply. Although IVI and Checkmate have been
able to obtain an adequate supply of such products, there can be no assurance
that they will be able to continue to do so at reasonable prices in the future.
If a sole source supplier were to go out of business or otherwise become unable
to meet its supply commitments to the Company, the process of locating and
qualifying alternate sources could require up to several months during which
time the Company's production could be delayed. Such delays could adversely
affect the Company's business, financial condition or results of operations. Use
of outside manufacturers and suppliers subjects the Company to additional risks,
including potential quality assurance problems, availability of suitable
competitive and cost effective manufacturers and suppliers, and potential loss
of product margin. Additionally, the Company's systems rely upon certain memory
products (static random access memory), the prices and availability of which
have fluctuated significantly in the past.
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<PAGE>
POTENTIAL FLUCTUATION IN FINANCIAL RESULTS
Many customers of Checkmate and, to a lesser extent, IVI order products for
immediate delivery and, therefore, a substantial amount of the Company's net
revenues in each quarter will result from orders booked in that quarter. In
addition, certain of the products offered by IVI and Checkmate carry lower gross
margins than other products, and any unanticipated shift in the product mix to
lower margin products as a percentage of total revenues could adversely affect
the Company's profitability. Accordingly, the Company's quarterly net sales and
operating results may vary significantly as a result of, among other things, the
ability of the Company to make sales to large customers, the volume and timing
of bookings received during a quarter and variations in sales mix, as well as
increased competition, announcements or introductions of new products by the
Company or its competitors, changes in the costs of components, delays in
production schedules and changes in economic or other conditions affecting
customers or end users of its products. Furthermore, because Checkmate's systems
historically have been used primarily by U.S. retail merchants, Checkmate has
experienced strong demand for its products in the second, third and fourth
quarters as retailers purchase transaction automation systems for installation
prior to and during the fourth quarter holiday season. In past years, demand
from retail customers for Checkmate's products has tended to flatten in the
succeeding first calendar quarter. This seasonal pattern has not in the past
affected IVI to the same extent, although IVI has experienced a flattening of
demand in the last calendar quarter due to the holiday season. The Company may
be increasingly affected by these factors after the consummation of the
Transaction if IVI's products are more fully accepted by comparable segments of
the U.S. market. Accordingly, the historical financial performance of each
company is not necessarily a meaningful indicator of future results of the
combined Company and, in general, management expects that the Company's
financial results may vary from period to period. See "International Verifact
Inc. -- Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Checkmate Electronics, Inc. -- Management's Discussion and
Analysis of Financial Condition and Results of Operations."
POTENTIAL "YEAR 2000" PROBLEMS
It is possible that IVI's or Checkmate's currently installed computer
systems, software products or other business systems, or those of IVI's or
Checkmate's suppliers or customers, will not always accept input of, store,
manipulate and output dates in the years 1999, 2000 or thereafter without error
or interruption. IVI and Checkmate have conducted reviews of their business
systems, including their computer systems, to attempt to identify ways in which
their systems could be affected by problems in correctly processing date
information, and IVI and Checkmate currently believe that their systems and
products will correctly process date information in such years. There can be no
assurance that IVI and Checkmate will identify all date-handling problems in
their systems and products, or that their customers and suppliers will do so, in
advance of their occurrence or that IVI and Checkmate or their customers and
suppliers will be able to successfully remedy problems that are discovered. The
expenses of IVI's and Checkmate's efforts to identify and address such problems,
or the expenses or liabilities to which they may become subject as a result of
such problems, could have a material adverse effect on their results of
operations and financial condition and the results of operations and financial
condition of the Company after the consummation of the Transaction. See
"International Verifact Inc. -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Checkmate Electronics, Inc.
- -- Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PRODUCT DEFECTS
Products as complex as those offered by IVI and Checkmate may contain
undetected design defects or software or hardware errors that could be difficult
to detect and correct when first introduced or as new versions are released.
Such errors have occurred in the past, and there can be no assurance that,
despite testing by the Company and its customers, errors will not be found in
new or enhanced products after
18
<PAGE>
commencement of commercial shipments. Moreover, there can be no assurance that
once detected, such errors can be corrected in a timely manner, if at all.
Software errors may take several months to correct, if they can be corrected at
all, and hardware errors may take even longer to rectify. The occurrence of any
such software or hardware errors, as well as any delay in correcting them, could
result in delays in the shipment of products, loss of market acceptance of the
Company's products, additional warranty expense, diversion of engineering and
other resources from the Company's product development efforts or the loss of
credibility with the Company's distributors and customers, any of which could
have a material adverse effect on the Company's business, financial condition or
results of operations. The Company's POS payment systems products are used to
process payment transactions and, as a result, the security features of such
products are important. In general, the Company's POS payment systems products
are designed to comply with industry practices relating to security in payment
transactions. Any failure of the security features of the Company's products
could adversely affect the marketing of such products and any violation of its
product warranties resulting from security breaches could result in claims
against the Company which could have a material adverse effect on the Company's
business, financial condition or results of operations.
GOVERNMENT AND INDUSTRY REGULATION
Government regulatory policies affect charges and terms for both
private-line and public network automated transaction processing services.
Therefore, changes in such policies which make it more costly to communicate on
such networks could adversely affect the demand for transaction automation
systems, increase the costs of development or increase the opportunity for
additional competition. IVI and Checkmate must also obtain product certification
on the applicable acquiror's systems in the U.S., Canada and other countries.
Any delays in obtaining necessary certifications with respect to future products
could delay their introduction or result in their cancellation, which could have
a material adverse effect on the Company. In addition, the United States Federal
Communications Commission requires that IVI's and Checkmate's products which are
sold in the United States comply with certain rules and regulations governing
their performance. Compliance with future regulations or changes in the
interpretation of existing regulations could result in the need to modify
products or systems which may involve substantial costs or delays in sales and
could have a material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a large extent on the skills and efforts of
its senior management and the senior management of IVI and Checkmate.
Consequently, the loss of one or more members of senior management could have a
material adverse effect on the Company. Further, the Company's business requires
that it continue to attract and retain additional personnel with a variety of
technical and managerial skills, including engineering, computer programming and
sales expertise. Significant competition exists for such personnel, and there
can be no assurance that the Company will be able to attract and retain
personnel with the skills and experience needed to achieve and manage growth.
See "The Companies After The Transaction -- Management."
SUBSTANTIAL OWNERSHIP AND VOTING CONTROL BY AFFILIATES; INGENICO RELATIONSHIP
Upon consummation of the Transaction, the Company's directors, executive
officers and principal stockholders will beneficially own approximately 20.8% of
the outstanding Company Common Stock and, therefore, will have the ability to
exercise influence over the election of directors and other issues submitted to
the Company's stockholders. As a result, it may be difficult for other
stockholders of the Company to successfully oppose matters which are presented
by such persons for action by stockholders or to take actions which are opposed
by such persons. Such ownership may also have the effect of delaying, deterring
or preventing a change in control of the Company without the consent of such
stockholders. In addition, sales of stock by such stockholders could result in
another Person obtaining ownership of a
19
<PAGE>
significant number of shares of Company Common Stock. See "The Companies After
the Transaction -- Principal Holders of Securities."
On January 16, 1998, Ingenico, Mr. Spence and Mr. Dudley L. Moore, Jr., who
collectively, after giving effect to the Transaction, will beneficially own
24.1% of the Company Common Stock, entered into the Stockholders Agreement (the
"Stockholders Agreement") pursuant to which the parties agreed to restrict the
transfer of the shares of Company Common Stock subject to the Stockholders
Agreement, to vote their shares of Company Common Stock for the election of
certain persons to the Board of Directors of the Company and to use their best
efforts to ensure appointment of certain persons as officers of the Company and
to positions on the Committees of the Board of Directors. The Stockholders
Agreement, including the provisions restricting the transfer of shares of
Company Common Stock subject to the Stockholders Agreement, may also have the
effect of delaying, deferring or preventing a change in control of the Company.
See "The Transaction -- Interests of Certain Persons in the Transaction --
Stockholders Agreement."
On December 17, 1996, IVI entered into a strategic alliance (the "Alliance")
with Ingenico, which enabled IVI to gain exclusive rights to market Ingenico
products and technology in the Americas, to gain access to Ingenico's smart card
technology, raise capital and benefit from joint product development, purchasing
and manufacturing. Ingenico has the ability to distribute selected IVI products
in the rest of the world. To achieve this Alliance, IVI and Ingenico entered
into the Master Alliance Agreement dated December 5, 1996 (the "Master Alliance
Agreement"), and five separate agreements, each dealing with a separate aspect
of their relationship including an Investment Agreement, dated December 5, 1996,
which contemplated that Ingenico would make an investment in IVI when the
foregoing agreements were entered into (all such agreements collectively, the
"Ingenico Agreements").
Pursuant to the Investment Agreement, Ingenico and its Chairman,
Jean-Jacques Poutrel, agreed to purchase 1,439,000 IVI Common Shares and IVI
granted to Ingenico a future participation right enabling it to preserve an
ownership position of not less than 15% of the IVI Common Shares on a
non-diluted basis (the "Participation Right") by subscribing to purchase
additional IVI Common Shares at any time IVI issues additional IVI Common
Shares.
IVI also granted Ingenico the right to nominate two members of the Board of
Directors subject to certain continuing ownership thresholds and to have one
such director be a member of the Nominating Committee of the Board of Directors
of IVI.
Contemporaneously with the execution of the Combination Agreement, IVI, the
Company and Ingenico entered into the Assignment, Assumption and Consent
Agreement dated as of January 16, 1998 pursuant to which the Ingenico Agreements
were assigned to and assumed by the Company as of the Effective Date (the
"Assignment, Assumption and Consent Agreement"). The assumption by the Company
of IVI's rights and obligations under the Ingenico Agreements, including the
Participation Right, may have the effect, in certain circumstances, of delaying,
deferring or preventing a change in control of the Company without the consent
of Ingenico and will allow Ingenico to preserve an ownership position of 15% of
the Company Common Stock (on a non-diluted basis). Such assumption may require
the licensing or other transfer of rights, as well as the assumption of certain
obligations, by and between the various parties. The assumption of the rights
and obligations of IVI under the Ingenico Agreements and otherwise may give rise
to tax consequences both immediately and on an ongoing basis and may have a
material adverse effect on the Company's business, financial condition and
results of operations. See "The Transaction -- Interest of Certain Persons in
the Transaction -- Ingenico Agreements."
UNCERTAINTY OF INCOME TAX CONSEQUENCES
The consequences of the Transaction to the shareholders of IVI and Checkmate
are subject to complex Canadian and United States tax considerations. See
"Material Income Tax Considerations to IVI Shareholders" and "Material U.S.
Federal Income Tax Consequences to Checkmate Shareholders."
20
<PAGE>
REGULATORY APPROVAL
The Company and IVI have applied for rulings or orders of certain provincial
securities regulatory authorities in Canada to permit the issuance to IVI
shareholders of the Exchangeable Shares and Company Common Stock and to permit
resale without restriction by a shareholder, other than a "control person," of
the Exchangeable Shares and Company Common Stock in such provinces. Failure to
receive such approval would result in restrictions on the transfer of such
shares.
FLUCTUATIONS IN VALUE DUE TO FIXED EXCHANGE RATIOS
The Exchange Ratios are not adjustable in response to changes in the market
price of IVI Common Stock or Checkmate Common Stock. The Exchange Ratios are not
necessarily indicative of the relative values of the respective shares of IVI
and Checkmate. To the extent that there are changes from time to time in the
market price of IVI Common Shares or Checkmate Common Stock without a
proportionate change in the market price of the other stock, the benefits to be
received by either the shareholders of IVI or Checkmate, respectively, may be
adversely affected. Shareholders of IVI and Checkmate are urged to obtain
current market quotations for IVI Common Shares and Checkmate Common Stock.
EFFECT OF HOLDING COMPANY STRUCTURE
The Company will be a holding company with no business operations. Upon the
consummation of the Transaction, the principal asset of the Company will be all
of the outstanding stock of its operating subsidiaries and its operations will
be conducted through its subsidiaries. The Company will be dependent upon the
earnings and cash flows of the operations of its subsidiaries, as well as other
dividends and distributions from its subsidiaries, to pay its expenses and meet
its obligations and to pay any cash dividends or other distributions on the
Company Common Stock. There can be no assurance that the operating subsidiaries
will generate sufficient earnings and cash flows to pay dividends or other
distributions to the Company to enable it to meet its obligations and pay its
expenses or to pay any dividends or other distributions to the shareholders. See
"Market Prices and Dividends."
VOLATILITY OF MARKET PRICE FOR COMPANY COMMON STOCK AND EXCHANGEABLE SHARES
From time to time after the Transaction there may be significant volatility
in the market price of the Company Common Stock and Exchangeable Shares.
Quarterly operating results of the Company or of other companies participating
in the electronics industry, changes in conditions in the economy, the financial
markets or the electronics industry, natural disasters or other developments
affecting the Company or its competitors could cause the market price of the
Company Common Stock and Exchangeable Shares to fluctuate substantially.
EXCHANGE RATE RISKS; CURRENCY FLUCTUATIONS
IVI and Checkmate currently conduct business in the United States, Canada
and certain countries in Latin America. The Company will continue to derive
significant revenues in currencies other than the U.S. dollar. Fluctuations in
the exchange rate between the U.S. dollar, the Canadian dollar and other
currencies could have a material adverse effect on the Company's business,
financial condition and results of operations. Neither IVI nor Checkmate
currently engages in hedging or other activities to minimize exposure to
exchange rate fluctuations. After the consummation of the Transaction, the
Company will analyze the currency related risks and may engage in hedging
transactions to limit its exposure to such risks.
DILUTION
The Transaction will have the effect of reducing the percentage voting
interest in IVI and Checkmate, represented by an IVI Common Share or share of
Checkmate Common Stock, respectively, immediately prior to the Effective Time.
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REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES
The consolidated financial statements of, and the summaries of historical
consolidated financial information concerning, IVI contained in this Joint Proxy
Statement/Prospectus are reported in Canadian dollars and have been prepared in
accordance with Canadian generally accepted accounting principles ("Canadian
GAAP"), which differs in certain material respects from U.S. GAAP. See Note 13
of Notes to IVI's Consolidated Financial Statements, which presents a
reconciliation of such consolidated financial statements from Canadian GAAP to
U.S. GAAP. The U.S. GAAP financial statements contained in this Joint Proxy
Statement/Prospectus for IVI used in the pro forma financial statements of the
Company have been converted to U.S. dollars using the period end exchange rate
for assets and liabilities and actual exchange rates for capital transactions
with differences accumulated in the cumulative translation amount as a separate
component of shareholders' equity for each balance sheet and the average
exchange rate for the period for each statement of operations. The historical
exchange rates in effect for each period are displayed in the table below.
The financial statements and the summaries of historical financial
information concerning Checkmate used in the pro forma financial statements of
the Company and contained in this Joint Proxy Statement/ Prospectus are reported
in U.S. dollars and have been prepared in accordance with U.S. GAAP.
IN THIS JOINT PROXY STATEMENT/PROSPECTUS, UNLESS OTHERWISE INDICATED, ALL
DOLLAR AMOUNTS ARE EXPRESSED IN U.S. DOLLARS.
EXCHANGE RATE OF CANADIAN AND U.S. DOLLARS
The following table sets forth, for each period indicated, the highest,
lowest and average rate for one Canadian dollar expressed in U.S. dollars on the
last day of each month during such period and the exchange rate at the end of
such period, based upon the noon buying rate in New York City for cable
transfers in Canadian dollars, as certified for customs purposes by the Federal
Reserve Bank of New York (the "Noon Buying Rate"):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
QUARTER ENDED QUARTER ENDED -----------------------------------------------------
MARCH 31, 1998 MARCH 31, 1997 1997 1996 1995 1994 1993
----------------- ----------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
High.................. .7123 .7496 .7487 .7513 .7527 .7632 .8046
Low................... .6808 .7217 .6945 .7235 .7023 .7103 .7439
Average............... .6993 .7358 .7221 .7330 .7307 .7302 .7733
Period end............ .7045 .7224 .6999 .7301 .7323 .7128 .7544
</TABLE>
On May 19, 1998, the exchange rate for one Canadian dollar expressed in U.S.
dollars based on the Noon Buying Rate was .6905.
The following table sets forth, for each period indicated, the highest,
lowest and average exchange rate for one U.S. dollar expressed in Canadian
dollars on the last day of each month during such period and the exchange rate
at the end of such period, based upon the noon spot rate of the Bank of Canada
(the "Noon Spot Rate"):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
QUARTER ENDED QUARTER ENDED -----------------------------------------------------
MARCH 31, 1998 MARCH 31, 1997 1997 1996 1995 1994 1993
--------------- --------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
High.................. 1.4689 1.3857 1.4399 1.3860 1.4235 1.4074 1.3399
Low................... 1.4040 1.3340 1.3345 1.3306 1.3282 1.3102 1.2423
Average............... 1.4300 1.3590 1.3844 1.3643 1.3686 1.3698 1.2936
Period end............ 1.4195 1.3842 1.4305 1.3696 1.3652 1.4028 1.3240
</TABLE>
On May 19, 1998, the Noon Spot Rate was one U.S. dollar equals 1.4482
Canadian dollars.
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<PAGE>
MARKET PRICES AND DIVIDENDS
IVI Common Shares are traded on the Nasdaq National Market under the symbol
"IVIAF" and on the TSE under the symbol "IVI," and Checkmate Common Stock is
traded on the Nasdaq National Market under the symbol "CMEL." The following
table sets forth the high and low sales prices per IVI Common Share on the TSE
(in Canadian dollars) and the Nasdaq National Market (in U.S. dollars), and
Checkmate Common Stock on the Nasdaq National Market with respect to each
quarterly period since January 1, 1996. The tables show quarterly periods
according to IVI's and Checkmate's fiscal year, which end on December 31 of each
year. IVI has not declared or paid any cash dividends or distributions on its
capital stock since its initial public offering in 1984, other than dividends on
its Series A Preference Shares in the aggregate amounts of Cdn. $245,000 in 1994
and Cdn. $110,000 in 1993. Checkmate has not declared or paid any cash dividends
or distributions on its capital stock since its initial public offering in 1993.
The Company does not intend to pay any cash dividends on the Company Common
Stock in the foreseeable future because the present policy of the Company's
Board of Directors is to retain all earnings to support operations and finance
the expansion of the respective businesses.
<TABLE>
<CAPTION>
SALES PRICES PER
SALES PRICES PER SHARE OF
IVI CHECKMATE
COMMON SHARE COMMON STOCK
------------------------------------------ --------------------
TORONTO STOCK NASDAQ NATIONAL NASDAQ NATIONAL
EXCHANGE MARKET MARKET
-------------------- -------------------- --------------------
(CANADIAN $) (US $) (US $)
HIGH LOW HIGH LOW HIGH LOW
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1996
Quarter ended March 31, 1996................................ $ 11.375 $ 7.000 $ 8.375 $ 5.125 $ 15.250 $ 11.250
Quarter ended June 30, 1996................................. 8.250 6.550 6.125 4.750 15.750 11.750
Quarter ended September 30, 1996............................ 7.800 5.600 5.875 3.875 16.500 11.750
Quarter ended December 31, 1996............................. 8.250 5.950 6.375 4.625 15.250 9.250
FISCAL 1997
Quarter ended March 31, 1997................................ 7.150 6.000 5.375 4.391 13.875 11.500
Quarter ended June 30, 1997................................. 8.300 6.000 6.000 4.250 13.500 8.000
Quarter ended September 30, 1997............................ 10.200 7.000 7.375 5.125 9.125 6.875
Quarter ended December 31, 1997............................. 13.500 9.250 9.815 6.500 9.000 6.250
FISCAL 1998
Quarter ended March 31, 1998................................ 11.950 9.400 8.375 6.625 9.500 6.844
Quarter ended June 30, 1998 (through May 19, 1998).......... 10.750 9.150 7.625 6.625 9.000 7.875
</TABLE>
On January 15, 1998, the last trading day prior to public announcement that
IVI and Checkmate had executed the Combination Agreement, the last reported
sales prices per IVI Common Share on the TSE and the Nasdaq National Market and
per share of Checkmate Common Stock on the Nasdaq National Market were $9.750
(in Canadian dollars), $6.688 (in U.S. dollars) and $8.281 (in U.S. dollars),
respectively. On May 19, 1998, the most recent practicable trading date prior to
the mailing of this Joint Proxy Statement/Prospectus, the last reported sales
prices per IVI Common Share on the TSE and the Nasdaq National Market and per
share of Checkmate Common Stock on the Nasdaq National Market were $9.800 (in
Canadian dollars), $6.750 (in U.S. dollars) and $8.000 (in U.S. dollars),
respectively.
As of the IVI Record Date, there were approximately 481 record holders of
IVI Common Shares.
As of the Checkmate Record Date, there were approximately 358 record holders
of Checkmate Common Stock.
The Combination Agreement provides for the filing of a listing application
with the Nasdaq National Market and the TSE covering all of the shares of
Company Common Stock to be issued in connection with
23
<PAGE>
the Transaction and the filing of a listing application with the TSE covering
the Exchangeable Shares. It is a condition to consummation of the Transaction
that such shares of the Company Common Stock be authorized for quotation on the
Nasdaq National Market and for listing on the TSE, subject to official notice of
issuance and the fulfillment of all the requirements of the TSE, and that the
Exchangeable Shares be authorized for listing on the TSE subject to official
notice of issuance and fulfillment of all the requirements of the TSE. The
Company has reserved the symbol "CMIV" for listing the Company Common Stock on
the Nasdaq National Market and the symbol "IVC" for listing the Company Common
Stock on the TSE. IVI intends to use its current symbol "IVI" for listing the
Exchangeable Shares on the TSE. See "The Combination Agreement -- Conditions to
Consummation."
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following summary presents certain historical per share data for IVI and
Checkmate and certain pro forma combined and equivalent pro forma combined per
share data of the Company assuming the Transaction had been effective during the
periods presented using the Exchange Ratios for the Transaction. The Transaction
is anticipated to be accounted for using the pooling-of-interests method of
accounting under U.S. GAAP and pro forma data is derived accordingly. The
information shown below should be read in conjunction with the historical
financial statements of IVI and Checkmate including the respective notes
thereto, contained elsewhere herein, and with the unaudited pro forma financial
information including the notes thereto, contained elsewhere herein. See
"Consolidated Financial Statements of IVI," "Financial Statements of Checkmate,"
"Unaudited Pro Forma Financial Statements of IVI Checkmate Corp." and "The
Transaction -- Anticipated Accounting Treatment."
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
HISTORICAL IVI (CANADIAN GAAP, CANADIAN $)
Net income (loss) per share................................ $ 0.11 $ 0.05 $ 0.42 $ (1.67) $ 0.52
Book value per share (at period end)....................... $ 4.30
HISTORICAL IVI (U.S. GAAP, CANADIAN $)
Net earnings (loss) per share (basic and diluted).......... $ 0.11 $ 0.05 $ 0.55 $ (2.48) $ 0.28
Book value per share (at period end)....................... $ 4.60
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
HISTORICAL CHECKMATE (U.S. GAAP, U.S. $)
Net income (loss) per share:
Basic.................................................... $ 0.08 $ 0.13 $ (0.02) $ 0.50 $ 0.50
Diluted.................................................. $ 0.08 $ 0.12 $ (0.02) $ 0.46 $ 0.47
Book value per share (at period end)....................... $ 5.58
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
QUARTER ENDED QUARTER ENDED -------------------------------
MARCH 31, 1998 MARCH 31, 1997 1997 1996 1995
----------------- ----------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED IVI CHECKMATE CORP.
(U.S. GAAP, U.S. $)
Net earnings (loss) per share (basic and
diluted).................................... $ 0.06 $ 0.06 $ 0.22 $ (0.76) $ 0.30
Book value per share (at period end).......... $ 3.58
EQUIVALENT PRO FORMA COMBINED IVI CHECKMATE
CORP. PER CHECKMATE SHARE (U.S. GAAP, U.S.
$)(1)
Net earnings (loss) per share (basic and
diluted).................................... $ 0.08 $ 0.08 $ 0.28 $ (0.97) $ 0.38
Book value per share (at period end).......... $ 4.57
</TABLE>
- ------------------------
(1) The equivalent pro forma combined per share amounts are calculated by
multiplying the Company pro forma combined per share amounts by the
Checkmate Exchange Ratio of 1.2775 shares of Company Common Stock for each
share of Checkmate Common Stock.
SELECTED FINANCIAL DATA
Set forth below is certain audited historical selected financial data
relating to IVI and Checkmate and certain unaudited selected pro forma combined
financial data of the Company, giving effect to the Transaction under the
pooling-of-interests method of accounting under U.S. GAAP. See "The Transaction
- -- Anticipated Accounting Treatment." This information should be read in
conjunction with the historical financial statements of IVI and Checkmate,
including the respective notes thereto, and with the unaudited pro forma
combined financial information of the Company appearing elsewhere in this Joint
Proxy Statement/Prospectus. See "Consolidated Financial Statements of IVI,"
"Financial Statements of Checkmate" and "Unaudited Pro Forma Financial
Statements of IVI Checkmate Corp."
SELECTED FINANCIAL DATA OF IVI (HISTORICAL)
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT FOR PER DATA)
The following table sets forth selected historical financial data of IVI for
the quarters ended March 31, 1998 and 1997 and for each of the three years in
the period ended December 31, 1997, the nine months ended December 31, 1994 and
the year ended March 31, 1994. Such data for the three years in the period ended
December 31, 1997 has been derived from and should be read in conjunction with
the audited Consolidated Financial Statements of IVI and the related notes
thereto. Such data for the two periods ended March 31, 1994 and December 31,
1994 are derived from the audited financial statements of IVI that are not
included herein. In the opinion of management of IVI interim unaudited
historical data reflect and include all adjustments (consisting at normal
recurring adjustments) necessary for a fair presentation of such data. Unaudited
results of operations for the quarters ended March 31, 1998 and March 31, 1997,
are not necessarily indicative of results of any other interim period or for the
fiscal year as a whole. See "Consolidated Financial Statements of IVI."
In connection with these financial statements, IVI's accounting policies do
not differ materially from U.S. GAAP except as disclosed in Note 13 to IVI's
financial statements appearing elsewhere in this Joint Proxy
Statement/Prospectus. See "Consolidated Financial Statements of IVI."
25
<PAGE>
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS
MARCH 31, YEARS ENDED DECEMBER 31, ENDED YEAR ENDED
-------------------- -------------------------------- DECEMBER 31, MARCH 31,
1998 1997 1997 1996 1995 1994 1994
--------- --------- --------- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT FOR PER SHARE
(UNAUDITED) AMOUNTS)
STATEMENTS OF OPERATIONS DATA:
CANADIAN GAAP
Revenue..................... $ 19,111 $ 15,272 $ 71,208 $ 47,801 $ 60,511 $ 31,056 $ 34,396
Gross margin................ 6,460 5,263 24,015 15,413 19,940 3,669 11,461
Net earnings (loss)......... 968 401 3,692 (11,901) 3,425 (14,223) 2,061
PER SHARE DATA:
Net earnings (loss) per
share..................... $ 0.11 $ 0.05 $ 0.42 $ (1.67) $ 0.52 $ (3.20) $ 0.50
U.S. GAAP
Revenue..................... $ 19,111 $ 15,272 $ 71,208 $ 47,801 $ 60,511 $ 31,056 $ 34,396
Gross margin................ 6,460 5,263 24,015 15,413 19,940 3,669 11,461
Net earnings (loss)......... 968 401 4,855 (17,648) 1,905 (7,395) 5,410
PER SHARE DATA:
Net earnings (loss) per
share (basic and
diluted).................. $ 0.11 $ 0.05 $ 0.55 $ (2.48) $ 0.28 $ (1.66) $ 1.20
BALANCE SHEET DATA (AT PERIOD
END):
CANADIAN GAAP
Total assets................ $ 52,920 $ 50,413 $ 44,290 $ 41,054 $ 36,345 $ 31,850
Long-term obligations....... -- 33 26 29 83 69
Total shareholders'
equity.................... 39,750 38,101 30,948 29,897 24,901 24,499
U.S. GAAP
Total assets................ 55,595 $ 52,711 $ 45,955 $ 48,466 $ 45,277 $ 35,199
Long-term obligations....... -- 33 26 29 83 69
Total shareholders'
equity.................... 42,572 40,399 32,613 37,309 33,833 27,848
</TABLE>
26
<PAGE>
SELECTED FINANCIAL DATA OF CHECKMATE (HISTORICAL)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT FOR PER SHARE DATA)
The following table sets forth selected historical financial data of
Checkmate for the quarters ended March 31, 1998 and 1997 and each of the five
years in the period ended December 31, 1997. Such data for the three years in
the period ended December 31, 1997 has been derived from and should be read in
conjunction with the audited Financial Statements of Checkmate and the related
notes thereto. Such data for the two years in the period ended December 31, 1994
is derived from audited financial statements of Checkmate that are not included
herein. In the opinion of management of Checkmate interim unaudited historical
data reflect and include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of such data. Unaudited results
of operations for the quarter ended March 31, 1998, are not necessarily
indicative of results which may be expected for any other interim period or for
the fiscal year as a whole. See "Financial Statements of Checkmate."
<TABLE>
<CAPTION>
QUARTERS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues........................... $ 9,641 $ 9,506 $ 33,526 $ 35,104 $ 29,160 $ 17,186 $ 17,217
Gross profit....................... 4,057 3,993 12,647 14,532 11,976 7,452 6,862
Net income (loss).................. 416 661 (129) 2,555 2,542 1,458 2,815
PER SHARE DATA:
Net income (loss) per share:
Basic............................ $ 0.08 $ 0.13 $ (0.02) $ 0.50 $ 0.50 $ 0.29 $ 0.89
Diluted.......................... 0.08 0.12 (0.02) 0.46 0.47 0.29 0.81
BALANCE SHEET DATA (at period end):
Total assets....................... $ 40,658 $ 37,251 $ 33,892 $ 28,557 $ 24,916 $ 22,213
Long-term obligations.............. 2 41 203 362 523 712
Total stockholders' equity......... 30,256 29,839 28,305 24,065 21,171 19,278
</TABLE>
27
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT FOR PER SHARE DATA)
The following table sets forth selected pro forma combined consolidated
financial information of the Company as of and for the quarters ended March 31,
1998 and March 31, 1997 and for three years in the period ended December 31,
1997, after giving effect to the Transaction using the pooling-of-interests
method of accounting under U.S. GAAP. The pro forma information is provided for
informational purposes only and is not necessarily indicative of actual results
that would have been achieved had the Transaction been consummated at the
beginning of the periods presented or of future results. The selected pro forma
combined consolidated financial information is derived from the unaudited pro
forma combined consolidated financial information appearing elsewhere herein.
This information should be read in conjunction with the historical financial
statements of IVI and Checkmate, including the respective notes thereto,
contained elsewhere herein, and the unaudited pro forma financial information of
the Company appearing elsewhere in this Joint Proxy Statement/Prospectus. See
"Consolidated Financial Statements of IVI," "Financial Statements of Checkmate,"
"Unaudited Pro Forma Combined Financial Statements of IVI Checkmate Corp.," and
"The Transaction -- Anticipated Accounting Treatment."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
QUARTER ENDED QUARTER ENDED -------------------------------
MARCH 31, 1998 MARCH 31, 1997 1997 1996 1995
-------------- -------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue....................................... $ 22,870 $ 20,685 $ 84,945 $ 70,161 $ 73,327
Gross Margin.................................. 8,718 7,904 30,544 26,192 26,802
Net earnings (loss)........................... 997 954 3,378 (10,388) 3,932
PER SHARE DATA:
Net earnings (loss) (basic and diluted)....... $ 0.06 $ 0.06 $ 0.22 $ (0.76) $ 0.30
BALANCE SHEET DATA (AT PERIOD END):
Total assets.................................. $ 78,851
Long-term obligations......................... 2
Total stockholders' equity.................... 57,863
</TABLE>
28
<PAGE>
GENERAL INFORMATION
THE SHAREHOLDERS MEETINGS
IVI SHAREHOLDERS MEETING. This Joint Proxy Statement/Prospectus is being
furnished by IVI to its shareholders in connection with the solicitation of
proxies by the Board of Directors of IVI from holders of the outstanding IVI
Common Shares for use at the Annual and Special Meeting of Shareholders of IVI
to be held at 10:00 a.m., local time, on June 23, 1998, at the Metropolitan
Toronto Convention Center, 255 Front Street West, Toronto, Ontario, and at any
adjournments and postponements thereof. The primary purpose of the IVI
Shareholders Meeting is to consider and vote upon: (i) a special resolution to
approve the Arrangement and the Combination Agreement; (ii) the election of nine
directors to IVI's Board of Directors, each to hold office until his successor
is elected and qualified or until his resignation or removal; (iii) a proposal
to appoint Coopers & Lybrand, Chartered Accountants, as IVI's independent
auditors for the current fiscal year and to authorize the directors to fix their
remuneration; and (iv) such further or other business as may properly come
before the IVI Shareholders Meeting or any adjournments or postponements
thereof.
At the Effective Time of the Transaction, each issued and outstanding IVI
Common Share (excluding shares of which the holder has perfected its dissenters
rights) will be exchanged for either shares of Company Common Stock or
Exchangeable Shares on the basis set forth in the Combination Agreement and
described below. See "The Transaction and Description of Exchangeable Shares --
The Arrangement."
CHECKMATE SHAREHOLDERS MEETING. This Joint Proxy Statement/Prospectus is
being furnished by Checkmate to its shareholders in connection with the
solicitation of proxies by the Board of Directors of Checkmate from holders of
the outstanding shares of Checkmate Common Stock for use at a Special Meeting of
Shareholders of Checkmate to be held at 10:00 a.m., local time, on June 23,
1998, at the Four Points Hotel, 1850 Cotillion Drive, Atlanta, Georgia, and at
any adjournments and postponements thereof. The purpose of the Checkmate
Shareholders Meeting is to consider and vote upon a proposal to adopt the
Combination Agreement and the consummation of the Merger and the other
transactions contemplated therein.
The Combination Agreement provides for a transaction whereby a wholly owned
subsidiary of the Company will merge with and into Checkmate, with Checkmate as
the surviving corporation of the Merger becoming a wholly owned subsidiary of
the Company. At the Effective Time, each share of issued and outstanding
Checkmate Common Stock (excluding shares of which the holder has perfected its
dissenters rights) shall cease to be outstanding and shall be converted into and
exchanged for the right to receive 1.2775 shares of Company Common Stock. See
"The Transaction and Description of Exchangeable Shares -- The Merger."
RECORD DATE, SOLICITATION AND REVOCABILITY OF PROXIES
IVI. The IVI Board of Directors has fixed the close of business on May 12,
1998, as the IVI Record Date. Only holders of record of IVI Common Shares as of
the IVI Record Date are entitled to notice of and to vote at the IVI
Shareholders Meeting, subject to the provisions of the CBCA regarding transfers
of IVI Common Shares after the IVI Record Date. As of the IVI Record Date, there
were 9,255,131 IVI Common Shares issued and outstanding held by 481 holders of
record. Holders of IVI Common Shares are entitled to one vote for each IVI
Common Share held of record at the close of business on the IVI Record Date,
subject to the provisions of the CBCA regarding transfers of IVI Common Shares
after the IVI Record Date. The quorum required at the IVI Shareholders Meeting
is two persons present in person, each being a shareholder entitled to vote
thereat or a duly appointed proxyholder for a shareholder so entitled,
representing not less than 20% of the issued and outstanding IVI Common Shares.
29
<PAGE>
PROXIES IN THE FORM ENCLOSED ARE SOLICITED ON BEHALF OF MANAGEMENT OF IVI
FOR USE AT THE IVI SHAREHOLDERS MEETING. The form of proxy accompanying this
Joint Proxy Statement confers discretionary authority upon the proxy nominees
with respect to amendments or variations to the matters identified in the
accompanying notice of the IVI Shareholders Meeting and other matters which may
properly come before the IVI Shareholders Meeting. IVI Common Shares represented
by properly executed proxies, if such proxies are received in time and are not
revoked, will be voted in accordance with the instructions indicated on such
proxies or any ballot that may be called for. IF NO INSTRUCTIONS ARE INDICATED
ON A PROXY APPOINTING AS PROXY A PERSON DESIGNATED BY MANAGEMENT, SUCH PROXIES
WILL BE VOTED FOR APPROVAL OF THE ARRANGEMENT PURSUANT TO THE COMBINATION
AGREEMENT, THE ELECTION OF MANAGEMENT NOMINEES AS DIRECTORS AND THE APPOINTMENT
OF COOPERS & LYBRAND, CHARTERED ACCOUNTANTS, AS AUDITORS. Management knows of no
matters to come before the IVI Shareholders Meeting other than the matters
referred to in the accompanying notice of the IVI Shareholders Meeting. However,
if any other matters that are not now known to management should properly come
before the IVI Shareholders Meeting, the shares represented by proxies in favour
of management nominees will be voted on such matters in accordance with the best
judgment of the proxy nominee.
TO BE EFFECTIVE, PROXIES MUST BE RECEIVED BY MONTREAL TRUST COMPANY OF
CANADA NOT LATER THAN 5:00 P.M. (TORONTO TIME) ON JUNE 19, 1998, OR, IF THE
SHAREHOLDERS MEETING IS ADJOURNED, NOT LATER THAN 24 HOURS (EXCLUDING SATURDAYS,
SUNDAYS AND HOLIDAYS) BEFORE THE TIME OF THE IVI SHAREHOLDERS MEETING, OR ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF.
AN IVI SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A
SHAREHOLDER OF IVI), OTHER THAN PERSONS DESIGNATED IN THE FORM OF PROXY
ACCOMPANYING THIS JOINT PROXY STATEMENT/PROSPECTUS, AS NOMINEE TO ATTEND AND ACT
FOR AND ON BEHALF OF SUCH SHAREHOLDER AT THE IVI SHAREHOLDERS MEETING AND MAY
EXERCISE SUCH RIGHT BY INSERTING THE NAME OF SUCH PERSON IN THE BLANK SPACE
PROVIDED ON THE FORM OF PROXY.
Proxies given by shareholders for use at the IVI Shareholders Meeting may be
revoked at any time prior to their use. A shareholder giving a proxy may revoke
the proxy (i) by instrument in writing executed by the shareholder or by his or
her attorney authorized in writing, or, if the shareholder is a corporation,
under its corporate seal by an officer or attorney thereof duly authorized
indicating the capacity under which such officer or attorney is signing, and
deposited either at the registered office of IVI (as set forth in this Joint
Proxy Statement/Prospectus) at any time up to and including 5:00 p.m. (Toronto
time) on the last business day preceding the day of the IVI Shareholders
Meeting, or any adjournments or postponements thereof, or with the chairman of
the IVI Shareholders Meeting on the day of such meeting or adjournments or
postponements thereof, (ii) by a duly executed proxy bearing a later date or
time than the date or time of the proxy being revoked, (iii) by voting in person
at the IVI Shareholders Meeting (although attendance at the IVI Shareholders
Meeting will not in and of itself constitute a revocation of a proxy), or (iv)
in any other manner permitted by Canadian law.
The expense of soliciting proxies for the IVI Shareholders Meeting will be
paid by IVI, although Checkmate has paid one-half of the cost of filing fees and
printing and mailing this Joint Proxy Statement/ Prospectus. In addition to the
solicitation of shareholders of record by mail, telephone or personal contact by
regular employees of IVI without special compensation or by such agents as IVI
may appoint, IVI has contacted brokers, dealers, banks or voting trustees or
their nominees who can be identified as record holders of IVI Common Shares.
Such holders, after inquiry by IVI, will provide information concerning the
quantity of proxy and other materials needed to supply such materials to
beneficial owners, and IVI will reimburse them for the expense of mailing the
proxy materials to such persons.
CHECKMATE. The Checkmate Board of Directors has fixed the close of business
on April 14, 1998, as the record date for determining the Checkmate shareholders
entitled to receive notice of and to vote at the Checkmate Shareholders Meeting
(the "Checkmate Record Date"). Only holders of record of Checkmate Common Stock
as of the Checkmate Record Date are entitled to notice of and to vote at the
Checkmate
30
<PAGE>
Shareholders Meeting. As of the Checkmate Record Date, there were 5,434,188
shares of Checkmate Common Stock issued and outstanding and held by 358 holders
of record. Holders of Checkmate Common Stock are entitled to one vote for each
share of Checkmate Common Stock held of record at the close of business on the
Checkmate Record Date. The presence, in person or by properly executed proxy, of
the holders of a majority of the outstanding shares of Checkmate Common Stock
entitled to vote at the Checkmate Shareholders Meeting is necessary to
constitute a quorum at the Checkmate Shareholders Meeting. Abstentions and
broker non-votes will be counted as shares present for purposes of determining
the presence of a quorum.
Proxies in the form enclosed are solicited by Checkmate's Board of
Directors. Shares of Checkmate Common Stock represented by properly executed
proxies, if such proxies are received in time and are not revoked, will be voted
in accordance with the instructions indicated on the proxies. If no instructions
are indicated, such proxies will be voted FOR adoption of the Combination
Agreement and consummation of the Merger and the other transactions contemplated
therein.
A Checkmate shareholder who has given a proxy may revoke it at any time
prior to its exercise at the Checkmate Shareholders Meeting, by (i) giving
written notice of revocation to the Secretary of Checkmate, (ii) properly
submitting to Checkmate a duly executed proxy bearing a later date, or (iii)
voting in person at the Checkmate Shareholders Meeting. All written notices of
revocation and other communications with respect to revocation of proxies should
be addressed to Checkmate as follows: Checkmate Electronics, Inc., 1003 Mansell
Road, Roswell, Georgia 30076, Attention: Corporate Secretary. A proxy
appointment will not be revoked by death or supervening incapacity of the
shareholder executing the proxy statement unless, before the shares are voted,
notice of such death or incapacity is filed with Checkmate's Corporate Secretary
or other person responsible for tabulating votes on behalf of Checkmate.
The expense of soliciting proxies for the Checkmate Shareholders Meeting
will be paid by Checkmate, although IVI has paid one-half of the cost of filing
fees and printing and mailing this Joint Proxy Statement/Prospectus. In addition
to the solicitation of shareholders of record by mail, telephone or personal
contact, Checkmate has contacted brokers, dealers, banks or voting trustees or
their nominees who can be identified as record holders of Checkmate Common
Stock. Such holders, after inquiry by Checkmate, will provide information
concerning the quantity of proxy and other materials needed to supply such
materials to beneficial owners, and Checkmate will reimburse them for the
expense of mailing the proxy materials to such persons.
VOTE REQUIRED
IVI. The Arrangement Resolution must be approved by the affirmative vote of
at least two-thirds of the votes cast by the holders of the IVI Common Shares
present (in person or by proxy) and entitled to vote at the IVI Shareholders
Meeting. Members of the IVI Board of Directors will be elected by a plurality of
the votes cast by the holders of IVI Common Shares present (in person or by
proxy) and entitled to vote at the IVI Shareholders Meeting. The appointment of
Coopers & Lybrand, Chartered Accountants, as independent auditors of IVI must be
approved by the affirmative vote of a majority of the votes cast by the holders
of IVI Common Shares present (in person or by proxy) and entitled to vote at the
IVI Shareholders Meeting. As of the IVI Record Date, IVI directors and executive
officers, and its and their affiliates, beneficially owned approximately 18% of
the outstanding IVI Common Shares entitled to vote at the IVI Shareholders
Meeting. Pursuant to a Shareholders Agreement, Checkmate has the power to vote
16.7% of the outstanding IVI Common Shares in favor of the Arrangement
Resolution at the IVI Shareholders Meeting. As of the IVI Record Date, Checkmate
and its directors and executive officers, and their affiliates, held no IVI
Common Shares. See "The Combination Agreement -- Other Agreements --
Shareholders Agreements."
CHECKMATE. Adoption of the Combination Agreement and consummation of the
Merger and the other transactions contemplated therein requires the presence of
a quorum and the affirmative vote of the
31
<PAGE>
holders of a majority of the outstanding shares of Checkmate Common Stock
entitled to vote thereon at the Checkmate Shareholders Meeting. Both broker
non-votes and abstentions will have the effect of a vote against the Merger. As
of the Checkmate Record Date, Checkmate directors and executive officers, and
its and their affiliates, beneficially owned approximately 22.7% of the
outstanding shares of Checkmate Common Stock entitled to vote at the Checkmate
Shareholders Meeting. As of the Checkmate Record Date, IVI and its directors and
executive officers, and its and their affiliates, did not hold any shares of
Checkmate Common Stock. Pursuant to a Shareholders Agreement, IVI has the power
to vote approximately 22.0% of the outstanding shares of Checkmate Common Stock
in favor of adoption of the Combination Agreement. See "The Combination
Agreement -- Other Agreements -- Shareholders Agreements."
RECOMMENDATIONS OF BOARDS OF DIRECTORS
IVI. For the reasons described below, the Board of Directors of IVI has
unanimously adopted the Combination Agreement, believes that the Combination
Agreement is in the best interests of IVI and its shareholders, and unanimously
recommends that shareholders of IVI vote FOR adoption of the Combination
Agreement and the consummation of the Arrangement and the other transactions
contemplated in the Combination Agreement. See "The Transaction -- Reasons for
the Transaction." Certain members of the Board of Directors of IVI have
conflicting interests in the Transaction. See "The Transaction -- Interests of
Certain Persons in the Transaction" and "The Companies After the Transaction."
CHECKMATE. For the reasons described below, the Board of Directors of
Checkmate has unanimously adopted the Combination Agreement, believes that the
Combination Agreement is in the best interests of Checkmate and its
shareholders, and unanimously recommends that shareholders of Checkmate vote FOR
adoption of the Combination Agreement and the consummation of the Merger and
other transactions contemplated in the Combination Agreement. See "The
Transaction -- Reasons for the Transaction." Certain members of the Board of
Directors of Checkmate have conflicting interests in the Transaction. See "The
Transaction -- Interests of Certain Persons in the Transaction" and "The
Companies After the Transaction."
AUDITORS
IVI. Coopers & Lybrand has served as IVI's auditors since 1983.
Representatives of Coopers & Lybrand plan to attend the IVI Shareholders Meeting
and will be available to answer appropriate questions. Representatives of
Coopers & Lybrand will also have an opportunity to make a statement at the
meeting if they so desire, although it is not expected that any statement will
be made.
CHECKMATE. Ernst & Young LLP has served as Checkmate's auditors since 1990.
Representatives of Ernst & Young LLP plan to attend the Checkmate Shareholders
Meeting and will be available to answer appropriate questions. Representatives
of Ernst & Young LLP will also have an opportunity to make a statement at the
meeting if they so desire, although it is not expected that any statement will
be made.
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THE TRANSACTION
BACKGROUND OF THE TRANSACTION
In July 1997, L. Barry Thomson, the President and Chief Executive Officer of
IVI, and George Whitton, IVI's Chairman of the Board, discussed the possibility
of IVI acquiring Checkmate. IVI, through a wholly owned subsidiary, purchased
260,000 shares of Checkmate Common Stock between July 11, 1997, and July 28,
1997, as an initial step toward the acquisition of Checkmate, to provide it with
a strong and flexible position in Checkmate and to enable it to recover its
expenses if Checkmate entered into, or was subject to, another transaction. On
July 29, 1997, Mr. Thomson advised the members of the IVI Board of Directors
that management was considering the acquisition of Checkmate, and the Board of
Directors supported this initiative.
J. Stanford Spence, the Chairman of the Board of Checkmate and beneficial
owner of approximately 12.0% of the Checkmate Common Stock, met in Dallas,
Texas, on July 31, 1997, with Gerard Compain, a director of IVI and Managing
Director of Ingenico, to discuss a possible transaction between IVI and
Checkmate. Previously, during the second quarter of 1997, Checkmate was involved
in discussions with a third party relating to the acquisition of Checkmate by
such third party, but such discussions did not progress to any letter of intent
or definitive agreement.
IVI and Robertson Stephens signed an engagement letter in connection with
the Transaction on August 28, 1997. Based in part on discussions with Robertson
Stephens during August 1997, IVI decided to pursue a business combination with
Checkmate. IVI and Robertson Stephens initiated negotiations with Checkmate in
meetings between Mr. Thomson, Mr. Spence and representatives of Robertson
Stephens at Checkmate's headquarters in Roswell, Georgia on September 4, 1997.
At this meeting, IVI and Checkmate decided to pursue a combination of their
operations.
Messrs. Spence and Compain met again on September 8, 1997, in Paris, France,
together with Jean-Jacques Poutrel, Chairman of Ingenico, to continue the
discussion regarding a transaction between IVI and Checkmate. During the
September discussion, Mr. Spence suggested that Checkmate was willing to
negotiate a combination with IVI, but also expressed a concern about the low per
share price of Checkmate Common Stock and expressed the desire that Checkmate's
shareholders not be required (after the proposed IVI-Checkmate transaction) to
accept consideration of less than $15 per share for their Checkmate Common
Stock. Mr. Spence then first suggested the material terms of the Stockholders
Agreement as a means to protect Checkmate shareholders against such a
possibility.
In order to facilitate further discussions, IVI and Checkmate entered into a
confidentiality and standstill agreement on September 26, 1997.
Checkmate and BT Alex. Brown signed an engagement letter in connection with
the Transaction on September 29, 1997. Representatives of BT Alex. Brown met
with Messrs. Spence and Thomson on October 6, 1997, in Philadelphia,
Pennsylvania, to discuss the proposed transaction.
On October 17, 1997, Mr. Thomson met with Jean-Jacques Poutrel and Mr.
Gerard Compain of Ingenico in Paris, France, to advise them of the status of the
negotiations with Checkmate.
As part of the negotiations over exchange ratios to be used in the
Transaction, Peter H. Henry (Vice President, Finance and Administration of IVI),
Mr. Thomson, Gregory A. Lewis (President and Chief Operating Officer of
Checkmate), John J. Neubert (Chief Financial Officer of Checkmate) and
representatives of Robertson Stephens and BT Alex. Brown met in New York, New
York, on October 29, 1997, to discuss each company's financial statements,
business strategies and plans.
At a meeting of the IVI Board of Directors held on October 30, 1997, Mr.
Thomson reported on the progress of the negotiations with Checkmate.
IVI prepared and delivered a draft of certain principal terms of the
proposed transaction reflecting the discussions of October 29, 1997, to
Checkmate on November 3, 1997. Included in the draft was a
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proposed exchange ratio of 1.2 IVI Common Shares for each share of Checkmate
Common Stock (on a fully diluted basis).
Preliminary telephonic discussions regarding the exchange ratios to be used
in the Transaction took place on November 5, 1997, and November 12, 1997,
between representatives of Robertson Stephens and BT Alex. Brown, and on
November 17, 18 and 19, 1997, Messrs. Henry and Thomson and a representative of
Coopers & Lybrand met with Messrs. Lewis and Neubert and Mr. Brian Lane (Vice
President of Finance of Checkmate) in Roswell, Georgia to conduct due diligence
on Checkmate.
On November 21, 1997, Messrs. Spence, Thomson and Whitton met in Austin,
Texas, to discuss further the proposed exchange ratios. It was decided at that
meeting to attempt to negotiate a transaction whereby Checkmate shareholders
would receive approximately 43% of the Company and IVI shareholders would
receive approximately 57% of the Company on a fully-diluted treasury stock
method basis, resulting in the Checkmate Exchange Ratio of 1.2775 shares of
Company Common Stock for each issued and outstanding share of Checkmate Common
Stock and the IVI Exchange Ratio of one share of Company Common Stock for each
outstanding IVI Common Share. The difference in the number of shares of
Checkmate Common Stock outstanding and IVI Common Shares outstanding and the 57%
and 43% equity ownership of the combined Company by IVI shareholders and
Checkmate shareholders after giving effect to the Transaction, respectively,
account for the difference in the IVI Exchange Ratio and the Checkmate Exchange
Ratio. In addition, Messrs. Spence, Thomson and Whitton agreed that, with
respect to the post-closing management structure of the Company, Mr. Spence
would be Chairman of the Board of the Company, Mr. Whitton would be Vice
Chairman of the Board, Mr. Thomson would be the President and Chief Executive
Officer of the Company and Mr. Lewis would run the Company's U.S. subsidiary as
President and Chief Operating Officer. See "The Companies After the Transaction
- -- Management." Certain principal terms of the proposed transaction were set out
in a term sheet dated November 24, 1997.
On December 3, 1997, representatives of BT Alex. Brown met with Messrs.
Spence, Lewis and Neubert to discuss further the proposed transaction and to
deliver the results of BT Alex. Brown's preliminary analysis of the proposed
transaction.
On December 10, 1997, Messrs. Thomson and Whitton presented the principal
terms of the proposed transaction to Messrs. Poutrel and Compain in Paris,
France. Later on December 10, 1997, and also on December 11, 1997, Mr. Spence
joined Messrs. Whitton, Thomson, Poutrel and Compain in Paris. During the
discussions on such dates, Messrs. Poutrel and Compain indicated that Ingenico
would support the Transaction provided that IVI's obligations with respect to
the Alliance under the Ingenico Agreements with Ingenico were assumed by the
combined company. See "The Transaction -- Interests of Certain Persons in the
Transaction."
On December 16, 1997, Mr. Henry and representatives of Robertson Stephens
met with Messrs. Lewis, Neubert and Lane and a representative of BT Alex. Brown
in Roswell, Georgia to conduct further due diligence on Checkmate. The following
day, the same group other than Mr. Lewis (with the addition of Mr. Thomson)
convened in Toronto, Ontario to proceed with due diligence efforts relating to
IVI.
During December 1997, IVI and Checkmate, together with their legal,
accounting and financial advisors, engaged in negotiations concerning the
structure of the Transaction and the tax, pooling and securities implications of
the Transaction and the definitive terms of the Combination Agreement. As part
of those negotiations, Mr. Spence agreed that his support as a shareholder would
not be conditional upon the execution of the Stockholders Agreement if IVI and
Checkmate agreed to cause certain measures that would discourage unsolicited
takeover attempts (the "Defensive Measures"), to be adopted as of the Effective
Time by the Company.
On December 22, 1997, the Board of Directors of IVI held a meeting to
discuss the Transaction and a draft form of the Combination Agreement. Also in
attendance were Mr. Peter Henry and representatives of Robertson Stephens, IVI's
Canadian and U.S. legal counsel and a representative of Coopers & Lybrand. At
this meeting, Robertson Stephens indicated to the IVI Board of Directors that it
expected to be in a
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position to deliver an opinion, as of the date of IVI entering into a definitive
agreement, that the Checkmate Exchange Ratio (in light of the IVI Exchange
Ratio) was fair from a financial point of view to IVI. The IVI Board of
Directors unanimously approved the Transaction and the draft form of Combination
Agreement, with the two nominees of Ingenico on the Board of Directors of IVI
abstaining.
On December 22, 1997, the Board of Directors of Checkmate also held a
meeting to discuss the Transaction and a draft form of the Combination
Agreement. Also in attendance were representatives of BT Alex. Brown and
Checkmate's legal counsel. The Checkmate Board of Directors approved the
Transaction and the draft form of Combination Agreement (subject to final
negotiation) at such meeting. The Checkmate Board also approved amending the
Checkmate Rights Agreement such that the Transaction does not trigger a
distribution of "rights" thereunder and such that the Checkmate Rights Agreement
would terminate upon the consummation of the proposed transaction. See
"--Termination of Checkmate Rights Plan."
On December 23, 1997, drafts of the Combination Agreement and exhibits
thereto were forwarded to Ingenico and its legal representatives for review. On
January 8, 1998, Messrs. Poutrel, Compain, Spence, Thomson and Whitton, and
representatives of the legal advisors to Ingenico, Checkmate and IVI,
participated in a telephonic conference to discuss the Transaction and to
consider further the assumption of the Ingenico Agreements by the Company in
connection with the Transaction. In general, Ingenico expressed its strong
desire to have the same rights vis-a-vis the Company that it then currently
enjoyed vis-a-vis IVI and its strong desire that the Company not adopt the
Defensive Measures. During such call, Messrs. Spence, Thomson, Whitton, Poutrel
and Compain agreed that the execution of the Stockholders Agreement would be
pursued in lieu of the Defensive Measures.
From December 23, 1997, until January 11, 1998, IVI and Checkmate continued
to negotiate and finalize the Combination Agreement and related documentation.
On January 12, 1998, in a telephonic meeting, the Board of Directors of IVI
unanimously approved the Transaction and the Combination Agreement.
On January 12, 1998, the Board of Directors of Checkmate unanimously
approved and ratified the Transaction and the Combination Agreement in a written
consent action.
On January 13, 1998, Messrs. Spence, Thomson, Whitton and Compain, and
representatives of the legal advisors to Ingenico, Checkmate and IVI,
participated in a telephonic conference to discuss the Stockholders Agreement
and reached agreement on all material issues. For a discussion of the final
terms of the Stockholders Agreement, see "The Transaction--Interest of Certain
Persons in the Transaction-- Stockholders Agreement."
On the morning of January 16, 1998, the Board of Directors of Checkmate held
a telephonic meeting with their legal advisors and representatives of BT Alex.
Brown and approved the Transaction and the Combination Agreement in its final
form. IVI and Checkmate entered into the Combination Agreement before opening of
business on January 16, 1998.
With the execution of the Combination Agreement, the reasons for IVI to hold
Checkmate Common Stock no longer applied and such shares have been sold in open
market transactions.
REASONS FOR THE TRANSACTION
JOINT REASONS FOR THE TRANSACTION
IVI and Checkmate believe that the combination of the two companies will
allow them to combine their individual resources to enhance their ability to
compete in the market for payment automation solutions. The combined companies
expect to benefit from more effectively utilizing each company's respective
strengths, including IVI's Canadian presence, Checkmate's U.S. presence, and
each company's distinct product lines and from anticipated ongoing cost savings
and efficiencies in operations following the
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Transaction which are expected to result primarily from the combination of IVI's
and Checkmate's U.S. operations and the consequent reduction in U.S. personnel.
IVI'S REASONS FOR THE TRANSACTION
Based on the evaluation by the Board of Directors of IVI, which was
conducted with the assistance of outside financial and legal advisors, the Board
of Directors of IVI believes that the Transaction is in the best interests of
IVI and its shareholders. The IVI Board considered the following material
factors in reaching its decision:
(a) the respective businesses, financial condition, results of
operations, management teams and business prospects of IVI and Checkmate
before and after giving effect to the Transaction, and the potential savings
inherent in eliminating redundant operations and administrative overhead by
closing IVI's Boulder, Colorado facility and consolidating the
administrative operations of the two companies (see "The Companies After the
Transaction -- Plans and Proposals");
(b) the complementary products, markets and strategic outlooks of the
two companies;
(c) the Board's belief that this strategic combination will result in a
larger combined company which will be more competitive on a North American
and international basis, and will be in a stronger position than IVI
operating independently in a competitive industry undergoing consolidation
to deal with suppliers, customers and distributors;
(d) the fact that the Company will offer a broader product line which
the Board believes will enhance the Company's ability to compete with other
companies in its industry;
(e) the Board's belief that the Company will benefit from the sharing of
technological knowledge between IVI and Checkmate;
(f) the current and historical market prices, volatility and trading
information of the stock of the two companies, the consideration to be paid
to Checkmate shareholders, including any premium represented by that
consideration, and the possible dilution to IVI shareholders resulting from
the Transaction;
(g) the anticipated accounting and Canadian/U.S. tax treatment of the
Transaction;
(h) IVI's and Checkmate's per share earnings (loss) before interest and
taxes and certain other important financial measurements;
(i) the terms of the Combination Agreement, including the parties'
mutual representations, warranties and covenants, and the conditions to the
respective obligations, including the accounting for the Transaction as a
pooling-of-interests under U.S. GAAP and the fact that, if the Transaction
is not consummated for certain reasons, IVI may have an obligation to
reimburse Checkmate for expenses;
(j) the financial analysis and written opinion of Robertson Stephens
dated January 15, 1998, to the Board of Directors of IVI that, as of such
date and based on the matters described therein, the Checkmate Exchange
Ratio (in light of the IVI Exchange Ratio) is fair to IVI, from a financial
point of view. See "The Transaction -- Opinions of Financial Advisors --
Robertson Stephens Opinion;"
(k) after consummation of the Transaction, the Company Common Stock will
have a significantly larger market float and greater liquidity than the IVI
Common Shares;
(l) the fact that the Exchangeable Shares provide a holder with a
security of a Canadian issuer having economic and voting rights which are,
as nearly as practicable, equivalent to those of a share of Company Common
Stock and the fact that the Exchangeable Shares generally may be received on
a tax deferred rollover basis and will not constitute "foreign property"
under the Canadian Tax Act (as defined below). See "Material Income Tax
Considerations to IVI Shareholders;"
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(m) the need to build upon the foundation laid with the acquisition of
Soricon Corporation in 1994 to increase IVI's penetration into the U.S.
market where opportunities for growth are greater than in the Canadian
market; and
(n) the risk that the potential benefits set forth above may not be
realized;
(o) the risk that there may be unexpected costs associated with
realizing such benefits;
(p) the risk that the integration of the operations of the two companies
may not be successfully completed in a timely or cost-effective manner; and
(q) the potential adverse effects of the reduction in the number of
qualified employees due to the Transaction. See "Risk Factors."
The Board of Directors of IVI did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weight to the specific factors
considered in making its determination to enter into the Combination Agreement.
See "The Companies After the Transaction -- Plans and Proposals."
CHECKMATE'S REASONS FOR THE TRANSACTION; RECOMMENDATION OF THE CHECKMATE
BOARD OF DIRECTORS
The Board of Directors of Checkmate has reviewed and evaluated the proposed
Transaction and has concluded that the Transaction is fair to, and in the best
interests of, Checkmate and its shareholders and has unanimously approved the
Combination Agreement and the Transaction. The evaluation by the Board of
Directors of Checkmate was conducted with the assistance of outside financial
and legal advisors. In reaching its decision, the Board considered the following
material factors:
(a) the Board's belief that the Transaction (i) will provide Checkmate a
larger market in North America for distribution of its products, and
potential international distribution through Ingenico; (ii) will enhance
Checkmate's engineering and product development efforts, which is critical
in the market for payment automation equipment because the primary source of
revenues in such market is in the initial sale of equipment to customers;
and (iii) will provide a broader, deeper and more experienced management
team;
(b) the Checkmate Board's belief that the combined company should (i) be
able to offer a broader product line than Checkmate alone would be able to
offer; (ii) have enhanced bargaining strength in dealing with its suppliers,
customers, distributors and software licensors; (iii) benefit from sharing
technical knowledge between Checkmate and IVI; and (iv) be able to
reallocate its resources to areas with greater potential for revenue growth
as a result of reductions in personnel costs, facility costs and other costs
resulting from the consolidation of the operations of the two companies;
(c) IVI's and Checkmate's respective businesses, assets, technology,
management, competitive position and prospects and current conditions and
trends in the markets and industries in which they operate;
(d) Checkmate's prospects as an independent entity;
(e) the financial condition, results of operations and businesses of IVI
and Checkmate before and after giving effect to the Transaction;
(f) current market conditions and historical market prices, volatility
and trading information with respect to the IVI Common Shares and the shares
of Checkmate Common Stock;
(g) the market value of the IVI Common Shares and the shares of
Checkmate Common Stock and both companies' per share earnings (loss) before
interest and taxes and certain other important financial measurements;
(h) a comparison of selected acquisition transactions within the
computer peripheral manufacturing sector (See "The Transaction -- Opinions
of Financial Advisors");
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(i) the terms of the Combination Agreement, including the parties'
mutual representations, warranties and covenants, the conditions to their
respective obligations and the accounting for the Transaction as a
pooling-of-interests under U.S. GAAP;
(j) the oral advice and written opinion of BT Alex. Brown as to the
fairness, from a financial point of view, of the Checkmate Exchange Ratio to
Checkmate's shareholders;
(k) the risk that the potential benefits set forth above may not be
realized;
(l) the risk that there may be higher than expected costs associated
with realizing such benefits;
(m) the risk that the integration of the operations of the two companies
may not be successfully completed in a timely and cost-effective manner; and
(n) the potential adverse effects of the reduction in the number of
qualified employees due to the Transaction. See "Risk Factors."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
THE IVI BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTION IS FAIR TO AND IN
THE BEST INTEREST OF IVI AND ITS SHAREHOLDERS AND THEREFORE UNANIMOUSLY
RECOMMENDS THAT THE IVI SHAREHOLDERS VOTE "FOR" APPROVAL OF THE COMBINATION
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
THE CHECKMATE BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTION IS FAIR TO
AND IN THE BEST INTEREST OF CHECKMATE AND ITS SHAREHOLDERS AND THEREFORE
UNANIMOUSLY RECOMMENDS THAT THE CHECKMATE SHAREHOLDERS VOTE "FOR" APPROVAL OF
THE COMBINATION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
CERTAIN MEMBERS OF THE BOARDS OF DIRECTORS OF IVI AND CHECKMATE HAVE
CONFLICTING INTERESTS IN THE TRANSACTION. SEE "THE TRANSACTION -- INTERESTS OF
CERTAIN PERSONS IN THE TRANSACTION" AND "THE COMPANIES AFTER THE TRANSACTION."
OPINIONS OF FINANCIAL ADVISORS
ROBERTSON STEPHENS OPINION. On August 28, 1997, IVI engaged Robertson
Stephens to act as IVI's financial advisor in connection with the Transaction
and entered into a letter agreement in connection therewith (the "Robertson
Stephens Engagement Letter"). IVI retained Robertson Stephens to provide
financial advisory and investment banking services in connection with a possible
acquisition of or business combination involving Checkmate, and to render an
opinion as to the fairness from a financial point of view of the Checkmate
Exchange Ratio (in light of the IVI Exchange Ratio) in such a business
combination.
At the January 12, 1998, special meeting of IVI's Board of Directors,
Robertson Stephens presented its financial analysis of the proposed combination
to IVI's Board of Directors and indicated that it expected to be in a position
to deliver its opinion, which written opinion it did deliver as of January 15,
1998, that, as of the date of its opinion and based on the assumptions made,
matters considered and limits of review set forth therein, the Checkmate
Exchange Ratio (in light of the IVI Exchange Ratio) was fair to IVI from a
financial point of view. Robertson Stephens did not recommend to IVI's Board of
Directors that any specific exchange ratio should constitute the Checkmate
Exchange Ratio. In furnishing its opinion, Robertson Stephens was not engaged as
an agent or fiduciary of IVI's shareholders or any other person. No limitations
were imposed by IVI's Board of Directors on Robertson Stephens with respect to
the investigations made or procedures followed by it in furnishing its opinion.
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THE FULL TEXT OF ROBERTSON STEPHENS'S OPINION DATED JANUARY 15, 1998 (THE
"ROBERTSON STEPHENS OPINION"), WHICH SETS FORTH, AMONG OTHER THINGS, THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN,
IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX F AND IS
INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS OF IVI ARE URGED TO READ SUCH
OPINION CAREFULLY AND IN ITS ENTIRETY. THE ROBERTSON STEPHENS OPINION IS
DIRECTED TO IVI'S BOARD OF DIRECTORS AND IS NOT INTENDED TO BE AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF IVI COMMON SHARES AS TO HOW SUCH
HOLDER SHOULD VOTE ON THE TRANSACTION. THE ROBERTSON STEPHENS OPINION DOES NOT
ADDRESS THE RELATIVE MERITS OF THE TRANSACTION OR THE UNDERLYING BUSINESS
DECISION OF IVI'S BOARD OF DIRECTORS TO PROCEED WITH OR EFFECT THE TRANSACTION.
ROBERTSON STEPHENS WAS NOT ASKED TO, AND DID NOT, RECOMMEND THE SPECIFIC
CONSIDERATION PAYABLE IN THE TRANSACTION, WHICH WAS DETERMINED THROUGH
NEGOTIATION BETWEEN IVI AND CHECKMATE. THE SUMMARY OF THE ROBERTSON STEPHENS
OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE ROBERTSON STEPHENS OPINION.
SUMMARY OF THE ANALYSES. In connection with the preparation of the
Robertson Stephens Opinion, Robertson Stephens, among other things: (i) reviewed
financial information on Checkmate and IVI furnished to Robertson Stephens by
IVI, including certain internal financial analyses and forecasts prepared by the
management of IVI and Checkmate, respectively; (ii) reviewed publicly available
information relating to IVI and Checkmate, including their respective stock
price and trading histories; (iii) held discussions with the managements of IVI
and Checkmate concerning the businesses, past and current business operations,
financial condition and future prospects of both companies, independently and
combined, including certain information provided by the management of IVI
concerning potential cost savings in connection with the Transaction; (iv)
reviewed the Combination Agreement; (v) reviewed the exchange ratio implied by
historical stock prices of the two companies; (vi) reviewed the valuations of
publicly traded companies that Robertson Stephens deemed comparable to
Checkmate; (vii) prepared discounted cash flow analyses of Checkmate; (viii)
compared the financial terms of the Transaction with those for other
transactions that Robertson Stephens deemed relevant; (ix) prepared pro-forma
merger analyses for the Transaction; (x) prepared a relative contribution
analysis for IVI and Checkmate; and (xi) made such other studies and inquiries,
and reviewed such other data, as Robertson Stephens deemed relevant.
In connection with rendering the Robertson Stephens Opinion, Robertson
Stephens has assumed and relied upon, without independent verification, the
accuracy and completeness of all publicly available information that it has
reviewed and all other information furnished (or made available) to Robertson
Stephens by or on behalf of IVI or otherwise used by Robertson Stephens in
connection with the Robertson Stephens Opinion. Furthermore, Robertson Stephens
did not obtain any independent appraisal of the properties, assets or
liabilities (contingent or otherwise) of IVI or Checkmate or of any of their
subsidiaries, nor was it furnished with any such evaluations or appraisals. With
respect to the financial and operating forecasts (and the assumptions and bases
therefor) of IVI and Checkmate that Robertson Stephens reviewed, it has assumed
that such forecasts have been reasonably prepared in good faith on the basis of
reasonable assumptions, and reflect the best available estimates and judgments
of IVI's management and that such projections and forecasts will be realized in
the amounts and in the time periods then estimated by the management of IVI.
Robertson Stephens has also relied upon the estimates by IVI's management of the
anticipated cost savings to be derived from the Transaction. Further, Robertson
Stephens has assumed that the historical financial statements of IVI and
Checkmate that it has reviewed have been prepared in accordance with Canadian
and U.S. GAAP, respectively. Robertson Stephens has also assumed that the
Transaction will be consummated upon the terms set forth in the Combination
Agreement without material alteration thereof and that the Merger will qualify
as a tax-free reorganization and will be accounted for as a pooling-of-interests
in accordance with U.S. GAAP. Robertson Stephens relied as to all legal matters
relevant to rendering its opinion on the advice of counsel.
The Robertson Stephens Opinion is necessarily based upon market, economic
and other conditions as in effect on, and information made available to
Robertson Stephens as of January 15, 1998. It should be
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understood that subsequent developments may affect the conclusion expressed in
the Robertson Stephens Opinion and that Robertson Stephens disclaims any
undertaking or obligation to advise any person of any change in any fact or
matter affecting the Robertson Stephens Opinion which may come or be brought to
Robertson Stephens' attention after the date of the Robertson Stephens Opinion.
The Robertson Stephens Opinion is limited to the fairness from a financial point
of view to IVI of the Checkmate Exchange Ratio (in light of the IVI Exchange
Ratio). Finally Robertson Stephens does not express any opinion as to the value
of any employee agreements or arrangements entered into in connection with the
Combination Agreement or the Transaction, nor does it express any opinion as to
the price at which the shares of the Company Common Stock that are to be issued
pursuant to the Transaction will be traded in the future.
Certain internal financial analyses and projections prepared by the
management of IVI and Checkmate referred to herein were provided to each of the
counterparties and the financial advisors as information for consideration in
conducting their financial analyses of the Transaction. The financial analyses
and projections were prepared by IVI and Checkmate for internal budgeting and
planning purposes only, not with a view to public disclosure or compliance with
the laws, regulations and professional standards regarding projections, and are
referred to herein solely because they were provided to the respective
counterparties and financial advisors. In addition, the projections are
forward-looking statements that were based upon a number of assumptions that are
subject to significant uncertainties and contingencies, including but not
limited to those set forth in "Risk Factors" herein; consequently, the
projections may differ materially from actual future results. The inclusion of
the projections in this Joint Proxy Statement/Prospectus should not be
interpreted as an indication that IVI, Checkmate, the Company, the respective
financial advisors or any other person considers such projections to have
meaningful predictive value. None of IVI, Checkmate or the Company, nor their
respective financial advisors, directors, officers, independent auditors or
attorneys, assumes any responsibility for the accuracy or completeness of such
financial analyses and projections.
The internal projections prepared by IVI management and by Checkmate
management for 1997, which were provided to the counterparties and the financial
advisors for use in their financial analyses, did not differ in any material
respects from the consensus Street estimates. The initial IVI management
projections for 1998 and 1999 which were provided to Checkmate and to each of
the financial advisors were subsequently revised by IVI. The revised IVI
management projections were only provided to Robertson Stephens for use in its
financial analyses. BT Alex. Brown was provided and considered the initial
internal projections prepared by IVI management in the performance of its
financial analyses. The revised IVI management projections for 1998 and 1999
used by Robertson Stephens in performing its financial analyses did not differ
in any material respects from the consensus Street estimates. The IVI management
estimates considered by BT Alex. Brown for 1998 and 1999 differed from the
consensus Street estimates and included estimated revenues of $62.7 million and
$74.1 million and earnings per share (adjusted using a 38% effective tax rate)
of $0.41 and $0.59 compared to consensus Street estimates of $59.6 million and
$70.7 million and $0.29 and $0.43, respectively. The internal projections
prepared by Checkmate management for 1998 and 1999 differed from the consensus
Street estimates and included estimated revenues of $50 million and $65 million
and earnings per share of $0.75 and $1.12 compared to consensus Street estimates
of $39.9 million and $52.3 million and $0.35 and $0.73, respectively.
The following is a summary of the material analyses performed by Robertson
Stephens in arriving at the Robertson Stephens Opinion, but does not purport to
be a complete description of the analyses performed by Robertson Stephens.
COMPARABLE COMPANY ANALYSIS. Using publicly available information
(including estimates by publicly available third party sources), Robertson
Stephens applied certain financial data and multiples of income statement
parameters accorded to the following companies in the automatic transaction
processing, auto identification and data collection industries: Axiohm
Transaction Solutions Inc., Hypercom Corp., Metrologic Instruments Inc., Micros
Systems Inc., Percon Inc., PSC Inc., Symbol Technologies, Telxon Corp., and
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Transact Technologies (collectively, the "Comparable Companies") for the
calendar years ended December 31, 1996, 1997 and 1998 to the analogous income
statement parameters of Checkmate, based on IVI management's direction, in the
case of 1998 results, to rely on publicly available Wall Street estimates.
Multiples compared included: total capitalization (calculated as market
capitalization less cash and cash equivalents, plus total debt) to revenue,
total capitalization to operating income and market capitalization to net
income. Robertson Stephens then applied a 20% to 40% change of control premium
to the results of the analysis described above to derive the implied acquisition
valuation. Robertson Stephens arrived at such change of control premiums based
on its review of the premiums paid in merger and acquisition transactions in
1997.
Based on total capitalization to revenue multiples for the above years
(using data that was publicly available for all of the Comparable Companies,
except for two Comparable Companies with respect to 1998), Checkmate's implied
acquisition value ranged from $43.5 million to $133.9 million; based on total
capitalization to operating income multiples for the above years (using data
that was publicly available for all of the Comparable Companies, except for two
Comparable Companies with respect to 1998), Checkmate's implied acquisition
value ranged from $27.0 million to $129.3 million; and based on market
capitalization to net income multiples for the above years (using data that was
publicly available for all of the Comparable Companies), Checkmate's implied
acquisition value ranged from $24.0 million to $95.7 million, in each case
compared to the proposed transaction value of $48.6 million (based on IVI's
closing price of $6.94 on January 9, 1998).
COMPARABLE TRANSACTION ANALYSIS. Robertson Stephens analyzed publicly
available information for selected pending or completed mergers and acquisitions
involving companies in the automatic transaction processing, auto identification
and data collection industries (the "Comparable Transactions"). In examining
these transactions, Robertson Stephens analyzed certain financial parameters of
the acquired company relative to the consideration offered. Financial indicators
compared included consideration offered plus net debt assumed ("total
consideration") to the latest 12 months' revenue, premiums paid to market price
one day prior to announcement, and premiums paid to market one month prior to
announcement. The Comparable Transactions and their respective announcement
dates were: DH Technology Inc./Axiohm SA (July 15, 1997), VeriFone
Inc./Hewlett-Packard Co. (April 23, 1997), Measurex Corporation/Honeywell Inc.
(January 27, 1997), GENSAR Holdings Inc./First USA Paymentech Inc. (July 22,
1996), Computer Identics Corp./Robotic Vision Systems (June 11, 1996), Data
Capture Group (Spectra-Physics AB)/PSC Inc. (May 21, 1996), RJS Inc. (IDM
Technologies)/Eltron International (March 1, 1996), Isys Controls, Inc./Cognex
Corp. (February 8, 1996), ID Matrix Inc./Robotic Vision Systems, Inc. (October
20, 1995), Acumen (ATS Automation Tooling)/Cognex Corp. (July 12, 1995),
Recognition International/BancTec, Inc. (May 19, 1995), DataCard Corp.
(Seedamm)/Gemplus Card International (May 11, 1995), Acuity Imaging,
Inc./Robotic Vision Systems (February 1, 1995) and United Barcode
Industries/Charter Development Capital Unlimited (January 25, 1995).
Based on total consideration to the latest 12 months' revenue multiples of
the Comparable Transactions (using data that was publicly available for twelve
of the Comparable Transactions), Checkmate's implied acquisition value ranged
from $54.7 million to $87.6 million; based on the premium to the share price
four weeks prior to announcement (using data that was publicly available for
five of the Comparable Transactions), Checkmate's implied acquisition value
ranged from $49.5 million to $59.6 million; based on the premium to the share
price one day prior to announcement (using data that was publicly available for
five of the Comparable Transactions), Checkmate's implied acquisition value
ranged from $62.8 million to $68.5 million, in each case compared to the
proposed transaction value of $48.6 million (based on IVI's closing price of
$6.94 on January 9, 1998).
While Robertson Stephens selected the Comparable Companies and the
Comparable Transactions based on the similarities in markets served and
businesses conducted, no company, transaction or business compared in the
Comparable Company Analysis or the Comparable Transaction Analysis is identical
to IVI or the Transaction. Accordingly, an analysis of the results of the
foregoing is not simply mathematical;
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rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics and other factors that could affect
the acquisition, public trading and other values of the Comparable Companies or
Comparable Transactions to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS. Robertson Stephens performed certain
discounted cash flow analyses to estimate the present value of Checkmate's
stand-alone, unlevered after-tax cash flows based on financial projections
approved by IVI management for 1998 through 2002. Robertson Stephens first
discounted the projected, unlevered after-tax cash flows through December 31,
2002, using a range of discount rates from 11% to 15%. Robertson Stephens then
added to the present value of the cash flows the terminal value of Checkmate in
the fiscal year ending December 31, 2002, discounted back at the same discount
rates. The terminal value was computed by multiplying Checkmate's projected
operating income in the fiscal year ending December 31, 2002 by terminal
multiples ranging from 7.0x to 9.0x. The discounted cash flow valuation
indicated implied equity valuations from $41.7 million to $61.0 million,
compared to the transaction value of $48.6 million (based on IVI's closing price
of $6.94 on January 9, 1998). Robertson Stephens arrived at such discount rates
based on its judgment of the weighted average cost of capital of the Comparable
Companies.
PRO FORMA EARNINGS ANALYSIS. Robertson Stephens analyzed the pro forma
earnings per share of the combined company based on the Checkmate Exchange
Ratio, on IVI management financial estimates for IVI for the calendar years
ended December 31, 1998 and 1999 and, at IVI management's direction, on publicly
available Wall Street estimates for Checkmate 1998 results and on financial
projections approved by IVI management for Checkmate 1999 results, before
certain potential pre-tax cost savings and other synergies for 1998 and 1999
(excluding non recurring transaction costs). Such analysis indicated that,
absent incremental potential pre-tax cost savings and other synergies, the
Transaction would be dilutive by approximately 18.1% and 13.8% in 1998 and 1999,
respectively. In addition, Robertson Stephens performed sensitivity analysis of
the effect of assuming incremental pre-tax cost savings and synergies ranging to
$3.0 million. This analysis indicated that after giving effect to such potential
savings and synergies, the Transaction would range as high as accretive by
approximately 7% and 3% in 1998 and 1999, respectively. The actual results
achieved by IVI, Checkmate and the Company may vary from estimated results and
such variations may be material.
STOCK PRICE, TRADING AND EXCHANGE RATIO ANALYSIS. Robertson Stephens
reviewed the trading activity of Checkmate Common Stock and IVI Common Shares
since January 9, 1997, in each case as compared to the Russell 2000 and the S&P
400. Robertson Stephens noted that over this period, IVI had outperformed, and
Checkmate had underperformed, the Russell 2000 and the S&P 400. Robertson
Stephens also performed an analysis of exchange ratios derived from Checkmate
Common Stock and IVI Common Share historical prices. Since January 9, 1997, the
one day, three-month, six-month, and twelve-month exchange ratios averaged
1.144, .972, 1.139, and 1.770, respectively. This information was presented to
IVI's Board of Directors to provide background information regarding the per
share price of IVI Common Shares and Checkmate Common Stock over the indicated
period.
CONTRIBUTION ANALYSIS. Robertson Stephens compared the contribution of IVI
and Checkmate to the estimates of pro forma combined revenue, gross profit, and
operating income for the combined company. Financial performance for IVI was
based on IVI management estimates for the calendar years ended December 31, 1998
and 1999 and financial performance for Checkmate for such periods was, at IVI
management's direction, based on publicly available Wall Street estimates in the
case of 1998 and on financial projections approved by IVI management for 1999.
For such periods, Robertson Stephens noted that Checkmate would contribute
approximately 39% and 40% of revenue, 43% and 44% of gross profit and 39% and
43% of operating income, respectively. Giving consideration to IVI's and
Checkmate's net cash amounts, Robertson Stephens noted that this data implied
equity ownership of the combined company by Checkmate's shareholders of
approximately 39% and 40%, 43% and 44%, and 39% and 43%, respectively, in each
case as compared to the equity ownership of the combined company by Checkmate's
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shareholders in the proposed Transaction of approximately 43%. The actual
results of IVI, Checkmate and the Company may vary from estimated results and
such variations may be material.
While the foregoing summary describes all material analyses and factors that
Robertson Stephens considered in rendering its opinion, it is not a
comprehensive description of all analyses and factors considered by Robertson
Stephens. The preparation of a fairness opinion is a complex process that
involves various determinations as to the most appropriate and relevant
quantitative and qualitative methods of financial analyses and the application
of those methods to the particular circumstances; therefore, such an opinion is
not readily susceptible to partial analysis or summary description. In arriving
at its opinion, Robertson Stephens did not attribute any particular weight to
any analysis or factor considered by it, but rather made qualitative judgments
as to the significance and relevance of each analysis and factor. Accordingly,
Robertson Stephens believes its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying the Robertson Stephens Opinion. For example,
certain of the analyses described above, including the comparable transaction
analysis, the pre-synergy pro forma earnings analysis and certain of the
contribution analyses, indicated implied acquisition value ranges below the
proposed transaction value. Several analytical methodologies were employed by
Robertson Stephens and no one method of analysis should be regarded as critical
to the overall conclusion by Robertson Stephens. Each analytical technique has
inherent strengths and weaknesses, and the nature of the available information
may further affect the value of particular techniques. The conclusions reached
by Robertson Stephens are based on all analyses and factors taken as a whole and
also on the application of Robertson Stephens' own experience and judgment. Such
conclusions may involve significant elements of subjective judgment and
qualitative analysis. Robertson Stephens therefore gives no opinion as to the
value or merit standing alone on any one or more parts of the analysis it
performed. In performing its analyses, Robertson Stephens made numerous
assumptions with respect to industry performance, general business and other
conditions and matters, many of which are beyond the control of IVI and
Checkmate. Any estimates contained in these analyses are not necessarily
indicative of actual values or predicative of future results or values, which
may be significantly more or less favorable than as set forth therein. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses actually may be sold in
the future, and such estimates are inherently subject to uncertainty.
IVI engaged Robertson Stephens pursuant to the Robertson Stephens Engagement
Letter based on Robertson Stephens's experience as a financial advisor in
connection with mergers and acquisitions and in securities valuations generally.
The Robertson Stephens Engagement Letter provides that, for its services,
Robertson Stephens is entitled to receive, contingent upon consummation of the
Transaction, a fee of $1,000,000, 20% of which was due and payable to Robertson
Stephens upon delivery of its fairness opinion to the IVI Board of Directors.
The remainder of the Robertson Stephens fee is due and payable upon the
consummation of the Transaction. IVI has also agreed to reimburse Robertson
Stephens for its out-of-pocket expenses (not to exceed $50,000), and to hold
harmless Robertson Stephens and its affiliates and any other person, director,
employee or agent of Robertson Stephens or any of its affiliates, or any person
controlling Robertson Stephens or its affiliates for certain losses, claims,
damages, expenses and liabilities relating to or arising out of services
provided by Robertson Stephens as financial advisor to IVI. The terms of the fee
arrangement with Robertson Stephens, which IVI and Robertson Stephens believe
are customary in transactions of this nature, were negotiated at arm's length
between IVI and Robertson Stephens, and the IVI Board of Directors was aware of
such fee arrangements.
Robertson Stephens is a nationally recognized investment banking firm. As
part of its investment banking business, Robertson Stephens is frequently
engaged in the valuation of business and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and other purposes. Robertson Stephens may
actively trade the equity of IVI and Checkmate for its own account and for the
account of its customers and, accordingly, may at any time hold a long or short
position in such securities.
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OPINION OF BT ALEX. BROWN. Checkmate retained BT Alex. Brown on September
29, 1997, to act as Checkmate's financial advisor in connection with the
Transaction, solely for the purpose of rendering its opinion to the Checkmate
Board of Directors (the "Checkmate Board") as to the fairness, from a financial
point of view, of the Checkmate Exchange Ratio to Checkmate's shareholders.
At the January 16, 1998, meeting of the Checkmate Board, representatives of
BT Alex. Brown made a presentation with respect to the Transaction and rendered
its oral opinion to the Checkmate Board, subsequently confirmed in writing, that
as of such date, and subject to the assumptions made, matters considered and
limitations set forth in such opinion and summarized below, the Checkmate
Exchange Ratio was fair, from a financial point of view, to Checkmate's
shareholders. No limitations were imposed by the Checkmate Board upon BT Alex.
Brown with respect to the investigations made or procedures followed by it in
rendering its opinion.
The full text of BT Alex. Brown's written opinion dated January 16, 1998
(the "BT Alex. Brown Opinion"), which sets forth among other things, assumptions
made, matters considered, limitations on the review undertaken and procedures
followed by BT Alex. Brown, is attached hereto as Annex G and is incorporated
herein by reference. CHECKMATE URGES ITS SHAREHOLDERS TO READ THE BT ALEX. BROWN
OPINION IN ITS ENTIRETY. THE BT ALEX. BROWN OPINION IS DIRECTED TO THE CHECKMATE
BOARD, ADDRESSES ONLY THE FAIRNESS OF THE CHECKMATE EXCHANGE RATIO TO
CHECKMATE'S SHAREHOLDERS FROM A FINANCIAL POINT OF VIEW AND DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY CHECKMATE SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD
VOTE AT THE CHECKMATE SHAREHOLDERS MEETING. The BT Alex. Brown Opinion was
rendered to the Checkmate Board for its consideration in determining whether to
approve the Combination Agreement and the Transaction. Management of Checkmate
and IVI determined the final consideration to be paid by agreeing on the
relative ownership of the Company, and BT Alex. Brown was not asked to, and did
not, recommend the specific consideration payable in the Transaction. The
discussion of the BT Alex. Brown Opinion in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of the BT Alex. Brown Opinion.
In connection with the BT Alex. Brown Opinion, BT Alex. Brown reviewed
certain publicly available financial information and other information
concerning Checkmate and IVI and certain internal analyses and other information
furnished to it by Checkmate and IVI. BT Alex. Brown also held discussions with
the members of the senior management of Checkmate and IVI regarding the
businesses and prospects of their respective companies and the joint prospects
of a combined company. In addition, BT Alex. Brown (i) reviewed the reported
prices and trading activity for the Checkmate Common Stock and the IVI Common
Shares, (ii) compared certain financial and stock market information for
Checkmate and IVI with similar information for certain other companies whose
securities are publicly traded, (iii) reviewed the financial terms of certain
recent business combinations, (iv) reviewed the terms of the Combination
Agreement and certain related documents, and (v) performed such other studies
and analyses and considered such other factors as it deemed appropriate.
In conducting its review and arriving at its opinion, BT Alex. Brown assumed
and relied upon, without independent verification, the accuracy, completeness
and fairness of the information furnished to or otherwise reviewed by or
discussed with it for purposes of rendering its opinion. With respect to the
financial projections and other information relating to the prospects of
Checkmate and IVI provided to BT Alex. Brown by each company, BT Alex. Brown
assumed that such projections and other information were reasonably prepared and
reflected the best currently available judgments and estimates of the management
of the respective companies and of the combined entity. The financial
projections of Checkmate and IVI that were provided to BT Alex. Brown were
utilized and relied upon by BT Alex. Brown in the analyses summarized below;
however, BT Alex. Brown relied more on publicly available Street estimates than
management projections for both companies in its analyses at the Transaction and
the preparation of the BT Alex. Brown Opinion. BT Alex. Brown assumed, with the
consent of Checkmate, that the Transaction would qualify for
pooling-of-interests accounting treatment and that the Merger would qualify as a
tax-free transaction for the Checkmate shareholders. BT Alex. Brown did not make
an independent evaluation or appraisal of the assets of IVI and Checkmate, nor
has BT Alex. Brown been furnished with any such
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evaluations or appraisals. The BT Alex. Brown Opinion is based on market,
economic and other conditions as they existed and could be evaluated as of the
date of the opinion letter.
Certain internal financial analyses and projections prepared by the
management of IVI and Checkmate referred to herein were provided to each of the
counterparties and the financial advisors as information for consideration in
conducting their financial analyses of the Transaction. The financial analyses
and projections were prepared by IVI and Checkmate for internal budgeting and
planning purposes only, not with a view to public disclosure or compliance with
the laws, regulations and professional standards regarding projections, and are
referred to herein solely because they were provided to the respective
counterparties and financial advisors. In addition, the projections are
forward-looking statements that were based upon a number of assumptions that are
subject to significant uncertainties and contingencies, including but not
limited to those set forth in "Risk Factors" herein; consequently, the
projections may differ materially from actual future results. The inclusion of
the projections in this Joint Proxy Statement/Prospectus should not be
interpreted as an indication that IVI, Checkmate, the Company, the respective
financial advisors or any other person considers such projections to have
meaningful predictive value. None of IVI, Checkmate or the Company, nor their
respective financial advisors, directors, officers, independent auditors or
attorneys, assumes any responsibility for the accuracy or completeness of such
financial analyses and projections.
The internal projections prepared by IVI management and by Checkmate
management for 1997, which were provided to the counterparties and the financial
advisors for use in their financial analyses, did not differ in any material
respects from the consensus Street estimates. The initial IVI management
projections for 1998 and 1999 which were provided to Checkmate and to each of
the financial advisors were subsequently revised by IVI. The revised IVI
management projections were only provided to Robertson Stephens for use in its
financial analyses. BT Alex. Brown has provided and considered the initial
internal projections prepared by IVI management in the performance of its
financial analyses. The revised IVI management projections used for 1998 and
1999 by Robertson Stephens in performing its financial analyses did not differ
in any material respects from the consensus Street estimates. The IVI management
estimates considered by BT Alex. Brown for 1998 and 1999 differed from the
consensus Street estimates and included estimated revenues of $62.7 million and
$74.1 million and earnings per share (adjusted using a 38% effective tax rate)
of $0.41 and $0.59 compared to consensus Street estimates of $59.6 million and
$70.7 million and $0.29 and $0.43, respectively. The internal projections
prepared by Checkmate management for 1998 and 1999 differed from the consensus
Street estimates and included estimated revenues of $50 million and $65 million
and earnings per share of $0.75 and $1.12 compared to consensus Street estimates
of $39.9 million and $52.5 million and $0.35 and $0.73, respectively.
In arriving at its opinion, BT Alex. Brown was not authorized to solicit,
and did not solicit, interest from any party with respect to the acquisition of
Checkmate or any of its assets, or any strategic business combination involving
Checkmate.
The following is a summary of the analyses performed and factors considered
by BT Alex. Brown in connection with the rendering of the BT Alex. Brown
Opinion.
ANALYSIS OF SELECTED PUBLIC COMPANIES. This analysis examines a company's
valuation in the public market as compared to the valuation in the public market
of other selected publicly traded companies in the computer peripheral
manufacturing industry. BT Alex. Brown compared certain financial and stock
market information for Checkmate with similar information for the following
selected publicly held companies: Checkpoint Systems Inc., GTECH Holdings Corp.,
Hypercom Corp., IVI, Kronos Incorporated, Micros Systems Inc., Symbol
Technologies Inc., and Telxon Corporation (collectively, the "Selected
Companies"). BT Alex. Brown calculated equity market values relative to each
company's net income for the latest reported twelve month period as derived from
publicly available information and relative to estimated earnings per share
("EPS") for calendar years 1997 and 1998 (IVI's EPS projections are averages of
estimated EPS reported by the research departments of CIBC Wood Gundy,
Credifinance Securities and Van Kasper & Co. and have been taxed using a 38% tax
rate). BT Alex. Brown also
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calculated adjusted market values (equity market value, plus debt, less cash and
equivalents ("Adjusted Value")) relative to each company's revenues for the
latest reported twelve month period as derived from publicly available
information and as estimated for calendar year 1998 by various research
analysts' reports and relative to earnings before interest and taxes ("EBIT")
for the latest reported twelve month period as derived from publicly available
information. All multiples were based on closing stock prices on January 15,
1998 (using data that was publicly available for all of the Selected Companies).
To the extent available, calendar 1997 and 1998 EPS estimates for the Selected
Companies were based on analysts' estimates as reported by I/B/E/S, a market
research database. EPS estimates for IVI were based on averages of CIBC Wood
Gundy, Credifinance Securities and Van Kasper & Co. research and all numbers
were taxed using a 38% tax rate. Hypercom Corp. priced its initial public
offering on November 14, 1997 and EPS estimates for Hypercom Corp. are from the
Lehman Brothers syndicate desk. This analysis indicated latest twelve months net
income multiples for Checkmate and IVI of 130.9x and 47.6x, respectively,
compared to a range of 15.5x to 54.0x, with a mean of 30.7x, for the Selected
Companies. For 1997, the projected EPS multiple for Checkmate was not meaningful
and for IVI was 35.6x compared to a range of 13.9x to 35.6x, with a mean of
24.6x, for the Selected Companies. For 1998, the projected EPS multiples for
Checkmate and IVI were 23.7x and 23.4x, respectively, compared to a range of
12.4x to 23.4x, with a mean of 18.4x, for the Selected Companies. BT Alex. Brown
further noted that, on a trailing twelve month basis, the multiple of Adjusted
Value to revenues was 1.2x for Checkmate and 1.1x for IVI, compared to a range
of 0.9x to 2.3x, with a mean of 1.7x, for the Selected Companies; on an
estimated calendar 1998 basis, the multiple of Adjusted Value to revenues was
1.0x for Checkmate and 0.9x for IVI compared to a range of 0.9x to 1.8x, with a
mean of 1.3x, for the Selected Companies; the multiple of Adjusted Value to EBIT
was 238.9x for Checkmate and 34.1x for IVI, compared to a range of 12.9x to
34.1x, with a mean of 18.8x for the Selected Companies. As a result of the
foregoing procedures, BT Alex. Brown noted that the multiples for Checkmate and
IVI were, in the case of the latest twelve months earnings multiples, generally
higher and within the range of multiples for the Selected Companies,
respectively. BT Alex. Brown noted that the multiples for Checkmate and IVI
were, in the case of revenue multiples, generally within the range of the
multiples for the Selected Companies. BT Alex. Brown also noted that the
multiple of Adjusted Value to trailing twelve months EBIT for Checkmate and IVI
was higher than the range, and at the high end of the range for the Selected
Companies, respectively. The I/B/ E/S reported mean EPS estimates as of January
15, 1998, for calendar years 1997 and 1998 were ($0.02) and $0.35 for Checkmate.
The estimates used for IVI for calendar years 1997 and 1998 were $0.19 and
$0.29.
ANALYSIS OF SELECTED MERGERS AND ACQUISITIONS. BT Alex. Brown reviewed the
financial terms, to the extent publicly available, of 11 proposed, pending or
completed mergers and acquisitions since August 1994 in the computer peripheral
manufacturing industry (the "Selected Transactions"). BT Alex. Brown calculated
various financial multiples based on certain publicly available information for
each of the Selected Transactions. The 11 transactions reviewed, in reverse
chronological order of public announcement, were: Total Control Products,
Inc./Computer Dynamics, Inc. (9/22/97), Hewlett-Packard Co./VeriFone, Inc.
(4/23/97), Western Atlas, Inc./United Barcode Industries (3/20/97), Robotic
Vision Systems Inc./Computer Identics Corp. (6/11/96), PSC Inc./Data Capture
Group of Spectra-Physics AB (5/21/96), Diebold Inc./Griffin Technology Inc.
(10/23/95), Robotic Vision Systems Inc./Acuity Imaging Inc. (7/12/95), De La Rue
Co PLC/Brandt Inc. (7/4/95), Information International Inc./Autologic Inc.
(6/26/95), BancTec Inc./Recognition International Inc. (5/19/95), International
Verifact Inc./Soricon Corp (8/29/94). These transactions involved the
acquisition of computer peripheral manufacturers. BT Alex. Brown noted that the
multiple of adjusted purchase price (value of consideration paid for common
equity adjusted for debt, preferred stock and cash) to trailing twelve months
revenues was 1.3x for the Merger versus a range of 0.4x to 2.6x, with a mean of
1.3x, for the Selected Transactions (using data that was publicly available for
ten of the Selected Transactions). BT Alex. Brown noted that the multiple of
Adjusted Value to trailing twelve months EBIT was 249.9x compared to a range of
5.8x to 55.0x with a mean of 23.4x (using data that was publicly available for
eight of the Selected Transactions). BT Alex. Brown further noted that the
multiple
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of equity purchase price to trailing twelve months net income was not meaningful
for the Merger versus a range of 19.1x to 92.5x, with a mean of 46.7x for the
Selected Transactions (using data that was publicly available for nine of the
Selected Transactions). BT Alex. Brown noted that revenue and EBIT multiples for
the Merger were within the range and above the range of the Selected
Transactions, respectively. This analysis was one of the factors that supported
the conclusion of the BT Alex. Brown Opinion. All multiples for the Selected
Transactions were based on public information available at the time of
announcement of such transaction, without taking into account differing market
and other conditions during the period during which the Selected Transactions
occurred.
ANALYSIS OF SELECTED TRANSACTION PREMIUMS. BT Alex. Brown reviewed premiums
paid in selected merger of equals transactions completed between July 1988 and
February 1997 ("Selected Premiums"). This analysis was based on publicly
available information. BT Alex. Brown noted that these transactions were
effected at a range of premiums to the targets' per share market price 30 days
prior to announcement, 15 days prior to announcement and one day prior to
announcement of -6.2% to 67.6% with a mean of 15.5%, -7.5% to 68.6%, with a mean
of 15.2%, and -6.9% to 64.4% with a mean of 13.0% respectively, versus
transaction premiums of 18.9%, 13.8% and 3.2%, respectively, for the Transaction
(based on the per share market price 30 days prior to, 15 days prior to and one
day prior to the January 16, 1998 announcement of the Transaction).
HISTORICAL EXCHANGE RATIO ANALYSIS. BT Alex. Brown reviewed and analyzed
the historical ratio of the daily per share market closing prices of Checkmate
Common Stock divided by the corresponding prices of the IVI Common Shares over
the 60 day, 30 day and one day prior periods to January 15, 1998 (the last
business day prior to announcement of the Transaction). Such average exchange
ratios for the aforementioned time periods and as of such date were 0.9903,
1.0274 and 1.2383, respectively. BT Alex. Brown then calculated the respective
premiums over such average daily exchange ratios represented by the Checkmate
Exchange Ratio, which for the same time periods and as of such date were 29.0%,
24.3% and 3.2%, respectively. BT Alex. Brown noted that the premiums over the
average daily exchange ratios, for such periods, represented by the Checkmate
Exchange Ratio generally decreased over the same periods prior to January 16,
1998. BT Alex. Brown noted that the price of the Checkmate Common Stock
outperformed that of the IVI Common Shares over these periods. BT Alex. Brown
reviewed premiums to exchange ratios in merger of equals transactions completed
between July 1988 and February 1997. This analysis was based on publicly
available information. BT Alex. Brown noted that these transactions indicated a
range in premium to average exchange ratios 30 days, 15 days and one day prior
to announcement of -5.5% to 86.1% with a mean of 12.7%, -7.6% to 88.6%, with a
mean of 13.1% and -6.9% to 64.4% with a mean of 13.0%.
CONTRIBUTION ANALYSIS. BT Alex. Brown analyzed the relative contributions
of Checkmate and IVI to, among other things, the revenues, gross profits,
operating income, net income and fully taxed net income (assuming a tax rate of
38%) of the pro forma combined company for the latest 12 months ended September
30, 1997 and to the estimated net income of the pro forma combined company for
calendar years 1997 and 1998 based on internal estimates of the respective
management of Checkmate and IVI and, with respect to Street estimates (as
defined below) for 1998, the projections referred to below, and compared such
contributions to the pro forma ownership of the current holders of Checkmate
Common Stock in the pro forma combined company. This analysis indicated that (i)
for the latest 12 months ended September 30, 1997, Checkmate would have
contributed approximately 40.3% of the revenues, 44.7% of the gross profit, 9.6%
of the operating income, 14.2% of the net income and 21.0% of the fully taxed
net income of the pro forma combined company; and (ii) in calendar years 1997
and 1998, Checkmate would contribute approximately 39.1% and 44.4%,
respectively, of the revenues, approximately 42.4% and 48.9%, respectively, of
the gross profit, 0.0% and 52.9%, respectively, of the operating income,
approximately 0.0% and 42.4%, respectively, of the net income and approximately
0.0% and 54.3%, respectively, of the fully taxed net income, in each case, of
the pro forma combined company and (iii) in calendar year 1998, based upon
Street estimates, Checkmate would contribute approximately 40.1% of revenues and
42.9% of
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fully taxed net income. "Street estimates" for Checkmate are averages of Morgan
Keegan, Interstate/ Johnson Lane and Robinson Humphrey's estimates. Street
estimates for IVI are averages of CIBC Wood Gundy, Credifinance Securities and
Van Kasper & Co. estimates. Based on the Checkmate Exchange Ratio, current
holders of Checkmate Common Stock would own approximately 43.0% of the pro forma
combined company upon consummation of the Transaction. Actual operating results
or the financial performance achieved by IVI, Checkmate and the Company may vary
from estimated results and the variations may be material.
The analyses described above, when considered in total, were factors which
supported BT Alex. Brown's Opinion as to the fairness, from a financial point of
view, of the Checkmate Exchange Ratio to the Checkmate Shareholders, except that
Checkmate's contribution to gross profit for the latest 12 months ended
September 30, 1997 and Checkmate's contributions based on management estimates
for the pro forma combined companies for calendar year 1998 do not, when viewed
in isolation, support BT Alex. Brown's Opinion.
PRO FORMA COMBINED EARNINGS ANALYSIS. BT Alex. Brown analyzed certain pro
forma effects of the Merger. Based on such analysis, BT Alex. Brown computed the
resulting dilution/accretion to the combined company's EPS estimates based on
the projections prepared by the respective managements of Checkmate and IVI for
the fiscal years ending December 31, 1998 and December 31, 1999, pursuant to the
Transaction before taking into account any potential cost savings and other
synergies that IVI and Checkmate may achieve if the Transaction were consummated
and before nonrecurring costs relating to the Transaction. BT Alex. Brown noted
that before taking into account any potential cost savings and other synergies
and before certain nonrecurring costs relating to the Transaction, the
Transaction would be approximately 23.4% accretive and 25.2% accretive to the
combined company's EPS for the fiscal years ending December 31, 1998 and
December 31, 1999 respectively. The actual results of IVI, Checkmate and the
Company may vary from estimated results and such variations may be material.
Based on research analysts' estimates and before taking into account any
potential cost savings and other synergies and before certain nonrecurring costs
relating to the Transaction, the Transaction would be approximately 1.1%
dilutive in 1998 and 14.6% accretive in 1999. BT Alex. Brown also noted that
after taking into account a range of estimated possible cost savings and other
synergies of $0.0 million to $5.0 million for the fiscal year ending December
31, 1998 and before certain nonrecurring costs relating to the Transaction, the
Transaction would be approximately -1.1% to 66.8% accretive to the combined
company's EPS for the fiscal year ending December 31, 1998 and December 31,
1999, respectively. There can be no assurance that the combined company will be
able to realize savings and synergies in the amounts identified, or at all,
following the Transaction.
DISCOUNTED CASH FLOW ANALYSIS. BT Alex. Brown performed discounted cash
flow analyses of Checkmate. The discounted cash flow approach values a business
based on the current value of the future cash flow that the business will
generate. To establish a current value under this approach, future cash flow
must be estimated and an appropriate discount rate determined. BT Alex. Brown
used estimates of projected financial performance for Checkmate for the years
1998 through 2002 reviewed by and agreed to by Checkmate's and IVI's respective
management. BT Alex. Brown aggregated the present value of the cash flows
through 2002 with the present value of a range of terminal values. BT Alex.
Brown discounted these cash flows at discount rates ranging from 16.5% to 20.5%.
The terminal value was computed based on projected revenues and projected net
income in calendar years 2002 and 2003, respectively, and a range of terminal
multiples of 0.7x to 0.9x and 13.0x to 15.0x, respectively. This analysis
indicated a range of values for the Checkmate Common Stock of $7.14 to $10.18
per share. BT Alex. Brown noted that the per share value of a share of Checkmate
Common Stock implied in the Merger, calculated by multiplying the Checkmate
Exchange Ratio by IVI's then most recent share price, was approximately $8.54
and within the range of the values per share of Checkmate Common Stock implied
by the Discounted Cash Flow Analysis. This analysis was one of the factors that
supported the conclusion of the BT Alex. Brown Opinion. BT Alex. Brown arrived
at such discount rates based on its judgment of the weighted average cost
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of capital of publicly traded companies and arrived at such terminal values
based on its review of the trading characteristics of the common stock of the
Selected Companies.
RELEVANT MARKET AND ECONOMIC FACTORS. In rendering its opinion, BT Alex.
Brown considered, among other factors, the condition of the U.S. and Canadian
stock markets, and the current level of economic activity.
No company used in the analysis of selected publicly traded companies is
identical to Checkmate or IVI nor is any transaction used in the analysis of
selected mergers and acquisitions summarized above identical to the Transaction.
Accordingly, such analyses must take into account differences in the financial
and operating characteristics of the Selected Companies and the companies in the
Selected Transactions and the Selected Premiums and other factors that would
affect the public trading value, acquisition value and premiums paid of the
Selected Companies, the Selected Transactions and the Selected Premiums,
respectively.
While the foregoing summary describes all analyses and factors that BT Alex.
Brown deemed material in its presentation to the Checkmate Board, it is not a
comprehensive description of all analyses and factors considered by BT Alex.
Brown. The preparation of a fairness opinion is a complex process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances, and therefore such an opinion is not readily susceptible to
summary description. BT Alex. Brown believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, would
create an incomplete view of the evaluation process underlying the BT Alex.
Brown Opinion. In performing its analyses, BT Alex. Brown considered general
economic, market and financial conditions and other matters, many of which are
beyond the control of IVI and Checkmate. The analyses performed by BT Alex.
Brown are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than those suggested by such
analyses. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. Additionally, analyses relating to the value of a
business do not purport to be appraisals to reflect the prices at which the
business or its assets actually may be sold. Furthermore, no opinion is being
expressed as to the prices at which shares of Checkmate Common Stock may trade
at any future time. Each of the analyses may be subject to change depending on
the availability of new information which may affect the valuations.
Pursuant to a letter agreement dated September 29, 1997 between Checkmate
and BT Alex. Brown, the fees to date payable to BT Alex. Brown for rendering the
BT Alex. Brown Opinion have been $150,000. If the Transaction is consummated,
Checkmate has agreed to pay BT Alex. Brown a fee equal to 1.0% of the aggregate
consideration paid to Checkmate or its shareholders in the Transaction, but in
no event less than $500,000, less the $150,000 described in the preceding
sentence. Aggregate consideration means the total amount of cash and the fair
market value on the Closing Date of all Company Common Stock to be received by
Checkmate shareholders in the Transaction. BT Alex. Brown estimates that, based
on the closing market prices of IVI as of May 15, 1998, the fee payable to BT
Alex. Brown upon completion of the Transaction would be $500,000. In addition,
Checkmate has agreed to reimburse BT Alex. Brown for its reasonable
out-of-pocket expenses, not to exceed $25,000, incurred in connection with
rendering financial advisory services, including fees and disbursements of its
legal counsel. Checkmate has agreed to indemnify BT Alex. Brown and its
directors, officers, agents, employees and controlling persons for certain
costs, expenses, losses, claims, damages and liabilities related to or arising
out of its rendering of services under its engagement as financial advisor. In
accordance with recognized professional standards as generally practiced in the
valuation industry, the fee for BT Alex. Brown's services is not contingent upon
BT Alex. Brown's conclusions. BT Alex. Brown has reasonably concluded that no
officer or director of BT Alex. Brown has a material financial interest in the
Transaction.
The Board of Directors of Checkmate retained BT Alex. Brown to act as its
advisor, solely for the purpose of rendering its opinion as to the fairness,
from a financial point of view, of the Checkmate Exchange Ratio to Checkmate's
shareholders, based upon BT Alex. Brown's qualifications, reputation,
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experience and expertise. BT Alex. Brown is an internationally recognized
investment banking firm, and as a customary part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions negotiated underwriting, private
placements and valuations for corporate and other purposes. BT Alex. Brown may
actively trade the equity securities of Checkmate and IVI for its own account
and for the account of its customers and accordingly may at any time hold a long
or short position in such securities. BT Alex. Brown regularly publishes
research reports regarding the technology industry.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
INGENICO AGREEMENTS. On December 17, 1996, IVI entered into an Alliance
with Ingenico, which owned approximately 16.7% of the issued and outstanding IVI
Common Shares as of May 1, 1998. Ingenico develops, distributes, markets and
manufactures transaction terminals with application to payment systems, loyalty
programs, EBT systems and terminal systems for smart card technology,
principally in Europe, Australia and the Asia Pacific region.
The Alliance enabled IVI to gain exclusive rights to market Ingenico
products and technology in the Americas, to gain access to Ingenico's smart card
technology, raise capital and benefit from joint product development, purchasing
and manufacturing, and provides Ingenico with access to the North American
market for its products. To achieve this Alliance, IVI and Ingenico entered into
a Master Alliance Agreement dated December 5, 1996, and five separate
agreements, each dealing with a separate aspect of the Alliance.
The Master Alliance Agreement established the general framework of the
Alliance and set out certain provisions which govern all aspects of the
Alliance. Specifically, the Master Alliance Agreement provided that Ingenico and
IVI would enter into a Marketing and Distribution Agreement, the Latin America
joint venture Shareholders' Agreement, a Joint Development and Procurement
Agreement, a Technology Licence Agreement and an Investment Agreement. The
Investment Agreement, dated December 5, 1996, contemplated that Ingenico would
make an investment in IVI when the foregoing agreements were entered into.
Under the Marketing and Distribution Agreement, Ingenico has appointed IVI
for a period of ten years as its exclusive distributor of certain Ingenico
products, Ingenico future products, Ingenico technology and UNICAPT technology
in a specified territory, which includes all of the Western Hemisphere except
for Cuba and certain French territories in the Caribbean. Similarly, IVI has
appointed Ingenico for a period of ten years as distributor of certain IVI
products, IVI future products and IVI technology in the rest of the world.
Neither party granted the other the right to manufacture any of their products
in the other's territory.
The Shareholders' Agreement with respect to the Latin American joint
venture, IVI Ingenico Inc., provides the basis for which products are to be
supplied to IVI Ingenico Inc. by Ingenico and IVI and terms restricting the sale
of shares of IVI Ingenico Inc. by either of Ingenico or IVI. It also provides
dispute resolution mechanisms including arbitration and a buy-sell arrangement.
IVI Ingenico Inc. is the distributor in Latin America (defined to constitute all
of the Western Hemisphere other than Canada and the United States) of the
products and technology of both IVI and Ingenico.
IVI and Ingenico each currently own 50% of the issued and outstanding
capital stock of IVI Ingenico Inc., and the daily management of IVI Ingenico
Inc. is directed by Ingenico.
The Joint Development and Procurement Agreement provides for joint
development of future products between Ingenico and IVI. An advisory committee
was formed to review product development plans and coordinate their development
between the parties. Any common future products which are so developed may be
distributed by Ingenico and IVI in their respective territories. Alternatively,
either party is permitted to contract with the other to produce a particular
product which may also be distributed by both parties. Similarly, there is a
procedure for the formation of a procurement and manufacturing team
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which coordinates procurement and manufacturing by both parties with a view to
lowering costs, enhancing negotiating power and permit volume buying.
Pursuant to the Technology Licence Agreement, IVI acquired, for U.S.$1
million, the following:
- the irrevocable, royalty-free, exclusive licence to use and incorporate
the UNICAPT technology and certain intellectual property of Ingenico
relating to the UNICAPT technology into IVI products and IVI future
products manufactured by or for IVI worldwide or used or marketed and
distributed pursuant to the Marketing and Distribution Agreement;
- a similar licence to develop, support and maintain applications for
certain Ingenico products, Ingenico future products, IVI products and IVI
future products incorporating the UNICAPT technology;
- licences to any third party technology and/or intellectual property which
are incorporated into the UNICAPT technology; and
- the right to sublicence these rights to IVI's affiliates and end user
customers.
Under the Investment Agreement, Ingenico and its Chairman, Jean-Jacques
Poutrel, agreed to purchase 1,439,000 IVI Common Shares. The purchase price per
share for such shares was $6.89 (in Canadian dollars), which equaled the simple
average closing price per share of the IVI Common Shares on the TSE for each of
the 30 trading days prior to December 5, 1996. IVI also granted to Ingenico a
future participation right enabling it to preserve an ownership position of not
less than 15% of IVI's Common Shares on a non-diluted basis by subscribing to
purchase additional IVI Common Shares at any time IVI issues additional IVI
Common Shares. The price payable by Ingenico for additional IVI Common Shares
would be that offered to other purchasers in the circumstances of a private
placement or public offering, or, in certain cases, a price equal to the
weighted average trading price of the IVI Common Shares on the TSE during the 30
trading days preceding notice to Ingenico of the issuance by IVI of additional
IVI Common Shares. The Investment Agreement also contains anti-dilution
provisions.
Pursuant to the Investment Agreement, IVI also agreed to take the steps
necessary to reconstitute the Board of Directors of IVI so that it would be
comprised of eight members, two of whom would be nominees of Ingenico. The Board
of Directors of IVI has since been expanded to nine members. One nominee of
Ingenico is to be a member of the Nominating Committee of the Board of
Directors. If Ingenico's ownership position in IVI decreases to a percentage of
less than 15% but more than 5% on a non-diluted basis, then Ingenico will be
permitted only one nominee on the Board of Directors. If Ingenico's ownership
position in IVI decreases below 5%, it will not have the contractual ability to
nominate a director of IVI.
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Contemporaneously with the execution of the Combination Agreement, IVI, the
Company and Ingenico entered into the Assignment, Assumption and Consent
Agreement, pursuant to which the Ingenico Agreements will be assigned to and
assumed by the Company as of the Effective Date. The result is that the Company
will have all of the right, title, interest, liabilities and obligations that
IVI had under the Ingenico Agreements. The effect of such assignment and
assumption with respect to the Investment Agreement is that on the Effective
Date the Company will be obliged to advise Ingenico that its shareholdings have
fallen below 15% of the issued and outstanding participating equity (which for
such purposes will include the Exchangeable Shares) of the Company (the "15%
Threshold"). Ingenico will then have ten days from the date it receives such
notice to advise the Company in writing whether or not it intends to exercise
the Participation Right it has under the Investment Agreement to acquire from
the Company such additional shares of Company Common Stock so as to bring its
holdings to the 15% Threshold. If Ingenico does signify its intention to
increase its holdings to the 15% Threshold, it must acquire such shares within
90 calendar days of the date of receipt of the notice of the Company referred to
above. Such additional shares will be purchased by Ingenico for a
price-per-share equal to the weighted average trading price of the IVI Common
Shares on the TSE for the 30 days preceding the notice of the Company to
Ingenico. See "The Companies After the Transaction -- Principal Stockholders."
STOCKHOLDERS AGREEMENT. Ingenico, Mr. Spence and Mr. Moore, who
collectively, after giving effect to the Transaction, will beneficially own
approximately 24.1% of the Company Common Stock, entered into the Stockholders
Agreement as of January 16, 1998, which provides that (i) for a period ending at
the earlier of 18 months from the Effective Date or December 31, 1999, each
party will vote against any business combination transaction involving the
Company and will not tender its or his shares into a tender offer if the
consideration to be received by each stockholder of the Company is less than $15
per share; (ii) for a period of three years from the Effective Date, each party
will vote and take other necessary actions for the election of Messrs. Compain,
Spence and Whitton to the Board of Directors of the Company and use their best
efforts to ensure that Mr. Spence is appointed Chairman of the Board, Mr.
Whitton is appointed Vice Chairman of the Board and Mr. Compain is appointed a
member of the Executive Committee of the Board; and (iii) no party will sell its
Company Common Stock except in an offering registered under the Securities Act,
pursuant to Rule 144 or as otherwise contemplated under the Stockholders
Agreement unless the transferee of such Company Common Stock agrees in writing
to be bound by the terms of the Stockholders Agreement. The parties to the
Stockholder Agreement also agree not to initiate a tender offer for less than
$15 per share except in response to a tender offer made by an unrelated third
party. In the event that Ingenico is prohibited under the circumstances set
forth in the Stockholders Agreement from exercising its Participation Right
under the Investment Agreement, the Stockholders Agreement will terminate.
EMPLOYMENT AGREEMENTS
Certain members of the management and the Board of Directors of IVI and
Checkmate have entered into employment agreements with IVI, Checkmate or the
Company in connection with the Transaction. See "The Companies After the
Transaction -- Employment Agreements."
ANTICIPATED ACCOUNTING TREATMENT
The Transaction is anticipated to be accounted for using the
pooling-of-interests accounting method under U.S. GAAP. Under this method of
accounting, the assets and liabilities of IVI and Checkmate would be added
together at their recorded book values and the shareholders' equity accounts of
IVI and Checkmate would be combined on the Company's consolidated balance sheet.
Consummation of the Transaction is conditioned on, among other things, receipt
by each of IVI and Checkmate of letters from their respective independent
auditors to the effect that such firm is not aware of any matters relating to
IVI and its subsidiaries or Checkmate, respectively, which would preclude the
Transaction from qualifying for pooling-of-interests accounting treatment and
receipt by each of IVI and Checkmate of letters from
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IVI's independent auditors to the effect that in the opinion of such firm the
Transaction qualifies for pooling-of-interests accounting treatment.
THE TRANSACTION AND DESCRIPTION OF EXCHANGEABLE SHARES
THE ARRANGEMENT
Pursuant to the terms of the Plan of Arrangement, at the Effective Time, the
following actions will be taken, in the following order:
(a) the articles of continuance of IVI will be amended to authorize a
class of Exchangeable Shares and one Series A Preferred Share of IVI (the
"Series A Preferred Share");
(b) IVI will issue to the Company the Series A Preferred Share in
consideration of the issuance to IVI of one share of the preferred stock,
$.01 par value, of the Company (the "Company Preferred Stock"). The stated
capital of the Series A Preferred Share will be equal to the fair market
value, as determined by the IVI Board, of a share of Company Preferred
Stock. No certificate will be issued in respect of the Series A Preferred
Share;
(c) each of the IVI Common Shares (other than IVI Common Shares held by
holders who have exercised their rights of dissent in accordance with the
Plan of Arrangement and who are ultimately entitled to be paid fair value
for such shares) will be exchanged either (i) with IVI, for a number of
Exchangeable Shares at the IVI Exchange Ratio, or (ii) with the Company, for
a number of shares of Company Common Stock at the IVI Exchange Ratio, at the
holder's election. Each holder of IVI Common Shares (other than IVI Common
Shares held by holders who have exercised their rights of dissent in
accordance with the Plan of Arrangement and who are ultimately entitled to
be paid fair value for such shares) will receive that whole number of
Exchangeable Shares or shares of Company Common Stock, as the case may be,
resulting from the exchange of such holder's IVI Common Shares. No
fractional shares of Company Common Stock or fractional Exchangeable Shares
will be issued and no certificate therefor will be issued. In addition, no
consideration will be delivered in exchange for fractional shares. Any
holder of IVI Common Shares who would otherwise be entitled to receive a
fraction of an Exchangeable Share or fractional share of Company Common
Stock, as the case may be, shall, upon surrender of his certificate or
certificates representing IVI Common Shares, receive a share certificate
adjusted to the next lower whole number of shares of Company Common Stock or
Exchangeable Shares, as the case may be;
(d) upon the exchange referred to in paragraph (c) above, each holder of
an IVI Common Share shall cease to be such a holder, shall have his name
removed from the register of holders of IVI Common Shares and will be
entitled to receive either (i) the number of fully paid Exchangeable Shares
to which he is entitled as a result of the exchange referred to in paragraph
(c) or (ii) the number of fully paid shares of Company Common Stock to which
he is entitled as a result of the exchange referred to in paragraph (c), and
such holder's name shall be added to the register of holders of Exchangeable
Shares or the register of holders of shares of Company Common Stock, as the
case may be;
(e) the stated capital of the Exchangeable Shares will be equal to the
stated capital immediately prior to the Arrangement of the IVI Common Shares
actually exchanged for Exchangeable Shares;
(f) the holders of IVI Common Shares that elect to receive Exchangeable
Shares (i) will grant and transfer directly to the Company the Call Rights
and (ii) will receive directly from the Company the Voting Rights and the
Exchange Rights;
(g) the one outstanding Series A Preferred Share held by the Company
will be exchanged for one IVI Common Share and the Company will cease to be
a holder of the Series A Preferred Share and the one Series A Preferred
Share will be canceled by IVI;
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(h) the stated capital of the one IVI Common Share will be equal to the
stated capital of the one Series A Preferred Share prior to the Arrangement;
and
(i) the Company Preferred Stock will be purchased from IVI by the
Company for the fair market value determined by the Board of Directors of
IVI and immediately thereafter shall be canceled by the Company.
As a result, immediately following the Effective Time, the IVI Common Shares
will be wholly owned by the Company and former holders of IVI Common Shares will
hold shares of Company Common Stock or Exchangeable Shares.
As noted above, at the Effective Time, each IVI Common Share will
automatically be transferred to IVI or the Company for the applicable
consideration. Enclosed with copies of this Joint Proxy Statement/ Prospectus
delivered to the registered holders of IVI Common Shares are the Letter of
Transmittal and Election Form which when duly completed and returned together
with all required share certificates and payments will enable the holder to
receive the consideration to which such holder is entitled. See "The Combination
Agreement -- Distribution of Certificates." If the Letter of Transmittal and
Election Form is not completed by a shareholder or no election is made by a
shareholder, then such shareholder will be deemed to have elected to receive
Exchangeable Shares.
EXCHANGE RIGHTS AND CALL RIGHTS. Holders of the Exchangeable Shares will be
entitled at any time following the Effective Time to retract (i.e., require IVI
to redeem) any or all such Exchangeable Shares owned by them and to receive an
equivalent number of shares of Company Common Stock plus an additional amount
equivalent to all declared and unpaid dividends on such Exchangeable Shares.
Holders of the Exchangeable Shares may effect such retraction by presenting a
certificate or certificates to IVI or its transfer agent representing the number
of Exchangeable Shares the holder desires to retract together with a duly
executed statement in the form of Schedule A to the Exchangeable Share
Provisions or in such other form as may be acceptable to IVI and the transfer
agent (the "Retraction Request") specifying the number of Exchangeable Shares
the holder wishes to retract. IVI shall redeem the Exchangeable Shares that are
the subject of the Retraction Request on the sixth business day after receiving
such request by the transfer agent (the "Retraction Date").
Upon receipt of the Exchangeable Shares, the Retraction Request and such
other required documentation and instruments as may be required to effect a
transfer of Exchangeable Shares from the holder thereof, the transfer agent must
immediately notify the Company of such Retraction Request. The Company will
thereafter have five business days in which to exercise a call right (the
"Retraction Call Right") to purchase all of the Exchangeable Shares submitted by
the holder thereof by the delivery of an equivalent number of shares of Company
Common Stock plus an additional amount equivalent to the full amount of all
declared and unpaid dividends on the Exchangeable Shares to the transfer agent
for delivery to such holder on the Retraction Date. In the event the Company
determines not to exercise its Retraction Call Right, IVI is obligated to
deliver to the holder the number of shares of Company Common Stock equal to the
number of Exchangeable Shares submitted by the holder for retraction and payment
of an additional amount equivalent to the full amount of all declared and unpaid
dividends on such Exchangeable Shares by the Retraction Date.
Subject to applicable law and the Redemption Call Rights of the Company
described below, on the Automatic Redemption Date (which will be (i) the tenth
anniversary of the Effective Date, (ii) any earlier date determined by the IVI
Board when less than 5% of the Exchangeable Shares issued on the Effective Date
are outstanding (other than Exchangeable Shares held by the Company and its
affiliates and as such number may be adjusted as deemed appropriate by the IVI
Board of Directors to give effect to stock splits or other changes in the
capital structure of IVI), (iii) the business day prior to the record date for
any meeting of shareholders of IVI, except that referred to in (iv) below, or
(iv) the business day following the day holders of Exchangeable Shares fail to
take the necessary actions to approve or disapprove, as applicable, any change
to, or in the rights of holders of Exchangeable Shares, if the approval or
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disapproval, as applicable, of such change would be required to maintain the
economic or legal equivalence of the Exchangeable Shares and the Company Common
Stock) IVI must redeem all but not less than all of the then-outstanding
Exchangeable Shares in exchange for an equal number of shares of Company Common
Stock, plus an additional amount equivalent to the full amount of all declared
and unpaid dividends on such Exchangeable Shares. Notwithstanding any proposed
redemption of the Exchangeable Shares, the Company will have the overriding
right (the "Redemption Call Right") to purchase on the Automatic Redemption Date
all but not less than all of the then-outstanding Exchangeable Shares by the
exchange of one share of Company Common Stock for each such Exchangeable Share,
plus an additional amount equivalent to the full amount of all declared and
unpaid dividends on such Exchangeable Share. The Company shall, at least 125
days before the Automatic Redemption Date, provide the Transfer Agent with
written notice of the exercise of the Redemption Call Right and purchase of the
Exchangeable Shares by the Company. For a more detailed description of the
Exchange Rights and the Call Rights (as defined below), see "Description of
Capital Stock -- IVI Capital Shares," "-- Exchangeable Shares," "-- Voting and
Exchange Trust Agreement" and "-- Call Rights."
The one-to-one exchange ratio upon any retraction (or exercise of the
Retraction Call Right) or upon the Automatic Redemption Date is subject to
adjustment or modification in the event of a stock split or other changes to the
capital structure of the Company so as to maintain (upon redemption by IVI or
purchase by the Company) the economic equivalence of the initial one-to-one
ratio between the Exchangeable Shares and shares of Company Common Stock.
EFFECT OF CALL RIGHT EXERCISE. If the Company exercises one or more of its
Call Rights, it will directly issue shares of Company Common Stock to holders of
Exchangeable Shares and will become the holder of such Exchangeable Shares. The
Company will not be entitled to exercise any voting rights attached to the
Exchangeable Shares it so acquires. If the Company declines to exercise its Call
Rights when applicable, it will be required, pursuant to the Support Agreement,
to issue Company Common Stock to IVI which will, in turn, transfer such stock to
the holders of Exchangeable Shares in consideration for the return and
cancellation of such Exchangeable Shares. The tax consequences resulting from
the Company's exercise of one or more of the Call Rights are discussed in
"Material Income Tax Considerations to IVI Shareholders," which includes a
discussion on deemed dividends.
VOTING, DIVIDEND AND LIQUIDATION RIGHTS OF HOLDERS OF EXCHANGEABLE SHARES.
On the Effective Date, IVI, the Company and Montreal Trust Company of Canada
(the "Trustee") will enter into the Voting and Exchange Trust Agreement in the
form attached hereto as Annex H (the "Voting and Exchange Trust Agreement").
Pursuant to the terms of the Voting and Exchange Trust Agreement, the Company
will on the Effective Date deposit with the Trustee the one share of Series B
Special Voting Stock, par value $.01 per share (the "Voting Share"), which will
entitle the Trustee to a number of votes equal to the number of Exchangeable
Shares outstanding from time to time that are not held by the Company or
entities controlled by the Company. With respect to any matter as to which
holders of shares of Company Common Stock are entitled to vote, each holder of
an Exchangeable Share will have the right to instruct the Trustee as to the
manner of voting for one of the votes comprising the Voting Share for each
Exchangeable Share owned by such holder. The number of votes that the Trustee
may exercise at any particular meeting will be reduced to the extent
instructions are not received from holders of Exchangeable Shares (the "Voting
Rights"). See "Description of Capital Stock -- Voting and Exchange Trust
Agreement -- Voting Rights."
Upon the occurrence of an Insolvency Event or Default Event, holders of the
Exchangeable Shares will have rights to receive from the Company one share of
Company Common Stock for each Exchangeable Share they hold, plus an additional
amount equivalent to the full amount of any declared and unpaid dividends on
each such Exchangeable Share (such one-to-one ratio is subject to adjustment or
modification in the event of certain stock splits or other changes to the
capital structure of the Company so as to maintain the economic equivalence of
the initial one-to-one ratio between the Exchangeable Shares and shares of the
Company Common Stock). For purposes of the Voting and Exchange Trust Agreement,
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"Insolvency Event" means the initiation by IVI of a bankruptcy, insolvency,
liquidation or other similar proceeding, or the filing by a third party of an
action seeking the dissolution or winding up of IVI and the failure of IVI to
protest such filing within fifteen days of becoming aware thereof, or the
consent by IVI to the filing of such action or to the appointment of a receiver
or the making by IVI of a general assignment for the benefit of creditors or the
admission in writing by IVI of its inability to pay its debts generally as they
become due, or IVI not being permitted, pursuant to solvency requirements of
applicable law, to redeem any Exchangeable Shares on the exercise by a holder of
Exchangeable Shares of his right of retraction. Under the terms of the Voting
and Exchange Trust Agreement, the term "Default Event" means any failure of IVI
to comply with the terms of the Exchangeable Share Provisions (but excluding any
failure to redeem shares upon exercise by a holder of an Exchangeable Share of
his retraction rights, which shall be deemed to be an Insolvency Event). In the
event of an Insolvency Event, the Company will have the right to purchase all of
the outstanding Exchangeable Shares from the holders thereof at the effective
time of any such liquidation, dissolution, or winding up in exchange for one
share of Company Common Stock for each such Exchangeable Share, plus an
additional amount equivalent to the full amount of all declared and unpaid
dividends on such Exchangeable Share (such one-to-one ratio is subject to
adjustment or modification in the event of certain stock splits or other changes
to the capital structure of the Company so as to maintain the economic
equivalence of the initial one-to-one ratio between the Exchangeable Shares and
shares of the Company Common Stock).
Five (5) business days prior to a Liquidation Event, in order for the
holders of the Exchangeable Shares to participate on a pro rata basis with the
holders of shares of Company Common Stock, each holder of Exchangeable Shares
will automatically receive in exchange therefor an equivalent number of shares
of Company Common Stock, plus an additional amount equivalent to the full amount
of any declared and unpaid dividends on such Exchangeable Shares (such
one-to-one ratio is subject to adjustment or modification in the event of
certain stock splits or other changes to the capital structure of the Company so
as to maintain the economic equivalence of the initial one-to-one ratio between
the Exchangeable Shares and shares of the Company Common Stock). For a more
detailed description of the Exchange Rights and the Call Rights in connection
with the Exchangeable Shares, see "Description of Capital Stock -- Voting and
Exchange Trust Agreement."
SUPPORT AGREEMENT. On the Effective Date, IVI and the Company will enter
into a support agreement (the "Support Agreement") in the form attached hereto
as Annex I. In the Support Agreement, the Company will covenant as follows: (i)
the Company will not declare or pay dividends on shares of Company Common Stock
unless IVI is able to and simultaneously does pay an equivalent dividend on the
Exchangeable Shares; (ii) the Company will advise IVI in advance of the
declaration of any dividend on the Company Common Stock and ensure that the
declaration date, record date and payment date for dividends on the Exchangeable
Shares are the same as that for the shares of Company Common Stock; (iii) the
Company will take all actions and do all things necessary to ensure that IVI is
able to pay to the holders of the Exchangeable Shares the equivalent number of
shares of Company Common Stock in the event of a liquidation, dissolution or
winding-up of IVI, delivery of a Retraction Request by a holder of Exchangeable
Shares to the transfer agent, or a redemption of Exchangeable Shares by IVI; and
(iv) the Company will not vote or otherwise take any action or omit to take any
action causing the liquidation, dissolution or winding-up of IVI.
In order for the Company to perform in accordance with the Support
Agreement, IVI must notify the Company of the occurrence of certain events, such
as the liquidation, dissolution or winding-up of IVI and the transfer agent's
receipt of a Retraction Request from a holder of Exchangeable Shares. See
"Description of Capital Stock -- Support Agreement."
THE MERGER
Pursuant to the terms of the Combination Agreement, at the Effective Time,
Sub will be merged with and into Checkmate with Checkmate surviving as a wholly
owned subsidiary of the Company. The Merger
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shall have the effects set forth in the GBCC. Without limiting the generality of
the foregoing, Checkmate shall possess all the rights, privileges, powers and
franchises, of a public as well as a private nature, and be subject to all the
restrictions, disabilities and duties, of each of Sub and Checkmate.
At the Effective Time, by virtue of the Merger and without any action on the
part of the holder of any shares of Checkmate Common Stock or Sub common stock:
(i) each share of common stock, par value $.01 per share, of Sub outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock of Checkmate and shall constitute the only outstanding
shares of capital stock of Checkmate; (ii) each share of Checkmate Common Stock
outstanding immediately prior to the Effective Time shall (except with respect
to shares as to which appraisal rights have been exercised) be converted into
the right to receive 1.2775 shares of Company Common Stock.
From and after the Effective Time, all shares of Checkmate Common Stock
converted into the right to receive shares of Company Common Stock shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such shares
shall cease to have any rights with respect thereto, except the right to receive
the shares of Company Common Stock and any dividends or distributions with a
record date after the Effective Time theretofore paid or payable with respect to
Company Common Stock. From and after the Effective Time, all certificates
representing the common stock of Sub shall be deemed for all purposes to
represent the number of shares of Checkmate Common Stock into which they were
converted.
RESALE OF EXCHANGEABLE SHARES AND ISSUANCE AND RESALE OF COMPANY COMMON STOCK
RECEIVED IN THE TRANSACTION
UNITED STATES.
(a) The issuance of Company Common Stock to the shareholders of IVI and
Checkmate will be registered under the Securities Act and shares so issued will
be freely transferable under United States federal securities laws, except as
discussed below.
(b) The issuance of Exchangeable Shares to IVI shareholders will not be
registered under the Securities Act. Such shares will be issued in reliance upon
the exemption provided by Section 3(a)(10) of the Securities Act. Section
3(a)(10) exempts securities issued in exchange for one or more outstanding
securities from the general requirement of registration where the terms and
conditions of the issuance and exchange of such securities have been approved by
any court of competent jurisdiction, after a hearing upon the fairness of the
terms and conditions of the issuance and exchange at which all persons to whom
such securities will be issued have the right to appear. The Court is authorized
to conduct a hearing to determine the fairness of the terms and conditions of
the Arrangement, including the proposed issuance of securities in exchange for
other outstanding securities. The Court entered the Interim Order on February
24, 1998 and, subject to the approval of the Arrangement by the shareholders of
IVI, a hearing on the fairness of the Arrangement will be held on June 25, 1998
by the Court.
The Exchangeable Shares and shares of Company Common Stock issued in the
Transaction will be freely transferable under U.S. federal securities laws,
except that Exchangeable Shares and shares of Company Common Stock received by
persons who are deemed to be Affiliates of IVI or Checkmate prior to the
Transaction may be resold by them only in transactions permitted by the resale
provisions of Rule 145(d)(1), (2), or (3) promulgated under the Securities Act
or as otherwise permitted under the Securities Act. Rule 145(d) (1) generally
provides that Affiliates of either IVI, Checkmate or the Company may not sell
securities received in the Transaction unless pursuant to an effective
registration statement or unless pursuant to the volume, current public
information, manner of sale and timing limitations of Rule 144. These
limitations generally require that any sales made by an Affiliate in any
three-month period not exceed the greater of 1% of the outstanding shares of the
Company or the average weekly trading volume over the four calendar weeks
preceding the placement of the sell order and that such sales be made in
unsolicited, open market "brokers transactions." Rules 145(d)(2) and (3)
generally provide that the
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foregoing limitations lapse for non-Affiliates of the Company after a period of
one or two years, respectively, depending upon whether certain currently
available information continues to be available with respect to the Company.
IVI, Checkmate and the Company will enter into agreements with the
Affiliates restricting such persons in connection with the sale, transfer or
other disposition of Exchangeable Shares or Company Common Stock. See "The
Combination Agreement -- Other Agreements -- Affiliates Agreements."
The Company has agreed that it will file and maintain in effect a
registration statement on Form S-3 covering the issuance of the Company Common
Stock from time to time in exchange for the Exchangeable Shares. The shares of
Company Common Stock issued from time to time in exchange for the Exchangeable
Shares therefore will be freely transferable under U.S. federal securities laws,
except that shares of Company Common Stock received by persons who are deemed to
be Affiliates of IVI or Checkmate prior to the consummation of the Transaction
will be subject to the same limitations described above that would apply if they
continued to hold Exchangeable Shares.
CANADA. The issuance of Company Common Stock to IVI shareholders in
exchange for IVI Common Shares pursuant to the Arrangement will be effected
pursuant to statutory exemptions from the prospectus and registration
requirements of applicable provincial securities legislation. The Company and
IVI have applied for and expect to receive rulings or orders of certain
provincial securities regulatory authorities in Canada to permit the issuance to
IVI shareholders of the Exchangeable Shares and Company Common Stock issuable in
exchange for Exchangeable Shares and to permit resale of the Exchangeable Shares
and Company Common Stock issued in exchange for IVI Common Shares pursuant to
the Arrangement or in exchange for Exchangeable Shares in such provinces without
restriction by a shareholder other than a "control person," provided, generally,
that no unusual effort is made to prepare the market for any such resale or to
create a demand for the securities which are the subject of any such resale and
no extraordinary commission or consideration is paid in respect thereof and
provided that IVI or the Company, as the case may be, is a reporting issuer in
the applicable province, and where the seller is in a "special relationship"
with the issuer, the seller has reasonable grounds to believe that the issuer is
not in default of any requirements of provincial securities legislation or the
regulations thereunder. Applicable Canadian securities legislation provides that
any person or company alone or in combination with others who holds a sufficient
number of any securities of an issuer to affect materially the control of such
issuer is a control person in relation to such issuer and further provides a
rebuttable presumption that a person or company is a control person where the
person or company alone or in combination with others holds more than 20% of the
outstanding voting securities of the issuer. Upon completion of the Arrangement,
IVI intends to apply to the provincial securities regulatory authorities to
cease to be a reporting issuer and the Company will become a reporting issuer in
certain of the provinces of Canada on the Effective Date. The Company and IVI
have also applied on behalf of IVI to exempt IVI from the requirements contained
in provincial securities legislation applicable to reporting issuers to: (a)
issue a press release and file a report upon the occurrence of a material
change; (b) file interim financial statements and annual audited financial
statements with the securities commissions of certain of the provinces of Canada
and deliver such statements to the IVI shareholders; and (c) make an annual
filing with the securities commissions of certain of the provinces of Canada in
lieu of filing an information circular. In addition, application has been made
to exempt each insider of IVI who is not also an insider of the Company from the
insider reporting requirements contained in provincial securities legislation
which require the filing of: (a) an insider report; (b) a report of any transfer
by an insider into the name of an agent, nominee or custodian; and (c) a report
by a registered owner of securities beneficially owned by an insider. As a
condition to the granting of such relief, the Company has undertaken to: (a)
file with the securities commissions of such provinces copies of all continuous
disclosure documents filed by it with the SEC under the Exchange Act, including,
but not limited to, copies of any Form 10-K, Form 10-Q, Form 8-K, quarterly
statements and proxy statements prepared in connection with the Company's annual
meetings; (b) send to all holders of Exchangeable Shares resident in any of such
provinces all disclosure material furnished to holders of
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Company Common Stock resident in the United States, including, but not limited
to, copies of its annual report and all proxy solicitation materials; (c) comply
with the requirements of the Nasdaq National Market in respect of making public
disclosure of material information on a timely basis and forthwith issue in
certain of the provinces of Canada and file with the securities commissions in
such provinces any press release that discloses a material change in the
Company's affairs; and (d) cause IVI to comply with the requirements contained
in provincial securities legislation in respect of material changes in the
affairs of IVI that are not material changes in the affairs of the Company.
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Contemporaneously with the execution of the Combination Agreement, IVI, the
Company and Ingenico entered into the Assignment, Assumption and Consent
Agreement, pursuant to which the Ingenico Agreements will be assigned to and
assumed by the Company as of the Effective Date. The result is that the Company
will have all of the right, title, interest, liabilities and obligations that
IVI had under the Ingenico Agreements. The effect of such assignment and
assumption with respect to the Investment Agreement is that on the Effective
Date the Company will be obliged to advise Ingenico that its shareholdings have
fallen below 15% of the issued and outstanding participating equity (which for
such purposes will include the Exchangeable Shares) of the Company (the "15%
Threshold"). Ingenico will then have ten days from the date it receives such
notice to advise the Company in writing whether or not it intends to exercise
the Participation Right it has under the Investment Agreement to acquire from
the Company such additional shares of Company Common Stock so as to bring its
holdings to the 15% Threshold. If Ingenico does signify its intention to
increase its holdings to the 15% Threshold, it must acquire such shares within
90 calendar days of the date of receipt of the notice of the Company referred to
above. Such additional shares will be purchased by Ingenico for a
price-per-share equal to the weighted average trading price of the IVI Common
Shares on the TSE for the 30 days preceding the notice of the Company to
Ingenico. See "The Companies After the Transaction -- Principal Stockholders."
STOCKHOLDERS AGREEMENT. Ingenico, Mr. Spence and Mr. Moore, who
collectively, after giving effect to the Transaction, will beneficially own
approximately 24.1% of the Company Common Stock, entered into the Stockholders
Agreement as of January 16, 1998, which provides that (i) for a period ending at
the earlier of 18 months from the Effective Date or December 31, 1999, each
party will vote against any business combination transaction involving the
Company and will not tender its or his shares into a tender offer if the
consideration to be received by each stockholder of the Company is less than $15
per share; (ii) for a period of three years from the Effective Date, each party
will vote and take other necessary actions for the election of Messrs. Compain,
Spence and Whitton to the Board of Directors of the Company and use their best
efforts to ensure that Mr. Spence is appointed Chairman of the Board, Mr.
Whitton is appointed Vice Chairman of the Board and Mr. Compain is appointed a
member of the Executive Committee of the Board; and (iii) no party will sell its
Company Common Stock except in an offering registered under the Securities Act,
pursuant to Rule 144 or as otherwise contemplated under the Stockholders
Agreement unless the transferee of such Company Common Stock agrees in writing
to be bound by the terms of the Stockholders Agreement. The parties to the
Stockholder Agreement also agree not to initiate a tender offer for less than
$15 per share except in response to a tender offer made by an unrelated third
party. In the event that Ingenico is prohibited under the circumstances set
forth in the Stockholders Agreement from exercising its Participation Right
under the Investment Agreement, the Stockholders Agreement will terminate.
EMPLOYMENT AGREEMENTS
Certain members of the management and the Board of Directors of IVI and
Checkmate have entered into employment agreements with IVI, Checkmate or the
Company in connection with the Transaction. See "The Companies After the
Transaction -- Employment Agreements."
ANTICIPATED ACCOUNTING TREATMENT
The Transaction is anticipated to be accounted for using the
pooling-of-interests accounting method under U.S. GAAP. Under this method of
accounting, the assets and liabilities of IVI and Checkmate would be added
together at their recorded book values and the shareholders' equity accounts of
IVI and Checkmate would be combined on the Company's consolidated balance sheet.
Consummation of the Transaction is conditioned on, among other things, receipt
by each of IVI and Checkmate of letters from their respective independent
auditors to the effect that such firm is not aware of any matters relating to
IVI and its subsidiaries or Checkmate, respectively, which would preclude the
Transaction from qualifying for pooling-of-interests accounting treatment and
receipt by each of IVI and Checkmate of letters from IVI's independent auditors
to the effect that in the opinion of such firm the Transaction qualifies for
pooling-of-interests accounting treatment.
<PAGE>
THE TRANSACTION AND DESCRIPTION OF EXCHANGEABLE SHARES
THE ARRANGEMENT
Pursuant to the terms of the Plan of Arrangement, at the Effective Time, the
following actions will be taken, in the following order:
(a) the articles of continuance of IVI will be amended to authorize a
class of Exchangeable Shares and one Series A Preferred Share of IVI (the
"Series A Preferred Share");
(b) IVI will issue to the Company the Series A Preferred Share in
consideration of the issuance to IVI of one share of the preferred stock,
$.01 par value, of the Company (the "Company Preferred Stock"). The stated
capital of the Series A Preferred Share will be equal to the fair market
value, as determined by the IVI Board, of a share of Company Preferred
Stock. No certificate will be issued in respect of the Series A Preferred
Share;
(c) each of the IVI Common Shares (other than IVI Common Shares held by
holders who have exercised their rights of dissent in accordance with the
Plan of Arrangement and who are ultimately entitled to be paid fair value
for such shares) will be exchanged either (i) with IVI, for a number of
Exchangeable Shares at the IVI Exchange Ratio, or (ii) with the Company, for
a number of shares of Company Common Stock at the IVI Exchange Ratio, at the
holder's election. Each holder of IVI Common Shares (other than IVI Common
Shares held by holders who have exercised their rights of dissent in
accordance with the Plan of Arrangement and who are ultimately entitled to
be paid fair value for such shares) will receive that whole number of
Exchangeable Shares or shares of Company Common Stock, as the case may be,
resulting from the exchange of such holder's IVI Common Shares. No
fractional shares of Company Common Stock or fractional Exchangeable Shares
will be issued and no certificate therefor will be issued. In addition, no
consideration will be delivered in exchange for fractional shares. Any
holder of IVI Common Shares who would otherwise be entitled to receive a
fraction of an Exchangeable Share or fractional share of Company Common
Stock, as the case may be, shall, upon surrender of his certificate or
certificates representing IVI Common Shares, receive a share certificate
adjusted to the next lower whole number of shares of Company Common Stock or
Exchangeable Shares, as the case may be;
(d) upon the exchange referred to in paragraph (c) above, each holder of
an IVI Common Share shall cease to be such a holder, shall have his name
removed from the register of holders of IVI Common Shares and will be
entitled to receive either (i) the number of fully paid Exchangeable Shares
to which he is entitled as a result of the exchange referred to in paragraph
(c) or (ii) the number of fully paid shares of Company Common Stock to which
he is entitled as a result of the exchange referred to in paragraph (c), and
such holder's name shall be added to the register of holders of Exchangeable
Shares or the register of holders of shares of Company Common Stock, as the
case may be;
(e) the stated capital of the Exchangeable Shares will be equal to the
stated capital immediately prior to the Arrangement of the IVI Common Shares
actually exchanged for Exchangeable Shares;
(f) the holders of IVI Common Shares that elect to receive Exchangeable
Shares (i) will grant and transfer directly to the Company the Call Rights
and (ii) will receive directly from the Company the Voting Rights and the
Exchange Rights;
(g) the one outstanding Series A Preferred Share held by the Company
will be exchanged for one IVI Common Share and the Company will cease to be
a holder of the Series A Preferred Share and the one Series A Preferred
Share will be canceled by IVI;
(h) the stated capital of the one IVI Common Share will be equal to the
stated capital of the one Series A Preferred Share prior to the Arrangement;
and
(i) the Company Preferred Stock will be purchased from IVI by the
Company for the fair market value determined by the Board of Directors of
IVI and immediately thereafter shall be canceled by the Company.
<PAGE>
As a result, immediately following the Effective Time, the IVI Common Shares
will be wholly owned by the Company and former holders of IVI Common Shares will
hold shares of Company Common Stock or Exchangeable Shares.
As noted above, at the Effective Time, each IVI Common Share will
automatically be transferred to IVI or the Company for the applicable
consideration. Enclosed with copies of this Joint Proxy Statement/ Prospectus
delivered to the registered holders of IVI Common Shares are the Letter of
Transmittal and Election Form which when duly completed and returned together
with all required share certificates and payments will enable the holder to
receive the consideration to which such holder is entitled. See "The Combination
Agreement -- Distribution of Certificates." If the Letter of Transmittal and
Election Form is not completed by a shareholder or no election is made by a
shareholder, then such shareholder will be deemed to have elected to receive
Exchangeable Shares.
EXCHANGE RIGHTS AND CALL RIGHTS. Holders of the Exchangeable Shares will be
entitled at any time following the Effective Time to retract (i.e., require IVI
to redeem) any or all such Exchangeable Shares owned by them and to receive an
equivalent number of shares of Company Common Stock plus an additional amount
equivalent to all declared and unpaid dividends on such Exchangeable Shares.
Holders of the Exchangeable Shares may effect such retraction by presenting a
certificate or certificates to IVI or its transfer agent representing the number
of Exchangeable Shares the holder desires to retract together with a duly
executed statement in the form of Schedule A to the Exchangeable Share
Provisions or in such other form as may be acceptable to IVI and the transfer
agent (the "Retraction Request") specifying the number of Exchangeable Shares
the holder wishes to retract. IVI shall redeem the Exchangeable Shares that are
the subject of the Retraction Request on the sixth business day after receiving
such request by the transfer agent (the "Retraction Date").
Upon receipt of the Exchangeable Shares, the Retraction Request and such
other required documentation and instruments as may be required to effect a
transfer of Exchangeable Shares from the holder thereof, the transfer agent must
immediately notify the Company of such Retraction Request. The Company will
thereafter have five business days in which to exercise a call right (the
"Retraction Call Right") to purchase all of the Exchangeable Shares submitted by
the holder thereof by the delivery of an equivalent number of shares of Company
Common Stock plus an additional amount equivalent to the full amount of all
declared and unpaid dividends on the Exchangeable Shares to the transfer agent
for delivery to such holder on the Retraction Date. In the event the Company
determines not to exercise its Retraction Call Right, IVI is obligated to
deliver to the holder the number of shares of Company Common Stock equal to the
number of Exchangeable Shares submitted by the holder for retraction and payment
of an additional amount equivalent to the full amount of all declared and unpaid
dividends on such Exchangeable Shares by the Retraction Date.
Subject to applicable law and the Redemption Call Rights of the Company
described below, on the Automatic Redemption Date (which will be (i) the tenth
anniversary of the Effective Date, (ii) any earlier date determined by the IVI
Board when less than 5% of the Exchangeable Shares issued on the Effective Date
are outstanding (other than Exchangeable Shares held by the Company and its
affiliates and as such number may be adjusted as deemed appropriate by the IVI
Board of Directors to give effect to stock splits or other changes in the
capital structure of IVI), (iii) the business day prior to the record date for
any meeting of shareholders of IVI, except that referred to in (iv) below, or
(iv) the business day following the day holders of Exchangeable Shares fail to
take the necessary actions to approve or disapprove, as applicable, any change
to, or in the rights of holders of Exchangeable Shares, if the approval or
disapproval, as applicable, of such change would be required to maintain the
economic or legal equivalence of the Exchangeable Shares and the Company Common
Stock) IVI must redeem all but not less than all of the then-outstanding
Exchangeable Shares in exchange for an equal number of shares of Company Common
Stock, plus an additional amount equivalent to the full amount of all declared
and unpaid dividends on such Exchangeable Shares. Notwithstanding any proposed
redemption of the Exchangeable Shares, the Company will have the overriding
right (the "Redemption Call Right") to purchase on the Automatic Redemption Date
all but not less than all of the then-outstanding Exchangeable Shares by the
exchange of one share of Company Common Stock for each such Exchangeable Share,
plus an additional amount equivalent to the full amount of all declared and
unpaid dividends on such Exchangeable Share.
<PAGE>
The Company shall, at least 125 days before the Automatic Redemption Date,
provide the Transfer Agent with written notice of the exercise of the Redemption
Call Right and purchase of the Exchangeable Shares by the Company. For a more
detailed description of the Exchange Rights and the Call Rights (as defined
below), see "Description of Capital Stock -- IVI Capital Shares," "--
Exchangeable Shares," "-- Voting and Exchange Trust Agreement" and "-- Call
Rights."
The one-to-one exchange ratio upon any retraction (or exercise of the
Retraction Call Right) or upon the Automatic Redemption Date is subject to
adjustment or modification in the event of a stock split or other changes to the
capital structure of the Company so as to maintain (upon redemption by IVI or
purchase by the Company) the economic equivalence of the initial one-to-one
ratio between the Exchangeable Shares and shares of Company Common Stock.
EFFECT OF CALL RIGHT EXERCISE. If the Company exercises one or more of its
Call Rights, it will directly issue shares of Company Common Stock to holders of
Exchangeable Shares and will become the holder of such Exchangeable Shares. The
Company will not be entitled to exercise any voting rights attached to the
Exchangeable Shares it so acquires. If the Company declines to exercise its Call
Rights when applicable, it will be required, pursuant to the Support Agreement,
to issue Company Common Stock to IVI which will, in turn, transfer such stock to
the holders of Exchangeable Shares in consideration for the return and
cancellation of such Exchangeable Shares. The tax consequences resulting from
the Company's exercise of one or more of the Call Rights are discussed in
"Material Income Tax Considerations to IVI Shareholders," which includes a
discussion on deemed dividends.
VOTING, DIVIDEND AND LIQUIDATION RIGHTS OF HOLDERS OF EXCHANGEABLE SHARES.
On the Effective Date, IVI, the Company and Montreal Trust Company of Canada
(the "Trustee") will enter into the Voting and Exchange Trust Agreement in the
form attached hereto as Annex H (the "Voting and Exchange Trust Agreement").
Pursuant to the terms of the Voting and Exchange Trust Agreement, the Company
will on the Effective Date deposit with the Trustee the one share of Series B
Special Voting Stock, par value $.01 per share (the "Voting Share"), which will
entitle the Trustee to a number of votes equal to the number of Exchangeable
Shares outstanding from time to time that are not held by the Company or
entities controlled by the Company. With respect to any matter as to which
holders of shares of Company Common Stock are entitled to vote, each holder of
an Exchangeable Share will have the right to instruct the Trustee as to the
manner of voting for one of the votes comprising the Voting Share for each
Exchangeable Share owned by such holder. The number of votes that the Trustee
may exercise at any particular meeting will be reduced to the extent
instructions are not received from holders of Exchangeable Shares (the "Voting
Rights"). See "Description of Capital Stock -- Voting and Exchange Trust
Agreement -- Voting Rights."
Upon the occurrence of an Insolvency Event or Default Event, holders of the
Exchangeable Shares will have rights to receive from the Company one share of
Company Common Stock for each Exchangeable Share they hold, plus an additional
amount equivalent to the full amount of any declared and unpaid dividends on
each such Exchangeable Share (such one-to-one ratio is subject to adjustment or
modification in the event of certain stock splits or other changes to the
capital structure of the Company so as to maintain the economic equivalence of
the initial one-to-one ratio between the Exchangeable Shares and shares of the
Company Common Stock). For purposes of the Voting and Exchange Trust Agreement,
"Insolvency Event" means the initiation by IVI of a bankruptcy, insolvency,
liquidation or other similar proceeding, or the filing by a third party of an
action seeking the dissolution or winding up of IVI and the failure of IVI to
protest such filing within fifteen days of becoming aware thereof, or the
consent by IVI to the filing of such action or to the appointment of a receiver
or the making by IVI of a general assignment for the benefit of creditors or the
admission in writing by IVI of its inability to pay its debts generally as they
become due, or IVI not being permitted, pursuant to solvency requirements of
applicable law, to redeem any Exchangeable Shares on the exercise by a holder of
Exchangeable Shares of his right of retraction. Under the terms of the Voting
and Exchange Trust Agreement, the term "Default Event" means any failure of IVI
to comply with the terms of the Exchangeable Share Provisions (but excluding any
failure to redeem shares upon exercise by a holder of an Exchangeable Share of
his retraction rights, which shall be deemed to be an Insolvency Event). In the
event of an Insolvency Event, the Company will have the right to purchase all of
the outstanding Exchangeable Shares from the holders thereof at the effective
<PAGE>
time of any such liquidation, dissolution, or winding up in exchange for one
share of Company Common Stock for each such Exchangeable Share, plus an
additional amount equivalent to the full amount of all declared and unpaid
dividends on such Exchangeable Share (such one-to-one ratio is subject to
adjustment or modification in the event of certain stock splits or other changes
to the capital structure of the Company so as to maintain the economic
equivalence of the initial one-to-one ratio between the Exchangeable Shares and
shares of the Company Common Stock).
Five (5) business days prior to a Liquidation Event, in order for the
holders of the Exchangeable Shares to participate on a pro rata basis with the
holders of shares of Company Common Stock, each holder of Exchangeable Shares
will automatically receive in exchange therefor an equivalent number of shares
of Company Common Stock, plus an additional amount equivalent to the full amount
of any declared and unpaid dividends on such Exchangeable Shares (such
one-to-one ratio is subject to adjustment or modification in the event of
certain stock splits or other changes to the capital structure of the Company so
as to maintain the economic equivalence of the initial one-to-one ratio between
the Exchangeable Shares and shares of the Company Common Stock). For a more
detailed description of the Exchange Rights and the Call Rights in connection
with the Exchangeable Shares, see "Description of Capital Stock -- Voting and
Exchange Trust Agreement."
SUPPORT AGREEMENT. On the Effective Date, IVI and the Company will enter
into a support agreement (the "Support Agreement") in the form attached hereto
as Annex I. In the Support Agreement, the Company will covenant as follows: (i)
the Company will not declare or pay dividends on shares of Company Common Stock
unless IVI is able to and simultaneously does pay an equivalent dividend on the
Exchangeable Shares; (ii) the Company will advise IVI in advance of the
declaration of any dividend on the Company Common Stock and ensure that the
declaration date, record date and payment date for dividends on the Exchangeable
Shares are the same as that for the shares of Company Common Stock; (iii) the
Company will take all actions and do all things necessary to ensure that IVI is
able to pay to the holders of the Exchangeable Shares the equivalent number of
shares of Company Common Stock in the event of a liquidation, dissolution or
winding-up of IVI, delivery of a Retraction Request by a holder of Exchangeable
Shares to the transfer agent, or a redemption of Exchangeable Shares by IVI; and
(iv) the Company will not vote or otherwise take any action or omit to take any
action causing the liquidation, dissolution or winding-up of IVI.
In order for the Company to perform in accordance with the Support
Agreement, IVI must notify the Company of the occurrence of certain events, such
as the liquidation, dissolution or winding-up of IVI and the transfer agent's
receipt of a Retraction Request from a holder of Exchangeable Shares. See
"Description of Capital Stock -- Support Agreement."
THE MERGER
Pursuant to the terms of the Combination Agreement, at the Effective Time,
Sub will be merged with and into Checkmate with Checkmate surviving as a wholly
owned subsidiary of the Company. The Merger shall have the effects set forth in
the GBCC. Without limiting the generality of the foregoing, Checkmate shall
possess all the rights, privileges, powers and franchises, of a public as well
as a private nature, and be subject to all the restrictions, disabilities and
duties, of each of Sub and Checkmate.
At the Effective Time, by virtue of the Merger and without any action on the
part of the holder of any shares of Checkmate Common Stock or Sub common stock:
(i) each share of common stock, par value $.01 per share, of Sub outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock of Checkmate and shall constitute the only outstanding
shares of capital stock of Checkmate; (ii) each share of Checkmate Common Stock
outstanding immediately prior to the Effective Time shall (except with respect
to shares as to which appraisal rights have been exercised) be converted into
the right to receive 1.2775 shares of Company Common Stock.
From and after the Effective Time, all shares of Checkmate Common Stock
converted into the right to receive shares of Company Common Stock shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such shares
shall cease to have any rights with respect thereto, except the right to receive
the shares of Company
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Common Stock and any dividends or distributions with a record date after the
Effective Time theretofore paid or payable with respect to Company Common Stock.
From and after the Effective Time, all certificates representing the common
stock of Sub shall be deemed for all purposes to represent the number of shares
of Checkmate Common Stock into which they were converted.
RESALE OF EXCHANGEABLE SHARES AND ISSUANCE AND RESALE OF COMPANY COMMON STOCK
RECEIVED IN THE TRANSACTION
UNITED STATES.
(a) The issuance of Company Common Stock to the shareholders of IVI and
Checkmate will be registered under the Securities Act and shares so issued will
be freely transferable under United States federal securities laws, except as
discussed below.
(b) The issuance of Exchangeable Shares to IVI shareholders will not be
registered under the Securities Act. Such shares will be issued in reliance upon
the exemption provided by Section 3(a)(10) of the Securities Act. Section
3(a)(10) exempts securities issued in exchange for one or more outstanding
securities from the general requirement of registration where the terms and
conditions of the issuance and exchange of such securities have been approved by
any court of competent jurisdiction, after a hearing upon the fairness of the
terms and conditions of the issuance and exchange at which all persons to whom
such securities will be issued have the right to appear. The Court is authorized
to conduct a hearing to determine the fairness of the terms and conditions of
the Arrangement, including the proposed issuance of securities in exchange for
other outstanding securities. The Court entered the Interim Order on February
24, 1998 and, subject to the approval of the Arrangement by the shareholders of
IVI, a hearing on the fairness of the Arrangement will be held on June 25, 1998
by the Court.
The Exchangeable Shares and shares of Company Common Stock issued in the
Transaction will be freely transferable under U.S. federal securities laws,
except that Exchangeable Shares and shares of Company Common Stock received by
persons who are deemed to be Affiliates of IVI or Checkmate prior to the
Transaction may be resold by them only in transactions permitted by the resale
provisions of Rule 145(d)(1), (2), or (3) promulgated under the Securities Act
or as otherwise permitted under the Securities Act. Rule 145(d) (1) generally
provides that Affiliates of either IVI, Checkmate or the Company may not sell
securities received in the Transaction unless pursuant to an effective
registration statement or unless pursuant to the volume, current public
information, manner of sale and timing limitations of Rule 144. These
limitations generally require that any sales made by an Affiliate in any
three-month period not exceed the greater of 1% of the outstanding shares of the
Company or the average weekly trading volume over the four calendar weeks
preceding the placement of the sell order and that such sales be made in
unsolicited, open market "brokers transactions." Rules 145(d)(2) and (3)
generally provide that the foregoing limitations lapse for non-Affiliates of the
Company after a period of one or two years, respectively, depending upon whether
certain currently available information continues to be available with respect
to the Company.
IVI, Checkmate and the Company will enter into agreements with the
Affiliates restricting such persons in connection with the sale, transfer or
other disposition of Exchangeable Shares or Company Common Stock. See "The
Combination Agreement -- Other Agreements -- Affiliates Agreements."
The Company has agreed that it will file and maintain in effect a
registration statement on Form S-3 covering the issuance of the Company Common
Stock from time to time in exchange for the Exchangeable Shares. The shares of
Company Common Stock issued from time to time in exchange for the Exchangeable
Shares therefore will be freely transferable under U.S. federal securities laws,
except that shares of Company Common Stock received by persons who are deemed to
be Affiliates of IVI or Checkmate prior to the consummation of the Transaction
will be subject to the same limitations described above that would apply if they
continued to hold Exchangeable Shares.
CANADA. The issuance of Company Common Stock to IVI shareholders in
exchange for IVI Common Shares pursuant to the Arrangement will be effected
pursuant to statutory exemptions from the prospectus and registration
requirements of applicable provincial securities legislation. The Company and
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IVI have applied for and expect to receive rulings or orders of certain
provincial securities regulatory authorities in Canada to permit the issuance to
IVI shareholders of the Exchangeable Shares and Company Common Stock issuable in
exchange for Exchangeable Shares and to permit resale of the Exchangeable Shares
and Company Common Stock issued in exchange for IVI Common Shares pursuant to
the Arrangement or in exchange for Exchangeable Shares in such provinces without
restriction by a shareholder other than a "control person," provided, generally,
that no unusual effort is made to prepare the market for any such resale or to
create a demand for the securities which are the subject of any such resale and
no extraordinary commission or consideration is paid in respect thereof and
provided that IVI or the Company, as the case may be, is a reporting issuer in
the applicable province, and where the seller is in a "special relationship"
with the issuer, the seller has reasonable grounds to believe that the issuer is
not in default of any requirements of provincial securities legislation or the
regulations thereunder. Applicable Canadian securities legislation provides that
any person or company alone or in combination with others who holds a sufficient
number of any securities of an issuer to affect materially the control of such
issuer is a control person in relation to such issuer and further provides a
rebuttable presumption that a person or company is a control person where the
person or company alone or in combination with others holds more than 20% of the
outstanding voting securities of the issuer. Upon completion of the Arrangement,
IVI intends to apply to the provincial securities regulatory authorities to
cease to be a reporting issuer and the Company will become a reporting issuer in
certain of the provinces of Canada on the Effective Date. The Company and IVI
have also applied on behalf of IVI to exempt IVI from the requirements contained
in provincial securities legislation applicable to reporting issuers to: (a)
issue a press release and file a report upon the occurrence of a material
change; (b) file interim financial statements and annual audited financial
statements with the securities commissions of certain of the provinces of Canada
and deliver such statements to the IVI shareholders; and (c) make an annual
filing with the securities commissions of certain of the provinces of Canada in
lieu of filing an information circular. In addition, application has been made
to exempt each insider of IVI who is not also an insider of the Company from the
insider reporting requirements contained in provincial securities legislation
which require the filing of: (a) an insider report; (b) a report of any transfer
by an insider into the name of an agent, nominee or custodian; and (c) a report
by a registered owner of securities beneficially owned by an insider. As a
condition to the granting of such relief, the Company has undertaken to: (a)
file with the securities commissions of such provinces copies of all continuous
disclosure documents filed by it with the SEC under the Exchange Act, including,
but not limited to, copies of any Form 10-K, Form 10-Q, Form 8-K, quarterly
statements and proxy statements prepared in connection with the Company's annual
meetings; (b) send to all holders of Exchangeable Shares resident in any of such
provinces all disclosure material furnished to holders of Company Common Stock
resident in the United States, including, but not limited to, copies of its
annual report and all proxy solicitation materials; (c) comply with the
requirements of the Nasdaq National Market in respect of making public
disclosure of material information on a timely basis and forthwith issue in
certain of the provinces of Canada and file with the securities commissions in
such provinces any press release that discloses a material change in the
Company's affairs; and (d) cause IVI to comply with the requirements contained
in provincial securities legislation in respect of material changes in the
affairs of IVI that are not material changes in the affairs of the Company.
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MATERIAL INCOME TAX CONSIDERATIONS TO IVI SHAREHOLDERS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material Canadian federal income tax
considerations generally applicable to IVI shareholders in connection with the
Arrangement who, for purposes of the Income Tax Act (Canada) (the "Canadian Tax
Act"), hold their IVI Common Shares and will hold their Exchangeable Shares and
shares of Company Common Stock as capital property and deal at arm's length with
IVI and the Company. This summary does not apply to a holder with respect to
whom the Company is a foreign affiliate within the meaning of the Canadian Tax
Act. Except as to factual matters or as to matters noted in the immediately
succeeding six paragraphs, statements of legal conclusions in this summary
represent the opinion of Meighen Demers, Canadian counsel for IVI.
Certain provisions of the Canadian Tax Act (the "mark-to-market rules")
relating to financial institutions (including certain financial institutions,
registered securities dealers and corporations controlled by one or more of the
foregoing) will deem such financial institutions not to hold their IVI Common
Shares, Exchangeable Shares and shares of Company Common Stock as capital
property for purposes of the Canadian Tax Act. Shareholders that are financial
institutions should consult their own tax advisors to determine the tax
consequences to them of the application of the mark-to-market rules. In
addition, all shareholders should consult their own tax advisors as to whether,
as a matter of fact, they hold their IVI Common Shares and will hold their
Exchangeable Shares and shares of Company Common Stock as capital property for
purposes of the Canadian Tax Act.
This summary is based on the current provisions of the Canadian Tax Act, the
Regulations thereunder, the current provisions of the Canada-United States
Income Tax Convention (the "Tax Treaty") and counsel's understanding of the
current administrative practices of Revenue Canada, Customs, Excise and Taxation
("Revenue Canada"). This summary takes into account the amendments to the
Canadian Tax Act and Regulations publicly announced by the Minister of Finance
prior to the date hereof (the "Proposed Amendments") and assumes that all such
Proposed Amendments will be enacted in their present form. However, no
assurances can be given that the Proposed Amendments will be enacted in the form
proposed, or at all.
Except for the Proposed Amendments, this summary does not take into account
or anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax considerations described herein.
WHILE THIS SUMMARY IS INTENDED TO ADDRESS ALL MATERIAL CANADIAN FEDERAL
INCOME TAX CONSIDERATIONS, IT IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO
BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY
PARTICULAR IVI SHAREHOLDER. THEREFORE, SUCH HOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES. NO ADVANCE INCOME TAX
RULING HAS BEEN OBTAINED FROM REVENUE CANADA TO CONFIRM CONSEQUENCES OF ANY OF
THE TRANSACTIONS DESCRIBED HEREIN.
For purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of shares of Company Common Stock, including
dividends, adjusted cost base and proceeds of disposition must be determined in
Canadian dollars.
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SHAREHOLDERS RESIDENT IN CANADA
The following portion of the summary is applicable to IVI shareholders who,
for purposes of the Canadian Tax Act, are resident or deemed to be resident in
Canada.
EXCHANGE OF IVI COMMON SHARES FOR EXCHANGEABLE SHARES
Provided that all, but not less than all, of a holder's IVI Common Shares
are exchanged for Exchangeable Shares and so long as, at the Effective Time of
the Combination Agreement, the aggregate adjusted cost base of a holder's IVI
Common Shares exceeds the fair market value of the Voting Rights and Exchange
Rights under the Voting and Exchange Trust Agreement acquired by such holder in
connection with the exchange and net of any reasonable costs of disposition,
such holder will not realize a capital gain for purposes of the Canadian Tax Act
on the exchange. To the extent that the fair market value of the Voting Rights
and Exchange Rights, net of any reasonable costs of disposition, exceeds the
aggregate adjusted cost base of such holder's IVI Common Shares, such holder
will realize a capital gain for purposes of the Canadian Tax Act. The taxation
of capital gains is described below in respect of a redemption or exchange of
Exchangeable Shares.
On the exchange, a shareholder will be deemed to have acquired:
(a) Exchangeable Shares for a cost equal to the amount, if any, by which
the adjusted cost base to such holder of the IVI Common Shares exceeds the
fair market value of the Voting Rights and Exchange Rights in respect of the
shareholder's Exchangeable Shares; and
(b) the Voting Rights and Exchange Rights in respect of the
shareholder's Exchangeable Shares for a cost equal to their fair market
value.
For those purposes, a holder of IVI Common Shares will be required to
determine the fair market value of the Voting Rights and Exchange Rights on a
reasonable basis for purposes of the Canadian Tax Act. IVI is of the view and
has advised counsel that the Voting Rights and Exchange Rights have only nominal
value. Therefore, a holder of IVI Common Shares should not realize a capital
gain on the exchange of IVI Common Shares for Exchangeable Shares. Such
determination of value is not binding on Revenue Canada and counsel can express
no opinion on matters of factual determination such as this.
CALL RIGHTS
IVI is of the view and has advised counsel that the Liquidation Call Right,
the Redemption Call Right and the Retraction Call Right granted to the Company
in connection with the exchange of IVI Common Shares for Exchangeable Shares
have nominal value. On this basis, no shareholder should realize a gain at the
time that any of such rights are granted to the Company. Such determinations of
value are not binding on Revenue Canada and counsel can express no opinion on
matters of factual determination such as this.
DIVIDENDS
EXCHANGEABLE SHARES. In the case of a shareholder who is an individual,
dividends received or deemed to be received on the Exchangeable Shares will be
included in computing the shareholder's income, and will be subject to the
gross-up and dividend tax credit rules normally applicable to taxable dividends
received from taxable Canadian corporations.
The Exchangeable Shares will be "term preferred shares," "taxable preferred
shares" and "short-term preferred shares" for purposes of the Canadian Tax Act.
Accordingly, IVI will be subject to a 66 2/3% tax under Part VI. I of the
Canadian Tax Act on dividends paid or deemed to be paid on the Exchangeable
Shares. In certain circumstances, IVI will be entitled to deductions under Part
I of the Canadian Tax Act which will substantially offset the impact of the Part
VI. I tax. Dividends received or deemed to be received
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on the Exchangeable Shares will not be subject to the 10% tax under Part IV. 1
of the Canadian Tax Act applicable to certain corporations.
If the Company or any person with whom the Company does not deal at arm's
length is a "specified financial institution" under the Canadian Tax Act at a
point in time that a dividend is paid on an Exchangeable Share, then, subject to
the exemption described below, dividends received or deemed to be received by a
shareholder that is a corporation will not be deductible in computing taxable
income but will be fully includable in taxable income under Part I of the
Canadian Tax Act. Such dividend will not be subject to tax under Part IV of the
Canadian Tax Act. A corporation will generally be a specified financial
institution for these purposes if it is a bank, a trust company, a credit union,
an insurance corporation or a corporation whose principal business is the
lending of money to persons with whom the corporation is dealing at arm's length
or the purchasing of debt obligations issued by such persons or a combination
thereof, and corporations controlled by or related to such entities.
The foregoing denial of the dividend deduction for a corporate shareholder
will not in any event apply if at the time a dividend is received or deemed to
be received, the Exchangeable Shares are listed on a prescribed stock exchange
(which currently includes the TSE), the Company controls IVI, and the recipient
(together with persons with whom the recipient does not deal at arm's length or
any partnership or trust of which the recipient or person is a member or
beneficiary, respectively) does not receive dividends on more than 10% of the
issued and outstanding Exchangeable Shares. Management of IVI currently expects
that the Exchangeable Shares will be listed on the TSE.
Subject to the foregoing, in the case of a shareholder that is a
corporation, other than a "specified financial institution" as defined in the
Canadian Tax Act, dividends received or deemed to be received on the
Exchangeable Shares will normally be deductible in computing its taxable income.
In the case of a shareholder that is a specified financial institution, such
a dividend will be deductible in computing its taxable income only if either:
(i) the specified financial institution did not acquire the Exchangeable
Shares in the ordinary course of the business carried on by such institution; or
(ii) at the time of the receipt of the dividend by the specified financial
institution, the Exchangeable Shares are listed on a prescribed stock exchange
in Canada (which currently includes the TSE) and the specified financial
institution, either alone or together with persons with whom it does not deal at
arm's length, does not receive (or is not deemed to receive) dividends in
respect of more than 10% of the issued and outstanding Exchangeable Shares.
A shareholder that is a "private corporation" (as defined in the Canadian
Tax Act) or any other corporation resident in Canada and controlled or deemed to
be controlled by or for the benefit of an individual or a related group of
individuals shall be liable under Part IV of the Canadian Tax Act to pay a
refundable tax of 33 1/3% on dividends received or deemed to be received on the
Exchangeable Shares to the extent that such dividends are deductible in
computing the shareholder's taxable income.
REDEMPTION OR EXCHANGE OF EXCHANGEABLE SHARES
On the redemption (including a retraction) of an Exchangeable Share by IVI,
the holder of an Exchangeable Share will be deemed to have received a dividend
equal to the amount, if any, by which the redemption proceeds (the fair market
value at the time of the redemption of the share of Company Common Stock
received by the shareholder from IVI on the redemption plus the amount, if any,
of all accrued but unpaid dividends on the Exchangeable Share) exceeds the
paid-up capital, at that time, of the Exchangeable Share so redeemed. The amount
of any such deemed dividend will be subject to the tax treatment accorded to
dividends described above. On the redemption, the holder of an Exchangeable
Share will also be considered to have disposed of the Exchangeable Share, but
the amount of such deemed dividend will be excluded in computing the
shareholder's proceeds of disposition for purposes of computing any capital gain
or capital loss arising on the disposition of the Exchangeable Share. In the
case of a
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shareholder that is a corporation, the amount of any such deemed dividend may be
treated as proceeds of disposition and not as a dividend under certain rules of
the Canadian Tax Act.
On the exchange of an Exchangeable Share by the holder thereof with the
Company for a share of Company Common Stock, including pursuant to the
Retraction Call Right, the holder will realize a capital gain (or a capital
loss) equal to the amount by which the proceeds of disposition of the
Exchangeable Share, net of any reasonable costs of disposition, exceed (or are
exceeded by) the adjusted cost base to the holder of the Exchangeable Share. For
these purposes, the proceeds of disposition will be the fair market value of a
share of Company Common Stock at the time of exchange plus the amount of all
accrued but unpaid dividends on the Exchangeable Share received by the holder as
part of the exchange consideration.
Three-quarters of any such capital gain (the "taxable capital gain") will be
included in the shareholder's income for the year of disposition. Three-quarters
of any capital loss so realized (the "allowable capital loss") may be deducted
by the holder against taxable capital gains for the year of disposition. Any
excess of allowable capital losses over taxable capital gains of the shareholder
for the year of disposition may be carried back up to three taxation years or
forward indefinitely and deducted against net taxable capital gains in those
other years.
A shareholder that is throughout the relevant taxation year a
"Canadian-controlled private corporation" (as defined in the Canadian Tax Act)
may be liable to pay an additional refundable tax of 6-2/3% on its "aggregate
investment income" for the year, which is defined to include an amount in
respect of taxable capital gains (but not dividends or deemed dividends
deductible in computing taxable income).
If the holder of an Exchangeable Share is a corporation, the amount of any
capital loss arising from a disposition or deemed disposition of an Exchangeable
Share may be reduced by the amount of dividends received or deemed to have been
received by it on such share or on the IVI Common Shares previously owned by
such holder, to the extent and under circumstances prescribed by the Canadian
Tax Act. Similar rules may apply where a corporation is a member of a
partnership or a beneficiary of a trust that owns Exchangeable Shares or where a
trust or partnership of which a corporation is a beneficiary or a member is a
member of a partnership or a beneficiary of a trust that owns Exchangeable
Shares.
The cost base of a share of Company Common Stock received on the retraction,
redemption or exchange of an Exchangeable Share will be equal to the fair market
value of the share of Company Common Stock at the time of such event.
Because of the existence of the Retraction Call Right, a holder exercising
the right of retraction in respect of an Exchangeable Share cannot control
whether such holder will receive a share of Company Common Stock by way of
redemption of the Exchangeable Share by IVI or by way of purchase of the
Exchangeable Share by the Company. As described above, the Canadian federal
income tax consequences of a redemption differ from those of a purchase.
COMPANY COMMON STOCK. Dividends on Company Common Stock will be included in
the recipient's income for the purposes of the Canadian Tax Act. Such dividends
received by an individual shareholder will not be subject to the gross-up and
dividend tax credit rules in the Canadian Tax Act. A corporation which is a
shareholder will include such dividends in computing its income and generally
will not be entitled to deduct the amount of such dividends in computing its
taxable income. United States non-resident withholding tax on such dividends
will be eligible for foreign tax credit or deduction treatment where applicable
under the Canadian Tax Act.
DISPOSITION OF COMPANY COMMON STOCK
A disposition or deemed disposition of a share of Company Common Stock by a
holder will generally result in a capital gain (or capital loss) equal to the
amount by which the proceeds of disposition, net of any reasonable costs of
disposition, exceed (or are exceeded by) the adjusted cost base to the holder of
the share of Company Common Stock.
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ELIGIBILITY FOR INVESTMENT IN CANADA
QUALIFIED INVESTMENTS. Provided the Exchangeable Shares and the shares of
Company Common Stock are listed on a prescribed stock exchange (which currently
includes the TSE and the Nasdaq National Market), such securities will be
qualified investments under the Canadian Tax Act for trusts governed by
registered retirement savings plans, registered retirement income funds and
deferred profit sharing plans. The Voting Rights and Exchange Rights will not be
qualified investments under the Canadian Tax Act. However, as indicated above,
IVI is of the view that the fair market value of these rights is nominal. For a
description of the Voting Rights and the Exchange Rights, see "Description of
Capital Stock -- Voting and Exchange Trust Agreement."
FOREIGN PROPERTY. Provided the Exchangeable Shares are listed on a
prescribed stock exchange in Canada (which currently includes the TSE) and IVI
continues to maintain a substantial presence in Canada, the Exchangeable Shares
will not be foreign property under the Canadian Tax Act for trusts governed by
registered pension plans, registered retirement savings plans, registered
retirement income funds and deferred profit sharing plans or for certain other
tax-exempt persons. For the foregoing taxpayers, a penalty tax is imposed by
Part XI of the Canadian Tax Act if the cost amount of their investment in the
foreign property exceeds the statutory limit. IVI will be considered to have a
substantial presence in Canada if it satisfies certain asset tests or if it
maintains an office in Canada and IVI, or a corporation controlled by it,
employs more than five employees in Canada full time in the active conduct of a
business, other than an investment activity or a business carried on through a
partnership of which the corporation is not a majority interest partner. IVI is
of the view that following the Arrangement, IVI will satisfy this substantial
presence test and expects that IVI will continue to satisfy the test for the
foreseeable future.
The shares of the Company Common Stock will be foreign property under the
Canadian Tax Act as will the Voting Rights and Exchange Rights.
SHAREHOLDERS NOT RESIDENT IN CANADA
The following portion of the summary is applicable to holders of IVI Common
Shares who, for purposes of the Canadian Tax Act, have not been and will not be
resident or deemed to be resident in Canada at any time while they have held IVI
Common Shares or will hold Exchangeable Shares or shares of Company Common Stock
and to whom such shares are not taxable Canadian property and in the case of a
non-resident of Canada who carries on an insurance business in Canada and
elsewhere, the shares are not effectively connected with its Canadian insurance
business.
IVI Common Shares and Exchangeable Shares will not be taxable Canadian
property provided that such shares are listed on a prescribed stock exchange in
Canada (which currently includes the TSE and the Nasdaq National Market), the
holder does not use or hold, and is not deemed to use or hold, the IVI Common
Shares, or the Exchangeable Shares as applicable, in connection with carrying on
a business in Canada and the holder, persons with whom such holder does not deal
at arm's length, or the holder and such persons, has not owned (or had under
option) 25% or more of the issued shares of any class or series of the capital
stock of IVI at any time within five years preceding the date in question, and
has not acquired the IVI Common Shares or Exchangeable Shares, respectively, in
a transaction where the holder disposed of taxable Canadian property and the
resulting gain was deferred under the Canadian Tax Act.
Generally, the Company Common Stock will not be taxable Canadian property to
a non-resident holder, provided that such shares are listed on a prescribed
stock exchange (which currently includes the Nasdaq National Market), the holder
has not exceeded the 25% threshold ownership test referred to earlier and
certain conditions set out in the Canadian Tax Act are not met. In addition,
even if the Company Common Stock is considered to be taxable Canadian property,
there may be relief available under an applicable tax convention, such as the
Tax Treaty. Such holders should consult their own tax advisors to determine the
tax consequences in their own situation.
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On the assumption that a non-resident holder of IVI Common Shares does not
hold such shares as taxable Canadian property or can otherwise claim the benefit
of a tax treaty, the exchange of IVI Common Shares for Exchangeable Shares will
not be subject to tax under the Canadian Tax Act. Where such non-resident holder
exchanges the Exchangeable Shares for Company Common Stock, the non-resident
holder may be deemed to have received a dividend subject to withholding tax
(discussed below) and realized a capital gain or loss (generally tax-free as
discussed above).
Dividends paid on the Exchangeable Shares are subject to non-resident
withholding tax under the Canadian Tax Act at the rate of 25%, although such
rate may be reduced under the provisions of an applicable income tax treaty. For
example, under the Tax Treaty, the rate is generally reduced to 15% in respect
of dividends paid to a person who is the beneficial owner and who is resident in
the United States for purposes of the Tax Treaty.
A holder whose Exchangeable Shares are redeemed (either under IVI's
redemption right or pursuant to the holder's retraction rights) will be deemed
to receive a dividend as described above, which deemed dividend will be subject
to withholding tax as described in the preceding paragraph.
Holders of IVI Common Shares are permitted to dissent from the Arrangement
in the manner set out in section 190 of the CBCA. A dissenting IVI shareholder
will be entitled, in the event the Arrangement becomes effective, to be paid by
IVI the fair value of the IVI Common Shares held by such holder determined as of
the appropriate date -- See "Dissenting Shareholders' Rights." Such shareholder
will be considered to have realized a deemed dividend and capital gain (or
capital loss) based on redemption proceeds equal to such fair value, computed as
generally described above in the case of a redemption (including a retraction)
of an Exchangeable Share by IVI for a share of Company Common Stock under
"Redemption or Exchange of Exchangeable Shares." Deemed dividends will be
subject to withholding tax as described above. Any capital gain realized by a
dissenting IVI shareholder will not be taxed under the Canadian Tax Act if the
IVI Common Shares in respect of which the right of dissent is exercised are not
taxable Canadian property, as described above. Additional income tax
considerations may be relevant to dissenting IVI shareholders who fail to
perfect or withdraw their claims pursuant to the right of dissent.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
considerations arising from (i) the exchange of IVI Common Shares for Company
Common Stock or Exchangeable Shares pursuant to the Arrangement and (ii) the
ownership and disposition of Company Common Stock or Exchangeable Shares, in
each case to a holder of IVI Common Shares that is a United States holder (as
defined below) or a Canadian holder (as defined below). Except as to factual
matters or as to the matters noted below in this paragraph and in the
immediately succeeding two paragraphs, statements of legal conclusions in this
summary represent the opinion of Morgan, Lewis & Bockius LLP, United States
counsel to IVI ("tax counsel"). This summary and the associated opinion have no
binding effect or official status of any kind; no assurance can be given that
the conclusions reached below would be sustained by a court if challenged by the
Service. No ruling from the Service has been or will be sought with respect to
any aspect of the tax considerations described below. For purposes of this
summary, the term "United States holder" means a beneficial owner of IVI Common
Shares that (i) is an individual citizen or resident of the United States or a
corporation created or organized in or under the laws of the United States or
any political subdivision thereof and (ii) holds IVI Common Shares and will hold
any Company Common Stock, Exchangeable Shares, Voting Rights and Exchange Rights
as capital assets, within the meaning of Section 1221 of the Code. For purposes
of this summary, the term "Canadian holder" means a beneficial owner of IVI
Common Shares that (i) is a resident of Canada for Canadian tax purposes and for
purposes of the Tax Treaty, (ii) is fully entitled to the benefits of the Tax
Treaty in respect of the Arrangement and any IVI Common Shares, Company Common
Stock, Exchangeable Shares, Voting Rights or Exchange Rights held by it, (iii)
is not a citizen or resident of the United States and (iv) is not engaged in the
conduct of a United States trade or business with which income or gain arising
in respect of IVI Common Shares,
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Company Common Stock, Exchangeable Shares, Voting Rights or Exchange Rights is
or will be effectively connected. This summary does not address the United
States federal income tax treatment of (i) United States holders that may be
subject to special tax rules, including dealers or traders in securities or
currencies, financial institutions, insurance companies, tax-exempt entities,
United States holders that received IVI Common Shares in connection with the
performance of services, United States holders that hold IVI Common Shares as
part of a straddle, conversion transaction or other arrangement involving more
than one position, United States holders that own (or are deemed for United
States tax purposes to own) 10% or more of all classes of voting stock of IVI,
United States holders that have a tax home outside the United States or United
States holders that have a functional currency other than the United States
dollar, or (ii) Canadian holders that may be subject to special tax rules,
including Canadian holders that acquired IVI Common Shares in connection with
the performance of services, non-resident alien individuals who have lost United
States citizenship or who have ceased to be treated as resident aliens,
corporations that are treated as foreign or domestic personal holding companies,
controlled foreign corporations or passive foreign investment companies or
certain other Canadian holders that are owned or controlled by persons subject
to United States federal income tax. In addition, this summary does not address
the application of other United States taxes, such as the federal estate tax, or
state or local tax laws.
This summary is based upon the current provisions of the Code, and upon
regulations, rulings and judicial decisions currently in effect, all of which
are subject to change; any such change could apply on a retroactive basis and
could affect the tax consequences described herein. This summary also is based
upon representations to be made to tax counsel by each of IVI and Checkmate. No
statutory, judicial or administrative authority exists that addresses directly
certain of the United States federal income tax consequences of the issuance and
ownership of instruments comparable to the Exchangeable Shares, Voting Rights
and Exchange Rights. Consequently, as discussed more fully below, the United
States federal income tax treatment of the Arrangement is uncertain in some
respects.
EACH UNITED STATES HOLDER AND CANADIAN HOLDER IS ADVISED TO CONSULT ITS OWN
TAX ADVISOR IN DETERMINING THE SPECIFIC CONSEQUENCES TO SUCH HOLDER OF THE
ARRANGEMENT AND THE OWNERSHIP AND DISPOSITION OF COMPANY COMMON STOCK,
EXCHANGEABLE SHARES, VOTING RIGHTS AND EXCHANGE RIGHTS, INCLUDING THE
APPLICATION TO ITS PARTICULAR SITUATION OF THE TAX CONSIDERATIONS DISCUSSED
BELOW, AS WELL AS THE APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS.
THE ARRANGEMENT
Pursuant to the Arrangement, a United States holder of IVI Common Shares may
elect (i) to transfer its IVI Common Shares to the Company in exchange for
Company Common Stock or (ii) to transfer its IVI Common Shares to IVI in
exchange for Exchangeable Shares and, separately, to grant and transfer Call
Rights directly to the Company in exchange for Voting Rights and Exchange
Rights. AS DISCUSSED MORE FULLY BELOW, THE TAX CONSEQUENCES ARISING ON THE
RECEIPT OF COMPANY COMMON STOCK WILL DIFFER MATERIALLY FROM THE TAX CONSEQUENCES
ARISING ON THE RECEIPT OF EXCHANGEABLE SHARES, VOTING RIGHTS AND EXCHANGE
RIGHTS. UNITED STATES HOLDERS ARE URGED TO REVIEW THESE TAX CONSIDERATIONS WITH
THEIR OWN TAX ADVISORS PRIOR TO MAKING ANY ELECTION UNDER THE ARRANGEMENT.
RECEIPT OF COMPANY COMMON STOCK. Although the matter is not free from
doubt, it is the opinion of tax counsel that a United States holder that
transfers IVI Common Shares to the Company in exchange for Company Common Stock
pursuant to the Arrangement should qualify for nonrecognition treatment under
Section 351 of the Code. Accordingly:
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(i) The United States holder should not recognize gain or loss upon the
exchange of IVI Common Shares for Company Common Stock.
(ii) The tax basis of the Company Common Stock received by the United
States holder should be equal to the adjusted tax basis in the hands of the
United States holder of the IVI Common Shares surrendered in exchange
therefor.
(iii) The holding period of the Company Common Stock received by the
United States holder should include the holding period in the hands of the
United States holder of the IVI Common Shares surrendered in exchange
therefor.
A United States holder that receives Company Common Stock in the Arrangement
will qualify for nonrecognition treatment under Section 351 only if, immediately
after the Transaction, one or more persons that transfer property to the Company
in the Transaction own stock possessing at least 80% of the total combined
voting power of all classes of stock of the Company and at least 80% of each
class of nonvoting stock of the Company (the "control" requirement). Because of
a lack of any statutory, judicial or administrative authority regarding the
United States federal income tax treatment of instruments comparable to the
Exchangeable Shares and Voting Rights, it is not entirely clear whether the
Exchangeable Shares and/or the Voting Rights should be treated as outstanding
stock of the Company for this purpose. However, even if the Exchangeable Shares
and/or the Voting Rights are treated as stock of the Company, the control
requirement should still be satisfied.
If the exchange of IVI Common Shares for Company Common Stock does not
qualify for nonrecognition treatment under Section 351, then that exchange
should be treated as a taxable transaction. In that case, a United States holder
that elects to receive Company Common Stock in the Arrangement will recognize
gain or loss in an amount equal to the difference between the fair market value
of the Company Common Stock received and the adjusted tax basis in the hands of
the United States holder of the IVI Common Shares surrendered in exchange
therefor. Such gain or loss will be capital gain or loss. The tax basis of the
Company Common Stock received by the United States holder will be equal to its
fair market value on the Effective Date and the holding period of the Company
Common Stock will not include the holding period of the IVI Common Shares
surrendered in exchange therefor.
RECEIPT OF EXCHANGEABLE SHARES, VOTING RIGHTS AND EXCHANGE RIGHTS. Under
recently-enacted legislation, so-called "nonqualified preferred stock" generally
may not be received on a tax-free basis in exchange for common stock, even if
the exchange occurs in a transaction that qualifies as a tax-free reorganization
or as a Section 351 transaction. Although the matter is uncertain, it appears
that the Exchangeable Shares should be treated as nonqualified preferred stock
for this purpose. If the Exchangeable Shares are treated as nonqualified
preferred stock, then a United States holder that elects to receive Exchangeable
Shares from IVI in the Arrangement should recognize gain or loss in an amount
equal to the difference between the fair market value of the Exchangeable Shares
received and the adjusted tax basis in the hands of the United States holder of
the IVI Common Shares surrendered in exchange therefor (excluding any portion of
the IVI Common Shares that are considered to be transferred to the Company in
exchange for the Voting Rights and the Exchange Rights, as discussed in the
immediately following paragraph). Such gain or loss will be capital gain or
loss. The tax basis of the Exchangeable Shares received by the United States
holder will be equal to their fair market value on the Effective Date and the
holding period of the Exchangeable Shares will not include the holding period of
the IVI Common Shares surrendered in exchange therefor.
As discussed above, a United States holder of IVI Common Shares that elects
to receive Exchangeable Shares from IVI in the Arrangement also will grant and
transfer directly to the Company the Call Rights in exchange for the Voting
Rights and the Exchange Rights. To the extent that the fair market value of the
Voting Rights and the Exchange Rights received exceeds the fair market value of
the Call Rights surrendered, the United States holder should be considered to
transfer directly to the Company a portion of its IVI Common Shares having a
fair market value equal to the difference. The transfer by a United
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States holder of Call Rights (and, perhaps, IVI Common Shares) in exchange for
Voting Rights and Exchange Rights could be treated for United States federal
income tax purposes (i) as a nontaxable reciprocal grant of options, (ii) as a
taxable exchange, in which case the United States holder would recognize gain in
an amount not greater than the aggregate fair market value of the Voting Rights
and the Exchange Rights received, or (iii) if the Voting Rights are treated as
outstanding voting stock of the Company, as an element of a larger tax-free
transaction under Section 351, in which case the United States holder would
recognize gain in an amount not greater than the fair market value of the
Exchange Rights received. United States holders are advised to consult their own
tax advisors as to the tax consequences arising from the receipt of Voting
Rights and Exchange Rights.
DISSENTERS. A United States holder of IVI Common Shares that exercises its
right to dissent from the Arrangement will recognize gain or loss on the
exchange of its IVI Common Shares for cash in an amount equal to the difference
between the amount of cash received and the adjusted tax basis in the hands of
the United States holder of the IVI Common Shares surrendered. Such gain or loss
will be capital gain or loss.
TAXATION OF THE EXCHANGEABLE SHARES
DISTRIBUTIONS ON THE EXCHANGEABLE SHARES. Distributions by IVI with respect
to the Exchangeable Shares (other than distributions in liquidation and certain
distributions in redemption of stock) should be taxed to United States holders
as ordinary dividend income to the extent that such distributions do not exceed
the current and accumulated earnings and profits of IVI. The amount treated as a
dividend should include any Canadian withholding tax deducted from the
distribution. Distributions, if any, in excess of the current and accumulated
earnings and profits of IVI will constitute a non-taxable return of capital to a
United States holder and will be applied against and reduce the United States
holder's tax basis in its Exchangeable Shares. To the extent that such
distributions exceed the tax basis of the United States holder in its
Exchangeable Shares, the excess generally will be treated as capital gain. In
the case of distributions in Canadian dollars, the amount of the distribution
generally will equal the U.S. dollar value of the Canadian dollars distributed
(determined by reference to the spot currency exchange rate on the date of
receipt of the distribution), and the United States holder will not realize any
separate foreign currency gain or loss (except to the extent that such gain or
loss arises on the actual disposition of foreign currency received).
In general, in computing its United States federal income tax liability, a
United States holder may elect for each taxable year to claim a deduction or,
subject to certain general limitations, a credit for foreign taxes paid or
accrued by it, including any Canadian taxes withheld from distributions paid on
the Exchangeable Shares. In general, the foreign tax credit claimed by a United
States holder may not exceed the United States federal income tax that otherwise
would be imposed on the foreign-source taxable income of the United States
holder. Further, this limitation on foreign taxes eligible for credit is
calculated separately with respect to specific classes of income ("baskets").
For United States foreign tax credit purposes, dividends paid by IVI generally
should be treated as foreign-source income and as passive income, subject to the
separate foreign tax credit basket for passive income, or in the hands of
certain holders as financial-services income. However, the Service may assert
that dividends paid by IVI should be treated as United States-source income.
EXCHANGE OF THE EXCHANGEABLE SHARES. A United States holder that transfers
Exchangeable Shares in exchange for Company Common Stock generally will
recognize gain or loss in an amount equal to the difference between the fair
market value of the Company Common Stock received and the adjusted tax basis in
the hands of the United States holder of the Exchangeable Shares (and, perhaps,
the associated Voting Rights and Exchange Rights) surrendered in exchange
therefor. Such gain or loss will be capital gain or loss. The tax basis of the
Company Common Stock received by the United States holder will be equal to its
fair market value at the time of the exchange and the holding period of the
Company Common Stock will not include the holding period of the Exchangeable
Shares surrendered in exchange therefor.
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In certain circumstances, a United States holder that transfers Exchangeable
Shares to the Company in exchange for Company Common Stock (including, in
particular, upon the acquisition by the Company of all of the outstanding
Exchangeable Shares under the Redemption Call Right) may be entitled to
nonrecognition treatment with respect to the exchange, provided that certain
other requirements are satisfied. In such a case, the tax basis of the Company
Common Stock received by the United States holder would be equal to the adjusted
tax basis in the hands of the United States holder of the Exchangeable Shares
surrendered in exchange therefor and the holding period of the Company Common
Stock received by the United States holder would include the holding period of
the Exchangeable Shares in the hands of the United States holder.
Upon a redemption of Exchangeable Shares by IVI, a United States holder that
qualifies for the benefits of the Tax Treaty generally will be subject to
Canadian withholding tax at a rate of 15% on the portion of the proceeds treated
as a dividend for Canadian tax purposes. For United States foreign tax credit
purposes, gain realized on the redemption generally will be treated as United
States-source income. Accordingly, any Canadian withholding tax imposed on the
redemption generally will not be available as a foreign tax credit for the
United States holder, unless the United States holder has other foreign-source
income in the appropriate basket.
TAXATION OF CANADIAN HOLDERS
Dividends received by a Canadian holder on the Exchangeable Shares should
not be subject to United States withholding tax and IVI currently does not
intend to withhold any amounts in respect of United States tax from such
dividends. However, the Service may assert that United States withholding tax is
payable with respect to dividends paid on the Exchangeable Shares to Canadian
holders, in which case Canadian holders of Exchangeable Shares would be subject
to United States withholding tax at the rate of 15%.
Dividends received by a Canadian holder on the Company Common Stock will be
subject to United States withholding tax at the rate of 15%.
A Canadian holder generally will not be subject to United States federal
income tax on gain realized either on the receipt of Company Common Stock or
Exchangeable Shares pursuant to the Arrangement, or on the subsequent
disposition of Company Common Stock or Exchangeable Shares.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
TO CHECKMATE SHAREHOLDERS
The following is a summary of the material U.S. federal income tax
consequences of the Merger. Although the following does not purport to describe
all of the tax considerations that may be relevant to a holder of Checkmate
Common Stock, in the opinion of Alston & Bird LLP, counsel to Checkmate, such
summary describes the material United States federal income tax consequences to
a United States holder of Checkmate Common Stock. An opinion to the effect of
the previous sentence has been filed as an exhibit to the Registration
Statement. This summary is based on the provisions of the Code, the United
States Department of the Treasury Regulations thereunder and rulings and court
decisions as of the date hereof, all of which are subject to change, possibly
retroactively. The summary is included for general information purposes only,
applies only to Checkmate shareholders, if any, who hold their stock as a
capital asset and may not apply to Checkmate shareholders, if any, who received
their stock upon the exercise of employee stock options or otherwise as
compensation or who have a special tax status including but not limited to
financial institutions, insurance companies, dealers in securities, holders that
are not citizens or residents of the United States and tax exempt entities. IVI
and Checkmate have not requested a ruling from the Service with respect to the
Merger.
A condition to consummation of the Merger is the receipt by Checkmate of an
opinion of Alston & Bird LLP as to the qualification of the Merger as a tax-free
reorganization and certain other federal
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income tax consequences of the Merger, including, without limitation, that no
gain or loss will be recognized for federal income tax purposes by Checkmate
shareholders upon the exchange of their shares of Checkmate Common Stock for
shares of Company Common Stock. In rendering its opinion, Alston & Bird LLP
shall be entitled to rely on certain representations of the officers of
Checkmate. Except as to factual matters, statements of legal conclusion in this
summary represent the opinion of Alston & Bird LLP.
It is the opinion of Alston & Bird LLP that the Merger will qualify as a
tax-free reorganization within the meaning of Section 368(a) of the Code and
that this summary is true and correct in all material respects. An opinion to
the effect of the previous sentence has been filed as an exhibit to the
Registration Statement. Among other things, qualification as a tax-free
reorganization is based on Checkmate shareholders maintaining sufficient equity
ownership interest in the Company after the Merger. The Service takes the
position for purposes of issuing an advance ruling on reorganizations, that the
shareholders of an acquired corporation (i.e., Checkmate) must maintain a
continuing equity ownership interest in the acquiring corporation (i.e., the
Company) equal, in terms of value, to at least 50% of their interest in such
acquired corporation. Moreover, shares of Checkmate Common Stock and Company
Common Stock held by Checkmate shareholders and otherwise sold, redeemed or
disposed of prior or subsequent to the Effective Time are taken into account. In
addition, management of the Company has no plan or intention to cause the
Company to redeem or otherwise reacquire the shares of Company Common Stock
issued in the Merger. In addition to the foregoing requirements, certain
additional matters must be true with respect to the Merger. The Company believes
that these additional factual matters will be satisfied.
Assuming the Merger is treated as a reorganization as defined in Section
368(a) of the Code, in the opinon of Alston & Bird LLP, the following will be
the material federal income tax consequences to the Checkmate shareholders:
(i) No gain or loss will be recognized for federal income tax purposes
by Checkmate shareholders upon the exchange of their shares of Checkmate
Common Stock solely for shares of Company Common Stock.
(ii) The aggregate tax basis of the shares of Company Common Stock to be
received by Checkmate shareholders will be the same as the aggregate tax
basis of the Checkmate Common Stock surrendered in exchange therefor.
(iii) The holding period of the Company Common Stock to be received by
Checkmate shareholders will include the period during which the shares of
Checkmate Common Stock surrendered in exchange therefor had been held,
provided such shares were held by such stockholders as a capital asset at
the Effective Time.
(iv) Where solely cash is received by a Checkmate shareholder in
exchange for Checkmate Common Stock pursuant to the exercise of dissenters
rights, the former Checkmate shareholder will be subject to federal income
tax as a result of such transaction. The cash will be treated as having been
received as a redemption in exchange for such holder's Checkmate Common
Stock, subject to the provisions and limitations of Section 302 of the Code.
BECAUSE MATERIAL TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER AND OTHER FACTORS, EACH HOLDER OF
CHECKMATE COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER
(INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE AND LOCAL INCOME AND
OTHER TAX LAWS).
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THE COMBINATION AGREEMENT
REPRESENTATIONS, WARRANTIES AND COVENANTS
The Combination Agreement contains certain customary representations and
warranties of each of IVI, Checkmate, the Company and Sub relating to, among
other things, their respective organization, capital structures, qualification,
operations, financial condition, compliance with necessary regulatory or
governmental authorities and other matters, including their authority to enter
into the Combination Agreement and to consummate the Transaction. Pursuant to
the Combination Agreement, each party has agreed that, until the earlier of the
termination of the Combination Agreement or the Effective Time, it will maintain
its business and it will not take certain actions outside the ordinary course
without the other's consent. The parties have also agreed to advise each other
of material changes. Further, the parties have agreed to apply for and use their
reasonable efforts to obtain all regulatory and other consents and approvals
required for the consummation of the Transaction, to use their reasonable
efforts to effect the Transaction, including the preparation and mailing of this
Joint Proxy Statement/Prospectus, and to provide the other parties and their
respective counsel with such information as they may reasonably request. The
Company has agreed to indemnify present and former directors, officers,
employees, fiduciaries and agents of IVI and Checkmate and their subsidiaries
for six years after the Effective Date. In addition, the Combination Agreement
provides that the bylaws of IVI and the bylaws of Checkmate shall not be
amended, repealed or otherwise modified for six years after the Effective Date
in any manner that would adversely affect the rights of individuals who
immediately prior to the Effective Date were directors, officers, employees or
agents of IVI or Checkmate. The Company has also agreed to use its reasonable
best efforts to cause the Exchangeable Shares to be listed on the TSE and the
shares of Company Common Stock to be listed on the TSE and the Nasdaq National
Market as of the Effective Date. Checkmate has agreed to take such action as may
be necessary so that the Checkmate Rights Plan shall be terminated at the
Effective Time and not apply to the transactions contemplated in the Combination
Agreement.
EFFECTIVE TIME AND EFFECTIVE DATE
If the Combination Agreement is adopted by the requisite votes of IVI
shareholders and Checkmate shareholders, and all other required court and other
consents and approvals are received, and if the other conditions to the
obligations of the parties to consummate the Transaction are satisfied or waived
(as permitted), (i) the Arrangement will be consummated and will become
effective on the date and at the time that a Certificate of Arrangement
reflecting the Arrangement is issued by the Director under the CBCA, and (ii)
the Merger will be consummated and effected on the date and at the effective
time specified in a Certificate of Merger, reflecting the Merger, filed with the
Secretary of State of the State of Georgia. It is anticipated that the Effective
Time will occur on a date within two business days of the obtaining of
shareholder approvals and the required court approval, provided all other
conditions to the consummation of the Transaction are either satisfied or
waived. Court approval is expected on the day after the Shareholders Meetings or
shortly thereafter. Either IVI or Checkmate, acting unilaterally, may terminate
the Combination Agreement if the Transaction has not been consummated by July
31, 1998. See "-- Conditions to Consummation" and "-- Amendment, Waiver, and
Termination."
CONDITIONS TO CONSUMMATION
The following are conditions precedent to the consummation of the
Transaction pursuant to the Combination Agreement: (a) no stop order suspending
the effectiveness of the Registration Statement, if any, shall have been issued
and not withdrawn by the Commission and no litigation for that purpose and no
similar proceeding in respect of the Joint Proxy Statement/Prospectus shall have
been initiated or threatened by the Commission or the OSC; (b) the Court shall
have issued its final order approving the Arrangement in form and substance
satisfactory to IVI and Checkmate (such approvals not to be unreasonably
withheld or delayed); (c) the Combination Agreement and the Arrangement or
Merger, as
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the case may be, shall have been approved and adopted by the affirmative
requisite vote of the shareholders of each of IVI and Checkmate; (d) the waiting
period (if any) applicable to the consummation of the Transaction under the HSR
Act shall have expired or been terminated; (e) all necessary rulings shall have
been obtained from the OSC and other relevant Canadian, provincial and state
securities regulatory authorities in connection with the Transaction; (f) no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Transaction shall be in effect,
nor shall any litigation brought by any governmental entity seeking any of the
foregoing be pending; and there shall not be any action taken, or any law or
order applicable to the Transaction, which makes the consummation of the
Transaction illegal; (g) the Company Common Stock issued at or immediately after
the Effective Date and any additional shares issued as a result of the exercise
of rights attaching to the Exchangeable Shares shall have been approved for (i)
listing, subject to notice of issuance and fulfillment of all requirements of
the TSE, on the TSE, and (ii) quotation, subject to notice of issuance, on the
Nasdaq National Market; (h) the Exchangeable Shares shall have been approved for
listing, subject to notice of issuance and fulfillment of all requirements of
the TSE, on the TSE; and (i) IVI and Checkmate shall not have received, on or
prior to the Effective Time, notice from the holders of, in IVI's case, IVI
Common Shares, and, in Checkmate's case, shares of Checkmate Common Stock of
their intention to exercise their rights of dissent under Section 190 of the
CBCA and Article 13 of the GBCC, respectively, that in the aggregate, after
taking into account all other facts and circumstances of the parties, would
prevent the Transaction from being treated as a pooling-of-interests under U.S.
GAAP.
The obligations of IVI to effect the Transaction are also subject to the
following conditions: (a) the representations and warranties of Checkmate
contained in the Combination Agreement shall be true and correct in all material
respects (except for such representations and warranties which are qualified as
to materiality which shall be true and correct in all respects) on and as of the
Effective Date, except for (i) changes contemplated by the Combination
Agreement, or (ii) those representations and warranties which address matters
only as of a particular date (which shall remain true and correct as of such
date), and IVI shall have received a certificate to such effect signed on behalf
of Checkmate by the Chief Executive Officer and the Chief Financial Officer of
Checkmate; (b) each of Checkmate, the Company and Sub shall have performed or
complied in all respects with all agreements and covenants required by the
Combination Agreement to be performed or complied with by it on or prior to the
Effective Date, and IVI shall have received a certificate to such effect signed
on behalf of Checkmate by the Chief Executive Officer and the Chief Financial
Officer of Checkmate and with respect to the Company and Sub, by a director or
officer of such corporation; (c) all material approvals and consents required to
be obtained or made by Checkmate for the authorization, execution and delivery
of the Combination Agreement and the consummation by it of the transactions
contemplated thereby shall have been obtained and made by Checkmate; (d) there
shall not have been instituted, pending or threatened any action or proceeding
(or any investigation or other inquiry that might result in such an action or
proceeding) by any governmental entity before any governmental entity, nor shall
there be in effect any order of any governmental entity, in either case, seeking
to prohibit or limit IVI from exercising all material rights and privileges
pertaining to the ownership or operation by IVI or any of its subsidiaries of
all or a material portion of the business or properties of IVI or any of its
subsidiaries, or seeking to compel IVI or any of its subsidiaries to dispose of
or hold separate all or any material portion of the business or properties of
IVI or any of its subsidiaries, as a result of the Transaction; (e) since the
date of the Combination Agreement, there shall have been no change, occurrence
or circumstance in the business, results of operations or financial condition of
Checkmate or any subsidiary of Checkmate having a material adverse effect; (f)
IVI shall have received a letter, dated as of the date of the Combination
Agreement, in form and substance reasonably acceptable to such party, from
Coopers & Lybrand to the effect that such firm is not aware of any matters
relating to IVI and its subsidiaries which would preclude the Transaction from
qualifying for pooling-of-interests accounting treatment; (g) IVI also shall
have received a letter, dated as of the Effective Date in form and substance
reasonably acceptable to such party, from Coopers & Lybrand to the effect that
the Transaction
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qualifies for pooling-of-interests accounting treatment; (h) IVI shall have
received from each person who is an Affiliate of Checkmate an Affiliate
Agreement, and each such Affiliate Agreement shall be in full force and effect;
(i) IVI shall have received from Alston & Bird LLP, counsel to Checkmate, an
opinion that the Merger is effective under Georgia law, in form and substance
reasonably satisfactory to IVI and its counsel; and (j) IVI shall have received
an opinion in form and substance satisfactory to IVI of Meighen Demers, counsel
for IVI, to the effect that the Arrangement will be generally treated for
Canadian federal income tax purposes as a reorganization of capital for those
shareholders of IVI who hold their IVI Common Shares as capital property for
purposes of the Canadian Tax Act and an opinion in form and substance
satisfactory to IVI from Morgan, Lewis & Bockius LLP, U.S. counsel to IVI, to
the effect that a shareholder of IVI that exchanges IVI Common Shares for
Company Common Stock should not recognize gain or loss under Section 351 of the
Code.
The obligations of Checkmate to effect the Transaction is also subject to
the following conditions: (a) the representations and warranties of IVI
contained in the Combination Agreement shall be true and correct in all material
respects (except for such representations and warranties which are qualified as
to materiality which shall be true and correct in all respects) on and as of the
Effective Date, except for (i) changes contemplated by the Combination
Agreement, or (ii) those representations and warranties which address matters
only as of a particular date (which shall remain true and correct as of such
date), and Checkmate shall have received a certificate to such effect signed on
behalf of IVI by the Chief Executive Officer and the Chief Financial Officer of
IVI; (b) IVI, the Company and Sub shall have performed or complied in all
material respects with all agreements and covenants required by the Combination
Agreement to be performed or complied with by them on or prior to the Effective
Date, and Checkmate shall have received a certificate to such effect signed by
the Chief Executive Officer and the Chief Financial Officer of IVI and with
respect to the Company and Sub, by a director or officer of such corporation;
(c) all material approvals and consents required to be obtained or made by IVI
for the authorization, execution and delivery of the Combination Agreement and
the consummation by them of the transactions contemplated thereby shall have
been obtained and made by IVI; (d) there shall not have been instituted, pending
or threatened any action or proceeding (or any investigation or other inquiry
that might result in such an action or proceeding) by any governmental entity
before any governmental entity, nor shall there be in effect any order of any
governmental entity, in either case, seeking to prohibit or limit Checkmate from
exercising all material rights and privileges pertaining to the ownership or
operation by Checkmate or any of its subsidiaries of all or a material portion
of the business or properties of Checkmate or any of its subsidiaries, or
seeking to compel Checkmate or any of its subsidiaries to dispose of or hold
separate all or any material portion of the business or properties of Checkmate
or any of its subsidiaries, as a result of the Transaction; (e) since the date
of the Combination Agreement, there shall have been no change, occurrence or
circumstance in the business, results of operations or financial condition of
IVI or any subsidiary of IVI having a material adverse effect thereon; (f)
Checkmate shall have received a letter, dated as of the date of the Combination
Agreement, in form and substance reasonably acceptable to such party, from Ernst
& Young LLP to the effect that such firm is not aware of any matters relating to
Checkmate and its subsidiaries which would preclude the Transaction from
qualifying for pooling-of-interests accounting treatment; (g) Checkmate also
shall have received a letter, dated as of the Effective Date, in form and
substance reasonably acceptable to such party, from Coopers & Lybrand to the
effect that the Transaction qualifies for pooling-of-interests accounting
treatment; (h) Checkmate shall have received from each person who is an
Affiliate of IVI an Affiliate Agreement, and each such Affiliate Agreement shall
be in full force and effect; (i) Checkmate shall have received from Meighen
Demers, counsel to IVI, an opinion that the Arrangement is effective under
Ontario law, in form and substance reasonably satisfactory to Checkmate and its
counsel; and (j) Checkmate shall have received an opinion in form and substance
satisfactory to Checkmate of Alston & Bird LLP, counsel for Checkmate, to the
effect that the Merger will be treated for U.S. federal income tax purposes as a
tax-free reorganization under Section 368(a) of the Code.
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No assurances can be provided as to when or if all of the conditions
precedent to the Transaction can or will be satisfied or waived by the
appropriate party. As of the date of this Joint Proxy Statement/ Prospectus, the
parties have no reason to believe that any of the conditions set forth above
will not be satisfied.
The Combination Agreement provides that, except for those conditions which
relate to required regulatory approvals, the conditions to consummation of the
Transaction may be waived, in whole or in part, to the extent permissible under
applicable law, by the party for whose benefit the condition has been imposed,
without the approval of Checkmate shareholders or IVI shareholders. See "--
Amendment, Waiver, and Termination." The Boards of IVI and Checkmate will
determine the materiality of any unmet conditions and determine, based on the
particular facts and circumstances, whether to resolicit the vote of
shareholders with respect to any such unmet conditions.
CONDUCT OF BUSINESS PENDING THE TRANSACTION
Pursuant to the Combination Agreement, IVI and Checkmate have agreed that,
up until the Closing, IVI and Checkmate shall conduct their businesses and shall
cause the businesses of their subsidiaries to be conducted only in, and IVI and
Checkmate and their subsidiaries shall not take any action except in, the
ordinary course of business and in a manner consistent with past practice except
as may be otherwise provided in the Combination Agreement; and IVI and Checkmate
shall use reasonable commercial efforts to preserve substantially intact their
business organization and the business organization of their subsidiaries, to
keep available the services of their present officers, employees and
consultants, to take all action reasonably necessary to prevent the loss,
cancellation, abandonment, forfeiture or expiration of any their intellectual
property and to preserve their present relationships with customers, suppliers
and other persons with which they have significant business relations.
In addition, except as contemplated by the Combination Agreement, IVI and
Checkmate shall not, and shall cause their subsidiaries not to, except to the
extent necessary to implement the Transaction and to carry out the intentions of
the parties regarding the post-closing corporate structure, during the period
from the date of the Combination Agreement and continuing until the earlier of
the termination of the Combination Agreement or the Effective Date, directly or
indirectly do, or agree, propose or contract to do, any of the following without
the prior written consent of the other party:
(a) amend or otherwise change its articles of continuance, in the case
of IVI, articles of incorporation, in the case of Checkmate, or by-laws;
(b) issue, sell, pledge, dispose of or encumber or otherwise subject to
any lien, or authorize the issuance or reservation for issuance, sale,
pledge, disposition or encumbrance of or otherwise subjecting to any lien,
any shares of capital stock of any class or other ownership interests, or
any rights to capital stock of such party, any of its subsidiaries or
affiliates (except for the issuance of common stock issuable pursuant to
employee stock options under an IVI Option Plan or Checkmate Option Plan or
pursuant to the Participation Right, which options, warrants or rights, as
the case may be, are outstanding on the date of the execution of the
Combination Agreement and except for the issuance of shares of the common
stock of National Transaction Network, Inc., a Delaware corporation ("NTN"),
pursuant to employee stock options which options are outstanding on the date
of the execution of the Combination Agreement);
(c) sell, dispose of or subject any of such party's properties or any
property of its subsidiaries to any lien (except for (i) sales of properties
in the ordinary course of business and in a manner consistent with past
practice and (ii) dispositions of obsolete or worthless properties);
(d) amend or change the period (or permit any acceleration, amendment or
change) of exercisability of options or restricted stock granted under its
employee benefit plans (including the
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IVI Option Plan or the Checkmate Option Plans) or authorize cash payments in
exchange for any options granted under any of such plans;
(e) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of any of its capital stock or other ownership interest, except
that a wholly owned subsidiary of IVI may declare and pay a dividend to its
parent, (ii) split, combine or reclassify any of its capital stock or other
ownership interests or issue or authorize or propose the issuance of any
other securities or rights in respect of, in lieu of or in substitution for
shares of its capital stock or other ownership interests, or (iii) amend the
terms of, repurchase, redeem or otherwise acquire, or permit any subsidiary
to repurchase, redeem or otherwise acquire, any of its securities or any
securities of its subsidiaries;
(f) sell, transfer, license, sublicense or otherwise dispose of any
intellectual property, or amend or modify any existing contracts with
respect to any of its intellectual property or its rights in or to a
third party's intellectual property, other than nonexclusive object and
source code licenses in the ordinary course of business consistent with past
practice;
(g) (i) acquire (by merger, consolidation, acquisition of stock or
assets or otherwise) any corporation, partnership or other business
organization or division thereof, other than the purchase by NTN of the
assets of BancTec Payment System's Open Payment Systems Group; (ii) incur or
amend any indebtedness for borrowed money or issue any debt securities or
assume, guarantee (other than guarantees of currently existing bank debt of
such party or its subsidiaries entered into in the ordinary course of
business), endorse or otherwise as an accommodation become responsible for,
the obligations of any person, or make any loans or advances, except in the
ordinary course of business consistent with past practice; or (iii)
authorize any capital expenditures or purchase of fixed assets which are, in
the aggregate, in excess of $1,000,000 for such party and its subsidiaries
taken as a whole;
(h) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of officers
or employees of such party or any of its subsidiaries subject to performance
and compensation reviews, or grant any severance or termination pay to, or
enter into any employment or severance agreement with, any director, officer
or other employee of such party or any of its subsidiaries, or (except as
required by law) terminate, establish, adopt, enter into or amend any
employee plan;
(i) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, capitalization of software development costs, payments of
accounts payable and collection of accounts receivable) other than as may be
required by Canadian GAAP, in the case of IVI, or U.S. GAAP, in the case of
Checkmate, both applied on a basis consistent with past practice;
(j) make any material tax election inconsistent with past practices or
settle or compromise any material federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations except to the
extent the amount of any such settlement has been reserved for on the
consolidated balance sheet contained in such party's most recent publicly
filed document;
(k) pay, discharge or satisfy any material litigation or liabilities,
other than the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practice, of liabilities reflected or
reserved against on the consolidated balance sheet contained in such party's
most recent publicly filed document or incurred in the ordinary course of
business and consistent with past practice;
(l) modify, amend or terminate any contracts, waive, release, relinquish
or assign any contract or other rights or claims or cancel or forgive any
indebtedness owed to it, other than in the ordinary course of business
consistent with past practice or with respect to contracts which are not
material to such party and its subsidiaries taken as a whole;
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(m) take or allow to be taken or fail or omit to take any act which
would jeopardize the treatment of the Transactions as a pooling-of-interests
for accounting purposes under U.S. GAAP; or
(n) any action which would make any of the representations or warranties
of such party contained in the Combination Agreement untrue or incorrect in
any material respect or prevent such party from performing or cause such
party not to perform its covenants hereunder or result in any of the
conditions to the Arrangement or Merger set forth therein not being
satisfied.
NO SOLICITATION. Pursuant to the Combination Agreement, neither IVI nor
Checkmate, nor any of their respective subsidiaries shall (whether directly or
indirectly through advisors, agents or other intermediaries), nor shall such
company or any of its subsidiaries authorize or permit any of its or their
officers, directors, agents, representatives, advisors or subsidiaries to (a)
solicit, initiate or knowingly take any action to facilitate the submission of
inquiries, proposals or offers from any Third Party relating to (i) any
acquisition or purchase of 5% or more of the assets of such company and its
subsidiaries or of 5% or more of the number of outstanding equity securities of
any class of such company or any of its subsidiaries, (ii) any tender offer
(including a self tender offer) or exchange offer, (iii) any merger,
consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation, dissolution or similar transaction involving such
company or any of its subsidiaries whose assets, individually or in the
aggregate, constitute 5% or more of the assets of such company and its
subsidiaries other than the transactions contemplated by the Combination
Agreement, the Shareholders Agreements and any transaction pursuant to the
Participation Right, or (iv) any other transaction the consummation of which
would, or could reasonably be expected to materially impede, interfere with,
prevent or delay any or all of the Transactions (collectively, "Acquisition
Proposals"), or (b) agree to or endorse an Acquisition Proposal, or (c) enter
into or participate in any discussions or negotiations regarding any of the
foregoing, or furnish to any third party any information with respect to its
business or properties or any of the foregoing, or otherwise cooperate in any
way with, or knowingly assist or participate in, facilitate or encourage, any
effort or attempt by any third party to do or seek any of the foregoing;
provided, however, that the foregoing shall not prohibit such company (either
directly or indirectly through advisors, agents or other intermediaries) from
(a) engaging in discussions or negotiations with such a third party who has made
a Superior Proposal but only to the extent that the Board of Directors of such
company shall have concluded in good faith on the basis of written advice from
its outside counsel that such action is required to prevent the Board of
Directors of such company from breaching its fiduciary duties to the
stockholders or shareholders of such company under applicable law; or (b)
furnishing information pursuant to an appropriate confidentiality letter (which
letter shall not be less favorable to such company in any material respect than
the similar agreement entered into between IVI and Checkmate, and a copy of
which shall be provided for informational purposes only to the other company)
concerning such company and its businesses or properties to a third party who
has made a Superior Proposal; provided, further, that if the Board of Directors
of such company receives a Superior Proposal, to the extent it may do so without
breaching its fiduciary duties as advised in writing by its outside counsel and
as determined in good faith, and without violating any of the conditions of such
Superior Proposal, (i) the Board of Directors of such company shall not, and
shall not authorize any officers or representatives to, take any of the
foregoing actions until reasonable notice to the other company of its intent to
take such action shall have been given in writing to the other company; and (ii)
such company shall promptly inform the other company of the terms and conditions
of such proposal and the identity of the person making it.
For purposes of the Combination Agreement and the foregoing discussion,
"Superior Proposal" means a bona fide Acquisition Proposal that the Board of
Directors of the company subject to such Acquisition Proposal believes, in its
good faith judgment (based on the advice of a financial advisor of nationally
recognized reputation, taking into account all the terms and conditions of the
Acquisition Proposal, including any break-up fees, expense reimbursement
provisions and conditions to consummation) is more favorable, from a financial
point of view, to the stockholders or shareholders of such
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company than the Combination Agreement and the Transaction and that the funds or
other consideration necessary for the Acquisition Proposal are reasonably likely
to be available.
COURT APPROVAL
In addition to approval by the IVI shareholders, the Arrangement requires
approval by the Ontario Court. Prior to the mailing of this Joint Proxy
Statement/Prospectus, IVI obtained the Interim Order of the Court providing for
the calling and holding of the IVI Shareholders Meeting and other procedural
matters. Subject to approval of the Arrangement by the IVI shareholders at the
IVI Shareholders Meeting, the hearing in respect of the Final Order is scheduled
to take place on June 25, 1998 at 10 a.m. (Toronto time) in the Court. All IVI
shareholders who wish to participate or be represented or to present evidence or
arguments at that hearing must serve and file a notice of appearance as set out
in the Notice of Petition for the Final Order and satisfy any other
requirements. At the hearing of the application in respect of the Final Order,
the Court will consider, among other things, the fairness and reasonableness of
the Arrangement. The Court may approve the Arrangement as proposed or as amended
in any manner the Court may direct, subject to compliance with such terms and
conditions, if any, as the Court deems fit. If the Court were to amend the
Arrangement such that an amendment to the Combination Agreement would be
necessary or desirable, such amendment may be made by the parties' respective
Boards of Directors, provided that no such amendment would require further
approval under applicable law. It is anticipated that the Effective Time will
occur on a date within two business days of the obtaining of shareholder
approvals and the required court approval, provided all other conditions to the
consummation of the Transaction are either satisfied or waived. Court approval
is expected on the day after the Shareholders Meetings or shortly thereafter.
REGULATORY APPROVALS
The obligations of IVI and Checkmate to perform under the Combination
Agreement and consummate the Transaction are subject to the receipt of all
approvals from regulatory authorities required for consummation of the
Transaction and the expiration of all waiting periods required by law.
Based on information available to them, IVI and Checkmate believe that the
Transaction can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Transaction on antitrust grounds will not be made or that, if such a challenge
were made, IVI and Checkmate would prevail or would not be required to accept
certain adverse conditions in order to consummate the Transaction.
AMENDMENT, WAIVER AND TERMINATION
AMENDMENT. The Combination Agreement may be amended by the parties by
action taken on or behalf of their respective Boards of Directors at any time
prior to the Effective Date, provided that after approval of the matters put
before the shareholders of Checkmate or the shareholders of IVI, no amendment
may be made which under any law requires further approval by such shareholders
without such further approval.
WAIVER. At any time prior to the Effective Date, any party to the
Combination Agreement may with respect to any other party (a) extend the time
for performance of any of the obligations or other acts, (b) waive any
inaccuracies in the representations and warranties contained in the Combination
Agreement or any document delivered pursuant thereto, and (c) waive compliance
with any of the agreements or conditions contained in the Combination Agreement,
except for the conditions relating to required regulatory approvals as provided
in the Combination Agreement. The Boards of IVI and Checkmate will determine the
materiality of any unmet conditions and determine, based on the particular facts
and circumstances, whether to resolicit the vote of shareholders with respect to
any such unmet conditions.
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TERMINATION. The Combination Agreement may be terminated, and the
Transaction abandoned, notwithstanding approval thereof by the shareholders of
IVI or Checkmate, prior to the Effective Time by: (a) mutual written consent
duly authorized by the Boards of Directors of IVI and Checkmate; (b) either IVI
or Checkmate if the Transaction shall not have been consummated by July 31, 1998
(provided, that, the right to terminate the Combination Agreement under the
termination provision of the Combination Agreement shall not be available to any
party whose failure to fulfill any obligation under the Combination Agreement
has been the cause of or resulted in the failure of the Transaction to occur on
or before such date); (c) either IVI or Checkmate if a court of competent
jurisdiction or other governmental entity shall have issued a non-appealable
final order or taken any other action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Arrangement or
the Merger; (d) either IVI or Checkmate, if, at either of the IVI Shareholders
Meeting (including any adjournment or postponement thereof) or the Checkmate
Shareholders Meeting (including, any adjournment or postponement thereof), the
requisite affirmative vote of the shareholders of IVI or Checkmate, as the case
may be, shall not have been obtained; (e) either IVI or Checkmate if (i) the
Board of Directors of the other company shall withdraw, modify or change its
recommendation of the Combination Agreement or the Transaction in a manner
adverse to the other party or shall have resolved to do so or shall have failed
by June 15, 1998 to call the IVI Shareholders Meeting or the Checkmate
Shareholders Meeting, as the case may be; or (ii) the Board of Directors of the
other company shall have taken a "neutral" position with respect to (or shall
have failed to reject as inadequate, or shall have failed to reaffirm its
recommendation of the Combination Agreement and the Transaction within 10
business days after the public announcement or commencement of) an Acquisition
Proposal; (f) by either IVI or Checkmate, upon a breach of any representation,
warranty, covenant or agreement on the part of IVI or Checkmate, respectively,
or if any representation or warranty of IVI or Checkmate, respectively, shall
have become untrue, in either case, such that certain conditions to the
Transaction would not be satisfied (a "Terminating Breach"), provided, that, if
such Terminating Breach is curable prior to the expiration of 30 days from its
occurrence (but in no event later than July 31, 1998) by IVI or Checkmate, as
the case may be, through the exercise of its reasonable best efforts and for so
long as IVI or Checkmate, as the case may be, continues to exercise such
reasonable best efforts, neither IVI nor Checkmate, respectively, may terminate
the Combination Agreement under the termination provision of the Combination
Agreement until the earlier of July 31, 1998 or the expiration of such 30-day
period without such Terminating Breach having been cured; (g) either IVI or
Checkmate may terminate the Combination Agreement by written notice to the other
company at any time prior to the Effective Time, provided that a person has made
a Superior Proposal to the terminating party, and that the other company does
not make, within five business days of the aforesaid notice, an offer that the
Board of Directors of the terminating party believes, in its good faith judgment
(based on the advice of a financial advisor of nationally recognized reputation,
taking into account all the terms and conditions of the Superior Proposal,
including any break-up fees, expense reimbursement provisions and conditions to
consummation) is at least as favorable, from a financial point of view, to the
shareholders of such Company as such Superior Proposal and that the funds or
other consideration necessary for such offer are reasonably likely to be
available; (h) either IVI or Checkmate may terminate the Combination Agreement
by written notice to the other company if prior to the Effective Time the Board
of Directors of the terminating party shall have withdrawn or modified or
amended, in a manner adverse to the other company, its approval or
recommendation of the Combination Agreement, the Arrangement or the Merger or
its recommendation that the shareholders of the terminating party adopt and
approve the Combination Agreement, the Arrangement or the Merger in order to
permit the terminating party to execute a definitive agreement providing for the
consummation of a Superior Proposal with respect to such party, provided that
such party shall be in compliance with the terms of the no solicitation
provision of the Combination Agreement.
In the event of the termination of the Combination Agreement pursuant to the
termination provisions thereof, the Combination Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or any of
its affiliates, directors, officers or shareholders except (i) for certain fees
and expenses incurred in connection with the Transaction (fees and expenses
incurred in connection with the
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Combination Agreement and the Transaction by the Company and Sub will be shared
on an equal basis by IVI and Checkmate) and for the payment, under certain
circumstances of a fee of $3,000,000, together with reimbursement of all
reasonable out-of-pocket costs, fees and expenses, if either party consummates,
under certain circumstances, an Acquisition Proposal within 12 months following
termination of the Combination Agreement, and (ii) nothing in the Combination
Agreement shall relieve any party from liability for any willful breach thereof.
EXPENSES AND FEES
The Combination Agreement provides that, except as otherwise set forth in
the no solicitation provision of the Combination Agreement, each of IVI and
Checkmate shall be responsible for the fees and expenses of its own legal
counsel, accountants, investment banker and other professional advisors in
connection with the Combination Agreement and the Transaction. All fees and
expenses incurred in connection with the Combination Agreement and the
Transaction by the Company and Sub, including, without limitation, fees and
expenses incurred with respect to the incorporation and organization of each of
them, registration fees and filing fees paid with respect to the Registration
Statement and the Joint Proxy Statement/Prospectus shall be shared on an equal
basis by IVI and Checkmate, whether or not the Transactions are consummated. See
"The Combination Agreement -- Amendment, Waivers and Termination."
If (i) a Third Party has made an Acquisition Proposal, (ii) the Combination
Agreement is terminated because the board of directors of the company subject to
the Acquisition Proposal takes certain actions favorable to the adoption of the
Acquisition Proposal or unfavorable to the adoption of the Combination Agreement
or determines that such Acquisition Proposal is a Superior Proposal and the
other company does not match such proposal, or because the other company has
breached a representation, warranty or covenant contained in the Combination
Agreement or the board of directors of a company take certain actions
unfavorable to the adoption of the Combination Agreement to enter into a
Superior Proposal, provided that such company complies with the non solicitation
provisions, and (iii) the transaction related to such Acquisition Proposal is
consummated within twelve months following the termination of the Combination
Agreement, then the party to whom such Acquisition Proposal was made, whose
board of directors took the action in clause (ii) alone, or consummates any such
Acquisition Proposal, shall pay to the other party a fee of $3,000,000, as
liquidated damages and not as a penalty, together with reimbursement of all
reasonable out-of-pocket costs, fees and expenses, including without limitation,
the reasonable fees and disbursements of banks, investment banks, accountants
and legal counsel and the expenses of any litigation incurred in connection with
collecting such fee. See "The Combination Agreement -- Conduct of Business
Pending the Transaction -- No Solicitation."
DISTRIBUTION OF CERTIFICATES
In the case of holders of IVI Common Shares, in conjunction with the
distribution of this Joint Proxy Statement/Prospectus, the Company shall mail a
Letter of Transmittal and Election Form to each record holder of IVI Common
Shares for use in effecting the surrender and cancellation of those certificates
in exchange for Company Common Stock and/or Exchangeable Shares (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates theretofore representing IVI Common Shares shall pass, only upon
proper delivery of such certificates to the exchange agent by the former
shareholders of IVI). In the case of holders of shares of Checkmate Common
Stock, the Company shall cause the exchange agent selected by the Company to
mail a Letter of Transmittal to each record holder of shares of Checkmate Common
Stock for use in effecting the surrender and cancellation of those certificates
in exchange for Company Common Stock (which shall specify that delivery shall be
effected, and risk of loss and title to the certificates theretofore
representing shares of Checkmate Common Stock shall pass, only upon proper
delivery of such certificates to the exchange agent by the former shareholders
of Checkmate Common Stock).
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IVI shareholders and Checkmate shareholders should not surrender their
certificates for exchange until the Effective Time and after they receive such
letter of transmittal and instructions. After the Effective Time, each holder of
IVI Common Shares and shares of Checkmate Common Stock (excluding shares as to
which dissenters rights are perfected) issued and outstanding at the Effective
Time shall surrender the certificate or certificates representing such shares to
the exchange agent, and the certificates thus surrendered will be canceled.
Unless otherwise designated by an IVI or Checkmate shareholder on the
transmittal letter, certificates representing shares of Company Common Stock,
or, at the election of the holder of IVI Common Shares, Exchangeable Shares,
deliverable to IVI or Checkmate shareholders in connection with the Transaction
will be issued and delivered to the tendering IVI or Checkmate shareholder at
the address on record with IVI or Checkmate. The Company shall not be obligated
to deliver the consideration to which any former holder of IVI Common Shares or
Checkmate Common Stock is entitled until such holder surrenders such holder's
certificate or certificates representing such holder's shares for exchange. The
certificate or certificates so surrendered shall be duly endorsed as the
exchange agent may require. No party shall be liable to a holder of IVI Common
Shares and Checkmate Common Stock for any property delivered in good faith to a
public official pursuant to any applicable abandoned property law.
After the Effective Time, holders of IVI or Checkmate certificates will have
no rights with respect to the IVI Common Shares and shares of Checkmate Common
Stock represented thereby other than the right to surrender such certificates
and receive in exchange therefor the shares of Company Common Stock and/or
Exchangeable Shares to which such holders are entitled, as described above. In
addition, no dividend or other distribution payable to holders of record of
Company Common Stock or holders of record of Exchangeable Shares will be paid to
the holder of any IVI or Checkmate certificates until such holder surrenders
such certificates for exchange as instructed. Subject to applicable law, upon
surrender of the certificates, such holder will receive the certificates
representing the shares of Company Common Stock and/or Exchangeable Shares
issuable or deliverable upon the exchange or conversion of such IVI Common
Shares and shares of Checkmate Common Stock, all withheld dividends or other
distributions (without interest), and any withheld cash payments (without
interest) to which such shareholder is entitled.
If any certificate for Company Common Stock or Exchangeable Shares is to be
issued in a name other than that in which the IVI or Checkmate certificate
surrendered for exchange is issued, the IVI or Checkmate certificate so
surrendered shall be properly endorsed and otherwise in proper form for
transfer, and the person requesting such exchange shall affix any requisite
stock transfer tax stamps to the certificates surrendered, shall provide funds
for their purchase, or shall establish to the exchange agent's satisfaction that
such taxes are not payable.
CONVERSION OF STOCK OPTIONS
On the Effective Date, the Company will assume the obligations of IVI and
Checkmate under their respective option plans, and all options issued
thereunder, whether vested or unvested, will be assumed by the Company and, on
such assumption, the outstanding rights to acquire IVI Common Shares or shares
of Checkmate Common Stock under such plans shall be exchanged for rights to
acquire Company Common Stock under such plans.
An outstanding IVI Option or Checkmate Option, as the case may be, will be
deemed to constitute an option to purchase that number of shares of Company
Common Stock that the holder of such option would have been entitled to receive
pursuant to the Arrangement or the Merger, as the case may be, had such holder
exercised such option immediately prior to the Effective Date (not taking into
account whether such option was in fact exercisable), rounded down to the
nearest whole number of shares of Company Common Stock, and the per share
exercise price for the shares of Company Common Stock issuable upon exercise of
such assumed IVI Option or Checkmate Option, as the case may be, will be equal
to the quotient determined by dividing the exercise price per IVI Common Share
or Checkmate Common Stock at which such IVI Option or Checkmate Option, as the
case may be, was exercisable immediately
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prior to the Effective Date by the IVI Exchange Ratio or the Checkmate Exchange
Ratio, as the case may be, and rounding the resulting exercise price up to the
nearest whole cent.
OTHER AGREEMENTS
AFFILIATE AGREEMENTS. As a condition to the consummation of the
Transaction, the Affiliates of IVI and Checkmate will enter into Affiliate
Agreements which provide, among other things, that such Affiliate understands
and agrees that (i) shares of Company Common Stock held by such person are
restricted and transferable by such person only pursuant to a registered
offering under the Securities Act or an exemption from the registration
requirements thereof, (ii) such person will not take any action which would
adversely affect the availability of pooling-of-interests accounting treatment
for the Transaction, (iii) such person intends to vote its or his IVI Common
Shares or shares of Checkmate Common Stock in favor of the Combination Agreement
and the consummation of the Transaction, and (iv) such person will not exercise
its or his dissenters rights with respect to approval of the Transaction.
SHAREHOLDERS AGREEMENTS. IVI and Messrs. Spence and Moore (who collectively
own approximately 21.2% of the Checkmate Common Stock), and Checkmate and
Ingenico (which owns approximately 16.7% of the IVI Common Shares), have entered
into shareholder agreements (the "Shareholders Agreements") pursuant to which
(i) Spence and Moore have agreed to, or have given to IVI a proxy to, vote their
shares of Checkmate Common Stock in favor of the Combination Agreement and the
consummation of the Merger and (ii) Ingenico has agreed to, or has given to
Checkmate a proxy to, vote its IVI Common Shares in favor of the Combination
Agreement and the consummation of the Arrangement.
STOCKHOLDERS AGREEMENT. On January 16, 1998, Ingenico, Mr. Spence and Mr.
Moore entered into the Stockholders Agreement pursuant to which the parties
agreed, among other things, that for periods specified in the agreement (i) not
to vote for approval of certain business combination proposals involving the
Company, (ii) not to participate in certain third party tender offers, (iii) to
vote for the election of certain persons as directors of the Company, including
Mr. Compain as a representative of Ingenico, and Mr. Spence and Mr. Whitton,
(iv) to use their best efforts to have certain persons appointed to offices and
committees, including the appointment of Mr. Compain to the Executive Committee
of the Board of Directors, Mr. Spence to the position of Chairman of the Board
and Mr. Whitton to the position of Vice Chairman of the Board, and (v) not to
sell their Company Common Stock except in a registered offering under the
Securities Act or pursuant to Rule 144 under the Securities Act unless the
transferee of the Company Common Stock agrees in writing to be bound by the
Stockholders Agreement. The Stockholders Agreement is subject to be terminated
in the event that Ingenico is prohibited from exercising its rights under the
Investment Agreement as described in the Stockholders Agreement. See "The
Transaction-- Interests of Certain Persons in the Transaction -- Stockholders
Agreement."
COURT APPROVAL OF THE ARRANGEMENT AND COMPLETION OF THE TRANSACTION
An arrangement of a corporation under the CBCA requires approval by both the
Court and the securityholders of the subject corporation. Prior to the mailing
of this Joint Proxy Statement/Prospectus, IVI obtained the Interim Order
providing for the calling and holding of the IVI Shareholders Meeting and other
procedural matters. A copy of the Interim Order is attached hereto as Annex C.
The Notice of Petition for the Final Order appears at the front of this Joint
Proxy Statement/Prospectus.
Subject to the approval of the Arrangement by the shareholders of IVI at the
IVI Shareholders Meeting, the hearing in respect of the Final Order is scheduled
to take place on the date and at the time set forth in the Notice of Petition
for the Final Order, in the Court. All IVI shareholders who wish to participate
or be represented or to present evidence or arguments at that hearing must serve
and file a notice of appearance as set out in the Notice of Petition for the
Final Order and satisfy any other requirements. At the hearing of the
application in respect of the Final Order, it is anticipated that the Court will
consider, among other things, the fairness and reasonableness of the
Arrangement, including
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specifically the exchange of IVI Common Shares for Company Common Stock or
Exchangeable Shares. The Court may approve the Arrangement as proposed or
require amendments or refuse to approve the Arrangement.
The Final Order will constitute the basis for an exemption from the
registration requirements of the Securities Act for the issuance of Exchangeable
Shares to IVI shareholders in exchange for IVI Common Stock.
Assuming the Final Order is granted and the other conditions to the
Combination Agreement are satisfied or waived, it is anticipated that the
following will occur substantially simultaneously: Articles of Arrangement will
be filed with the Director under the CBCA to give effect to the Arrangement, the
Support Agreement and the Voting and Exchange Trust Agreement will be executed
and delivered, and the various other documents necessary to consummate the
transactions contemplated under the Combination Agreement will be executed and
delivered. Subject to the foregoing, it is presently anticipated that the
Effective Date will occur within two or three days after the requisite
shareholder approval on or about June 24, 1998.
LISTING OF THE COMPANY COMMON STOCK AND EXCHANGEABLE SHARES
Authorization for quotation of the Company Common Stock on the Nasdaq
National Market and listing of the Company Common Stock and Exchangeable Shares
on the TSE are conditions to the obligations of IVI and Checkmate to consummate
the Transaction. The Company has reserved the symbol "CMIV" for listing the
Company Common Stock on the Nasdaq National Market and the symbol "IVC" for
listing the Company Common Stock on the TSE. IVI intends to use its current
symbol "IVI" for listing the Exchangeable Shares on the TSE. IVI will not list
the Exchangeable Shares on the Nasdaq National Market or any U.S. national
securities exchange.
TERMINATION OF CHECKMATE RIGHTS PLAN
Pursuant to the Combination Agreement, Checkmate has agreed to terminate as
of the Effective Date all rights outstanding under the Shareholder Rights
Protection Plan dated as of October 13, 1997, by and between Checkmate and First
Union National Bank, as rights agent as amended (the "Checkmate Rights Plan").
Checkmate and First Union National Bank have entered into an amendment to the
Checkmate Rights Plan dated as of January 16, 1998, providing for the
termination of such plan as of the Effective Date.
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THE COMPANIES AFTER THE TRANSACTION
The Company was incorporated under the laws of the State of Delaware on
January 15, 1998. It currently conducts no business other than in connection
with the Transaction. Upon completion of the Transaction, the Company's business
will be to own all of the voting capital stock of IVI and all of the capital
stock of Checkmate and to manage the businesses of IVI and Checkmate and their
subsidiaries. Accordingly, viewed on a consolidated basis, the Company will be
engaged in the same businesses as IVI and Checkmate, which will be the design,
development and marketing of electronic payment solutions to distributors,
retailers, government agencies and financial institutions. The Company's POS
solutions will include terminals and software for debit, credit, EFT, EBT and
smart card transactions, check readers and signature capture devices, printers
and other secure PIN entry devices. The Company's principal executive office
will be located at 1003 Mansell Road, Roswell, Georgia 30076, and its telephone
number is (770) 594-6000.
After the Effective Time, IVI will change its name to IVI Checkmate Ltd.,
and will continue to be a corporation governed by the CBCA. Its registered
office will continue to be located at 79 Torbarrie Road, Toronto, Ontario, M3L
1G5, and its telephone number will remain (416) 245-6700. After the Effective
Time, Checkmate will continue to be a Georgia corporation, its registered office
will continue to be located at 1003 Mansell Road, Roswell, Georgia, 30076, and
its telephone number will remain (770) 594-6000. Checkmate's name will be
changed to IVI Checkmate Inc.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to the Combination Agreement, effective upon consummation of the
Transaction, the Company's Board of Directors will be increased to nine members,
three of whom will be current directors or nominees of each of IVI and
Checkmate, and an additional three of whom will be independent directors
mutually agreed upon by IVI and Checkmate which will include two nominees of
Ingenico. Also pursuant to the Combination Agreement, J. Stanford Spence is
Chairman of the Board, George Whitton is Vice-Chairman of the Board, and L.
Barry Thomson is a director and President and Chief Executive Officer of the
Company and Gregory A. Lewis is a director of the Company. See "The
Transaction--Interests of Certain Persons in the Transaction."
The following persons are expected to serve as directors and/or executive
officers of the Company following the Effective Date.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
J. Stanford Spence................................... 68 Chairman of the Board
George Whitton....................................... 62 Vice-Chairman of the Board
L. Barry Thomson..................................... 56 President, Chief Executive Officer and Director
Gregory A. Lewis..................................... 52 President and Chief Operating Officer of Checkmate
and Director
John J. Neubert...................................... 59 Executive Vice-President, Chief Financial Officer
Gerard Compain....................................... 45 Director
Gareth Owen.......................................... 46 Director
Peter E. Roode....................................... 61 Director
</TABLE>
J. STANFORD SPENCE has been the Chairman of the Board of the Company since
January 15, 1998. Mr. Spence has been Chief Executive Officer of Checkmate since
July 1997, is the founder of Checkmate and, except for two brief periods, has
been Chairman of the Board of Checkmate and its predecessors since 1973. Mr.
Spence also served as interim Chief Executive Officer of Checkmate from May 1994
until August
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1994. Mr. Spence has been Chairman of the Board of Directors, Chief Executive
Officer and owner of Stanford Technologies, Inc., a financial software
development company in Austin, Texas, since 1985.
GEORGE WHITTON has been the Vice-Chairman of the Board of the Company since
January 15, 1998. Mr. Whitton has been Chairman of the Board of IVI since
November 1986. After serving in senior operations and sales management positions
with IBM Canada, Mr. Whitton joined Canada Permanent Trust, a trust and banking
institution, where he served as Vice President of Information Services from 1973
to 1976. From 1976 to 1979, Mr. Whitton worked for the Canadian Imperial Bank of
Commerce, Canada's second largest bank, as Vice President -- Systems. From 1979
to 1987, Mr. Whitton was President and Owner of Howarth & Smith, a typography,
printing and data management company.
L. BARRY THOMSON has been the President, Chief Executive Officer and a
director of the Company since January 15, 1998. Mr. Thomson has been President
and Chief Operating Officer of IVI since April 1994 and was appointed Chief
Executive Officer in May 1996, and has been a director of IVI since May 1995.
Mr. Thomson was President and Chief Executive Officer of Aluma Systems
Corporation, a construction technology company. He also served as Executive Vice
President, director and member of the Executive Committee for Aluma's parent
company, Tridel Enterprises, Inc., Canada's largest builder of condominium
dwellings.
GREGORY A. LEWIS has been a Director of the Company since January 15, 1998.
Mr. Lewis has been the President and Chief Operating Officer and a director of
Checkmate since September 1997. Prior to joining Checkmate, Mr. Lewis was
employed by VeriFone, Inc. Mr. Lewis began his career at VeriFone in 1984 as one
of the founding executives and served in various executive positions during his
employment. His most recent assignment was Vice President and General Manager of
the Emerging Markets Division. Prior to 1984, Mr. Lewis held various executive
positions during his 14 year career at National Data Corporation, as well as
serving as Executive Vice President of Business Development with Buy Pass
Corporation.
JOHN J. NEUBERT has been the Executive Vice-President and Chief Financial
Officer of the Company since May 1, 1998. Mr. Neubert has been the Senior Vice
President-Finance and Administration and Chief Financial Officer of Checkmate
since 1990 and a director of Checkmate since May 1994. Mr. Neubert also was the
Chief Operating Officer of Checkmate from May 1994 until September 1997. Mr.
Neubert was Executive Vice President and Chief Financial Officer of Technology
Research Group, Inc., a software development and systems integrator company,
from 1987 until 1990. He was Vice President of RIM Incorporated, a manufacturer
and distributor of leisure furniture, from 1985 to 1987. Prior to that time he
was employed by Uniroyal Incorporated in various financial and operational
positions for approximately 15 years.
GERARD COMPAIN will become a director of the Company at the Effective Time.
Mr. Compain joined IVI's Board in January 1997. Mr. Compain has been Managing
Director of Ingenico since October 1995. From 1985 to 1995, Mr. Compain served
in various executive and operational positions with BULL PC, the Payment Systems
Division of Groupe Bull, where he helped grow the business from $15 million in
1989 to $120 million in 1995.
GARETH OWEN will become a director of the Company at the Effective Time. Mr.
Owen joined IVI's Board in January 1997. Mr. Owen has been Managing Director of
Ingenico International (Pacific) Pty Limited since 1986. Ingenico International
is the largest EFTPOS supplier in Australia and New Zealand, and the third
largest supplier in the Asia Pacific region. Prior to Ingenico, Mr. Owen held
various marketing positions with companies involved in the development of
payment terminal products. Mr. Owen is a graduate of Dundee University in
Scotland with a Bachelor of Science and a Master of Arts.
PETER E. ROODE will become a director of the Company at the Effective Time.
Mr. Roode has been a director of IVI since September 1992. He has been President
of Triarch Corporation since 1987 and has been a Vice President since joining
Triarch in 1976. Triarch is an investment company investing in small to medium
sized businesses. Mr. Roode is a director of several corporations in a variety
of businesses. He has
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a B. Comm degree from Queens University, and MBA from the University of Western
Ontario and is a Chartered Accountant.
Each director holds office until the next annual meeting of the shareholders
or until his successor is elected. Officers of the Company are elected annually
by the Board of Directors and serve at its discretion.
COMMITTEES OF THE COMPANY'S BOARD OF DIRECTORS; COMPENSATION OF DIRECTORS
The Company's Board of Directors will have certain committees including:
(a) an audit committee which will have responsibility for reviewing the
Company's financial statements and the efficiency of the Company's
internal accounting controls and will advise the Board of Directors on
the selection and remuneration of auditors;
(b) a compensation committee whose responsibilities will be to determine
compensation for the officers, directors and employees of the Company and
certain of its subsidiaries;
(c) a nomination/governance committee which will be responsible for
recommending to the Board of Directors nominees for election to the Board
of Directors in future years and for implementing and monitoring measures
to ensure appropriate corporate governance; and
(d) an executive committee whose responsibilities will be to review key
operational and strategic initiatives of management.
The Board of Directors has not yet established policies with regard to the
compensation and reimbursement of directors, although it is anticipated that
directors will be granted options or other awards under the IVI Checkmate Corp.
1988 Long-Term Incentive Plan as a portion of their compensation. See "--
Company Stock Option Plans."
COMPENSATION
COMPENSATION SUMMARY
The following table sets forth the compensation paid or accrued by IVI or
Checkmate in the fiscal year ended December 31, 1997 with regard to L. Barry
Thomson, who has served as the Chief Executive Officer of the Company since its
organization on January 15, 1998, and three other executive officers of the
Company whose annual compensation and bonus was $100,000 or more for such fiscal
year (collectively, the "Named Executive Officers").
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES ALL OTHER
NAME AND ------------------------------- UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) OPTIONS(#)(2) ($)(3)
- ---------------------------------------- --------- --------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
L. Barry Thomson........................ 1997 Cdn.$ 250,008 Cdn.$ 50,000 150,000 *
PRESIDENT AND CHIEF EXECUTIVE OFFICER 1996 231,826 50,000 30,000 *
OF THE COMPANY AND IVI 1995 218,801 50,000 43,200 *
J. Stanford Spence...................... 1997 -- -- 10,000 U.S.$ 14,000
CHAIRMAN OF THE BOARD OF THE COMPANY; 1996 -- -- 10,000 9,000
CHAIRMAN OF THE BOARD AND CHIEF 1995 -- -- 10,000 11,500
EXECUTIVE OFFICER OF CHECKMATE
George Whitton.......................... 1997 U.S.$ 207,644 -- 75,000 *
VICE CHAIRMAN OF THE BOARD OF THE 1996 320,250 -- 50,000 *
COMPANY; CHAIRMAN OF THE BOARD OF IVI 1995 309,985 U.S.$ 50,000 90,000 *
John J. Neubert......................... 1997 U.S.$ 129,600 -- -- *
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER OF THE COMPANY;
SENIOR VICE PRESIDENT, FINANCE AND 1996 129,600 U.S.$ 43,500 -- *
ADMINISTRATION AND CHIEF FINANCIAL 1995 120,000 80,000 50,000 *
OFFICER OF CHECKMATE
</TABLE>
(1) Includes amounts deferred at the election of the officers pursuant to
Checkmate's Section 401(k) retirement plan.
(2) Represents shares underlying options to purchase IVI Common Shares in the
case of Messrs. Thomson and Whitton, and shares underlying options to
purchase Checkmate Common Stock in the case of Messrs. Spence and Neubert.
No stock appreciation rights ("SARs") were granted by IVI or Checkmate
during the fiscal year.
(3) Reflects directors fees paid to Mr. Spence in his capacity as a non-employee
director of the Company in each of 1997, 1996 and 1995, and consulting fees
of $1,000 paid to Mr. Spence in 1997. Amounts denoted by an asterisk are
below 10% of the total annual salary and bonus reported for the Named
Executive Officer for the respective year.
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STOCK OPTIONS
The following table sets forth information regarding all stock options
granted to the Named Executive Officers during the fiscal year ended December
31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS(1) ASSUMED ANNUAL
-------------------------------------------------------- RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ------------------------ ----------- --------------- ------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
L. Barry Thomson........ 150,000 16.1% Cdn$ 6.65 1/13/99 Cdn.$ 399,600 Cdn.$ 499,550
J. Stanford Spence...... 10,000 1.4% U.S.$ 12.375 5/19/07 U.S.$ 75,565 U.S.$ 194,361
George Whitton.......... 75,000 8.0% Cdn.$ 6.65 1/13/99 Cdn.$ 100,000 Cdn.$ 112,500
John J. Neubert......... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Represents shares underlying options to purchase IVI Common Shares in the
case of Messrs. Thomson and Whitton, and shares underlying options to
purchase Checkmate Common Stock in the case of Mr. Spence.
The following table sets forth information regarding (i) all exercises of
stock options by the Named Executive Officers during the fiscal year ended
December 31, 1997 and (ii) the number of shares underlying stock options held by
the Named Executive Officers as of December 31, 1997 and the respective values
of these unexercised options at December 31, 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR END OPTION VALUES(1)
-------------------------------------------------
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS
AT FISCAL AT FISCAL YEAR
YEAR END(#) END($)(2)
SHARES ------------------- -------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ----------------------------------------- ----------- --------------- ------------------- -------------------
<S> <C> <C> <C> <C>
L. Barry Thomson......................... 50,100 Cdn.$ 221,495 99,900/-- Cdn.$ 349,650/--
J. Stanford Spence....................... -- -- 130,000/10,000 --/--
George Whitton........................... 50,000 Cdn.$ 221,250 25,000/-- Cdn.$ 87,500/--
John J. Neubert.......................... -- -- 233,334/16,666 --/--
</TABLE>
(1) Represents shares underlying options to purchase IVI Common Shares in the
case of Messrs. Thomson and Whitton, and shares underlying options to
purchase Checkmate Common Stock in the case of Messrs. Spence and Neubert.
(2) Such value is computed by subtracting the option exercise price from the
market price of the IVI Common Shares or the Checkmate Common Stock, as
appropriate, on (a) the date of exercise or (b)
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<PAGE>
December 31, 1997, in the case of unexercised options, and multiplying the
resulting figure by the total number of shares underlying the options in
question.
Effective upon the consummation of the Transaction, the Company and Mr. J.
Stanford Spence will enter into a five year employment agreement providing for
his employment as a consultant of the Company and as the Company's Chairman of
the Board of Directors at an initial base salary of $220,000 per year, adjusted
annually to reflect changes in the CPI. The employment agreement provides that
in the event of termination: (i) by the Company other than for death or
disability or by Mr. Spence for good reason, Mr. Spence will receive any unpaid
compensation up to the date of his termination, and he will continue to receive
his compensation until the end of the five year term; (ii) by Mr. Spence other
than for good reason or due to disability, Mr. Spence will receive any unpaid
compensation up to the date of his termination, and he will continue to receive
his compensation until the end of the five year term, but at a base salary of
$150,000 per year; (iii) due to death, Mr. Spence's estate will be entitled to
receive any unpaid compensation up to the date of his death. The employment
agreement includes a non-compete covenant that runs throughout the term of the
employment agreement, regardless of his employment status with the Company.
On January 1, 1998, Checkmate and Mr. Gregory A. Lewis entered into a three
year employment agreement providing for his employment as President and Chief
Operating Officer of Checkmate at a base salary of $240,000, $264,000 and
$290,000 per year, respectively. On January 1, 1998, Checkmate and Mr. John J.
Neubert entered into a three year employment agreement providing for his
employment as Executive Vice President and Chief Financial Officer of Checkmate
at a base salary of $160,000, $175,000 and $190,000 per year, respectively. The
employment agreements between Checkmate and Messrs. Lewis and Neubert provide
that in the event of termination: (i) by Mr. Lewis or Mr. Neubert for good
reason, by Checkmate other than for cause, death or disability or upon the
expiration of the term thereof, the terminated employee will receive a lump sum
payment equal to (a) his unpaid compensation up to the date of their
termination, (b) the product of his annual bonus for the year of the date of
termination and a fraction, the numerator of which is the number of days in the
current fiscal year up to the date of termination and the denominator of which
is 365, (c) a severance payment equal to the present value of the income stream
represented by a continuation of their base salary and target annual bonus,
unless the date of termination occurs within two years of a change of control,
in which case the severance payment is equal to two times the appropriate base
salary and annual bonus for such employee in effect for that year; (ii) by Mr.
Lewis' or Mr. Neubert's death, the terminated employee's estate or beneficiary
will be entitled to receive his unpaid compensation up to the date of his death;
(iii) by Mr. Lewis' and Mr. Neubert's disability, retirement or voluntary
termination without good reason or by Checkmate for cause, the terminated
employee will be entitled to receive his unpaid compensation up to the date of
termination.
IVI and Mr. George Whitton have entered into an employment agreement dated
January 6, 1995, as amended and restated on March 15, 1996 and February 25,
1998, providing for his employment as Chairman of the Board of Directors of IVI
and Vice-Chairman of the Company for three years after the Effective Date. Mr.
Whitton's annual base salary will be $150,000. Mr. Whitton's employment
agreement provides that in the event of termination: (i) by IVI for cause or by
Mr. Whitton voluntarily, Mr. Whitton will be entitled to compensation earned up
to the date of termination, together with any statutory minimum payments; (ii)
by IVI within one year of a change of control, Mr. Whitton will be entitled to
72 months' salary at the annual base salary rate.
IVI, L.B.T. Investments Inc. and Mr. L. Barry Thomson have entered into an
employment agreement dated May 6, 1996, as amended on October 1, 1996, July 30,
1997 and February 25, 1998 providing for the provision of Mr. Thomson's services
as President and Chief Executive Officer of IVI and President and Chief
Executive Officer of the Company and, after the Effective Date, Chief Executive
Officer of IVI Checkmate Inc. From and after the Closing Date the annual
management fee will be a minimum of $275,000 per year for 1998, $300,000 for
1999 and $335,000 for 2000. There will be a minimum annual
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<PAGE>
performance bonus of at least $50,000. The management services agreement between
IVI, L.B.T. Investments Inc. and Mr. Thomson provides that in the event of
termination: (i) by IVI and the Company for cause or as a result of Mr.
Thomson's disability or death or if terminated by L.B.T. Investments Inc. it
will be entitled to fees up to the date of termination and, other than in the
case of termination for cause, pro rata entitlement under the then current bonus
program; (ii) by IVI and the Company for any other reason, other than that in
(iii) below, L.B.T. Investments Inc. will be entitled to a lump sum payment
equal to three times the aggregate of the annual fee and bonus paid and/or
earned in the immediately preceding year; (iii) by IVI and the Company for any
reason, other than cause or the death or disability of Mr. Thomson, within one
year of a change of control, L.B.T. Investments Inc. will be entitled to a lump
sum payment equal to three times the greater of (a) the aggregate of the annual
fee and bonus for the year immediately preceding year, and (b) the aggregate of
the annual fee and bonus for the year immediately preceding the change of
control.
COMPANY STOCK OPTION PLANS
IVI CHECKMATE CORP. 1998 LONG-TERM INCENTIVE PLAN. On May 22, 1998, the
Board of Directors of the Company and Checkmate, as the sole stockholder of the
Company adopted the IVI Checkmate Corp. 1998 Long-Term Incentive Plan (the
"Incentive Plan"), subject to approval of the Combination Agreement and the
Transaction by the shareholders of IVI and Checkmate. The Company has reserved
2,500,000 shares of Company Common Stock for issuance in connection with the
options and awards under the Incentive Plan. If the Combination Agreement and
the Transaction are approved by the shareholders of IVI and Checkmate at the
Shareholders Meetings, the Incentive Plan will be effective as of the
consummation of the Transaction.
The Incentive Plan authorizes the granting to employees, officers,
consultants and directors of the Company or its affiliated companies of (i)
options to purchase shares of Company Common Stock, which may be incentive stock
options or non-qualified stock options; (ii) stock appreciation rights; (iii)
performance units; (iv) restricted stock; (v) dividend equivalents; and (vi)
other stock-based awards. The Company has not granted any awards under the
Incentive Plan.
The Incentive Plan will be administered by the Compensation Committee of the
Board of Directors of the Company (the "Committee") or, at the discretion of the
Board of Directors, from time to time by the Board of Directors who will set the
vesting schedule and the exercise price for awards granted under the Incentive
Plan. The Incentive Plan provides that the exercise price of options granted
under the Incentive Plan not be less than the fair market value of the shares of
Company Common Stock as of the date of grant.
The Incentive Plan is designed to comply with Code Section 162(m) so that
the grant of options or stock appreciation rights under the Incentive Plan and
other awards that are conditioned on the performance goals in the Incentive Plan
will be excluded from the calculation of annual compensation for purposes of
Code Section 162(m) and will be fully deductible by the Company.
IVI CHECKMATE CORP. 1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. On May
22, 1998, the Board of Directors of the Company and Checkmate, as the sole
stockholder of the Company adopted the IVI Checkmate Corp. 1998 Non-Employee
Director Stock Option Plan (the "Director Plan"), subject to approval of the
Combination Agreement and the Transaction by the shareholders of IVI and
Checkmate. The Company has reserved 250,000 shares of Company Common Stock for
issuance in connection with the options and awards under the Director Plan. If
the Combination Agreement and the Transaction are approved by the shareholders
of IVI and Checkmate at the Shareholders Meetings, the Director Plan will be
effective as of the consummation of the Transaction.
The Director Plan provides for the automatic grants of options to purchase
10,000 shares of Company Common Stock to each member of the Board of Directors
who is not a current employee of the Company or any parent or subsidiary of the
Company (a "Non-Employee Director") on the first date prior to 2002
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<PAGE>
on which a person first becomes a Non-Employee Director and on the dates of the
annual meetings of stockholders of the Company through 2002. No options have
been granted under the Director Plan.
The Director Plan also provides that the exercise price for each option
granted under the Director Plan will be the fair market value of the shares of
Company Common Stock on the date of grant. All options granted under the
Director Plan will vest as to all shares on the first anniversary of the date of
grant, or upon the earlier date, disability of the holder or upon a change in
control of the Company (as defined in the Director Plan).
CERTAIN TRANSACTIONS
In 1984, Checkmate entered into an agreement that give Mr. Spence exclusive
rights to sell and market Checkmate's MICR reader products. Subsequently, after
determining that Checkmate should market its own products, Checkmate entered
into a settlement agreement with Mr. Spence and Stanford Technologies, Inc.
("STI"), which is owned by Mr. Spence and his wife (the "STI Agreement").
Pursuant to the STI Agreement, Mr. Spence and STI transferred and assigned to
Checkmate all of their rights to market Checkmate's MICR analyzers. Also
pursuant to the STI Agreement, Mr. Spence and STI agreed to refrain from
competing against Checkmate for a period of eleven years following his
resignation or removal from Checkmate's Board of Directors. In exchange for such
benefits, the STI Agreement provides that Checkmate shall make minimum monthly
payments aggregating no less than $15,000 per month (of which $10,000 is
adjusted semi-annually for inflation) or, at Checkmate's option in order to
accelerate full payments (as described in the preceding sentence), 5% of sales
if this amount exceeds the minimum aggregate amount due. Payments under the
terms of the STI Agreement terminate upon the first to occur of (i) June 30,
2000; or (ii) that time at which payments pursuant to the STI Agreement equal
$1,758,321 (plus adjustments for inflation). Checkmate paid $216,000 to STI in
1997 pursuant to the STI Agreement, and as of December 31, 1997, a total of
$1,613,000 (including $203,000 of inflation adjustments) had been paid by
Checkmate to STI pursuant to the STI Agreement.
STOCK OWNERSHIP
The following table sets forth information with respect to the beneficial
ownership of IVI Common Shares and shares of Checkmate's Common Stock as of
December 31, 1997, and the beneficial ownership of shares of Company Common
Stock based on the IVI Exchange Ratio and the Checkmate Exchange Ratio as if the
transaction had occurred on December 31, 1997, by (i) each person known by IVI
and Checkmate to beneficially own more than five % of the IVI Common Shares and
the Checkmate Common
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Stock, respectively, (ii) each director of the Company; (iii) each of the Named
Executive Officers; and (iv) all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
CHECKMATE COMMON IVI COMMON COMPANY COMMON
STOCK(1) SHARES(1) STOCK(1)
-------------------- ------------------- -------------------
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
NAME OF BENEFICIAL OWNER OF SHARES OWNED OF SHARES OWNED OF SHARES OWNED
- ----------------------------------------------------------------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Ingenico, S.A.(2)................................................ -- -- 1,544,116 16.7% 2,585,804 15.0%
Dudley L. Moore, Jr.(3).......................................... 494,788 9.1% -- -- 632,091 4.0
DIRECTORS:
J. Stanford Spence(4)............................................ 636,055 11.7 -- -- 812,560 5.1
George Whitton(5)................................................ -- -- 103,100 1.1 103,100 *
L. Barry Thomson(6).............................................. -- -- 99,900 1.1 99,900 *
John J. Neubert(7)............................................... 268,112 4.9 -- -- 342,513 2.1
Gregory A. Lewis(8).............................................. 60,000 1.1 -- -- 76,650 *
Gerard Compain(2)(9)............................................. -- -- 1,564,116 16.7 2,605,804 15.0
Peter E. Roode(8)................................................ -- -- 27,000 * 27,000 *
Gareth Owen...................................................... -- -- -- -- -- *
All directors and executive officers as a group(10).............. 1,194,195 22.0 1,863,661 18.4 4,067,527 20.8
</TABLE>
- ------------------------
*Less than one percent.
(1) Stock ownership information has been furnished by the named persons.
Beneficial ownership has been determined in accordance with Commission
regulations and includes shares as to which a person possesses sole or
shared voting and/or investment power and shares which may be acquired
within 60 days after December 31, 1997 upon the exercise of stock options.
Except as otherwise stated in the following footnotes, the named persons
have sole voting and investment power with regard to the shares shown as
beneficially owned by such persons.
(2) Pursuant to the Investment Agreement, the rights and obligations under which
were assigned to the Company pursuant to the Assignment, Assumption and
Consent Agreement, Ingenico has the right to maintain its ownership of the
Company at 15% on a non-diluted basis. Includes the option to purchase
1,041,688 shares pursuant to the Investment Agreement.
(3) The shares shown include 466,994 shares owned by Moore family partnerships,
over which shares Mr. Moore, as the general partner of each of the
partnerships, has voting and investment control. Mr. Moore's address is 1000
Parkwood Circle, #1000, Atlanta, Georgia 30339.
(4) The shares shown include 26,397 shares owned by Stanford Technologies, Inc.,
a corporation of which Mr. Spence and his wife are the sole shareholders,
and 130,000 shares that may be acquired upon exercise of stock options
granted to Mr. Spence. Mr. Spence's address is 7209 Valburn Drive, Austin,
Texas 78731.
(5) Includes 25,000 shares that may be acquired upon the exercise of stock
options.
(6) Consists of shares that may be acquired upon the exercise of stock options.
(7) Includes 233,334 shares that may be acquired upon the exercise of stock
options.
(8) Consists of shares that may be acquired upon the exercise of stock options.
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(9) Mr. Compain, a director of the Company, is Managing Director of Ingenico
and, as such, is deemed to have voting and investment control over all of
the shares owned by Ingenico. Includes 20,000 shares that may be acquired
upon the exercise of stock option.
(10) Includes a total of 165,400 IVI Common Shares, 452,084 shares of Checkmate
Common Stock and 1,707,397 shares of Company Common Stock that may be
acquired upon the exercise of stock options. There are nine, six and eight
directors and executive officers of IVI, Checkmate and the Company,
respectively
PLANS AND PROPOSALS
After the Transaction, it is expected that Checkmate's corporate
headquarters and IVI's operations in Boulder, Colorado will be combined into a
single facility in Roswell, Georgia. The Canadian operations of the Company will
continue to be conducted through the offices of IVI in Toronto.
Following the Transaction, the operations of NTN will continue as currently
conducted. Similarly, the operations of IVI Ingenico Inc. will continue as
currently conducted, however, it will commence distribution of appropriate
products of Checkmate in the Latin American markets.
It is anticipated that the various consolidations and restructurings
referred to above will result in ongoing cost savings to the Company of
approximately U.S.$ 3 million per year compared to the combined historical
financial results of the two companies. The anticipated cost savings are
expected to result primarily from the reduction in employees and
facilities-related costs including lease payments, property taxes and
depreciation, and the rationalization of IVI's and Checkmate's development,
manufacturing and sales operations. The Company expects that approximately 35 to
40 employees of IVI and Checkmate will leave or be terminated as a result of the
integration of the two companies. The expected reduction in facilities-related
costs will be attributable primarily to the closing of IVI's facilities in
Boulder, Colorado. The impact of these cost savings is expected to be realized
throughout the second half of the current fiscal year. Initially, however, such
savings will be offset by restructuring costs such as severance payments,
payments to landlords and other facility-related and personnel costs.
The amount of anticipated cost savings from the integration of the companies
is only an estimate and is based upon the assumptions set forth above. No
assurance can be given that the Company will be able to effect the
consolidations and restructurings in this fashion or that such cost savings will
be achieved or will be achieved in a reasonable time frame. Actual cost savings
will depend upon the specific restructuring steps undertaken by the Board of
Directors of the Company in its discretion, exercised after the Effective Date,
and in the circumstances then existing. In addition, notwithstanding that such
cost savings may be achieved, there can be no assurance that such restructuring
steps will not also result in a decrease in revenues and profits or that any
such savings will ultimately result in profits for the Company, which profits
are also dependent upon numerous conditions, some of which are beyond the
control of the Company, including technological changes, pricing trends and
competition. See "Risk Factors."
PROPOSED BUSINESS AND MARKETING STRATEGY
The Company is not expected to make any significant changes in the way that
the Company approaches the various segments of the EFT/POS market currently
addressed by the products of IVI and Checkmate, but rather to utilize the
strengths of each company's existing marketing efforts.
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INTERNATIONAL VERIFACT INC.
BUSINESS
IVI is engaged in the design, development and sale of electronic payment
solutions, which are sold directly to financial institutions, governments and
large retail POS users in Canada, the United States and Latin America. IVI's
products are also distributed through resellers and OEM relationships in Canada
and the United States. IVI's hardware solutions include debit, credit, EFT and
EBT payment authorization terminals, check readers, smart card readers, POS
printers and secure PIN entry devices. IVI's software solutions include the
collection of payment-related data at the point of sale, the secure transmission
of this data to a processing computer, and the authorization, collection and
processing of these transactions. Its business commenced with the development of
credit authorization terminals that permitted credit card users to have their
retail purchases approved through an electronically operated communications
system. This advance eliminated much of the traditional paperwork surrounding
these transactions, thus making it more convenient for purchasers, merchants and
financial institutions and also reduced processing costs, settlement delays and
losses from fraudulent use of cards by replacing voice with electronic
authorization.
IVI also produces other products involving the electronic transfer of
information through telecommunications. Such information includes access for
bank customers to their bank accounts, access to corporate bank information by
specified officers, and changing PINs for individuals accessing funds through
automated teller machines.
IVI has a wholly owned subsidiary, International Verifact Inc. (U.S.)
("IVI-U.S."), which it acquired in 1994. IVI-US, formerly Soricon Corporation,
was originally incorporated under the laws of the State of Colorado on February
24, 1984, and changed its state of incorporation to the State of Delaware during
1987. The headquarters of IVI-US are located in Boulder, Colorado. IVI-US is the
principal operating subsidiary of IVI in the U.S. with respect to the EFT/POS
industry.
IVI also owns approximately 84% of NTN, which was incorporated under the
laws of the State of Texas on September 26, 1976 and subsequently changed its
state of incorporation to the State of Delaware on March 25, 1996. NTN is a
public company whose common stock is listed on the OTC Bulletin Board under the
symbol "NTRN." NTN is a turn-key software developer which provides software
installation services, project management, repair facilities, help desk services
and key injection technology. Its principal office is located in Westborough,
Massachusetts. IVI also owned 51% of the common stock of IVI Ingenico Inc. at
December 31, 1997. It was subsequently diluted to 50%. IVI Ingenico Inc. was
incorporated under the laws of the State of Delaware on December 12, 1996. It
has its principal office in Miami, Florida. IVI Ingenico Inc. is responsible for
the distribution and marketing of products and services of IVI and Ingenico in
Latin America.
In December 1996, IVI entered into the Alliance with Ingenico to provide
IVI's customers with a full range of products with smart card capabilities.
Under the terms of the Alliance, each company has cross-licensed its
technologies to the other, entered into a mutual marketing and distribution
agreement for the other company's products, and agreed to establish a business
venture to become the exclusive distributor of IVI and Ingenico products in
Latin America. See "The Transaction -- Interests of Certain Persons in the
Transaction -- Ingenico Agreements."
IVI was originally incorporated on April 15, 1983, under the laws of British
Columbia and continued under the CBCA on October 1, 1984. IVI's principal
executive office is located at 79 Torbarrie Road, Toronto, Ontario, M3L 1G5 and
its telephone number is (416) 245-6700.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in Canadian dollars)
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS "MAY,"
"WOULD," "COULD," "WILL," "EXPECT," "ESTIMATE," "ANTICIPATE," "BELIEVE,"
"INTEND," "PLAN" AND SIMILAR EXPRESSIONS AND VARIATIONS THEREOF ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. MANAGEMENT CAUTIONS THAT THESE STATEMENTS
REPRESENT PROJECTIONS AND ESTIMATES OF FUTURE PERFORMANCE AND INVOLVE CERTAIN
RISKS AND UNCERTAINTIES. IVI'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS
INCLUDING, WITHOUT LIMITATION, DEPENDENCE BY IVI ON LIMITED SUPPLIERS AND
MANUFACTURERS OF COMPONENT PARTS OF ITS PRODUCTS; RAPID AND SIGNIFICANT
TECHNOLOGICAL DEVELOPMENTS THAT COULD DELAY THE INTRODUCTION OF IMPROVEMENTS IN
EXISTING PRODUCTS OR OF NEW PRODUCTS; ANY DEPENDENCIES ON ANY PROPRIETARY
TECHNOLOGIES (WHICH MAY BE INDEPENDENTLY DEVELOPED BY COMPETITORS); DEPENDENCE
ON A SMALL NUMBER OF LARGE RETAIL AND BANK CUSTOMERS; POTENTIAL FLUCTUATION IN
FINANCIAL RESULTS AS A RESULT OF ANY INABILITY TO MAKE SALES TO LARGE CUSTOMERS
AS WELL AS THE VOLUME AND TIMING OF BOOKINGS RECEIVED DURING A QUARTER AND
VARIATIONS IN SALES MIX; COMPETITION FROM EXISTING COMPANIES AS WELL AS NEW
MARKET ENTRANTS; DEPENDENCE ON KEY PERSONNEL; SUCCESSFUL INTEGRATION OF THE
COMPANIES; AND THE OTHER FACTORS SET FORTH IN "RISK FACTORS" ABOVE.
GENERAL
The following discussion and analysis of IVI's consolidated financial
condition and results of operations for the three months ended March 31, 1998
and 1997, and the fiscal years ended December 31, 1997, 1996 and 1995 should be
read in conjunction with IVI's consolidated financial statements and
accompanying notes. The financial statements have been prepared based on
Canadian GAAP and have been reconciled to U.S. GAAP.
The consolidated financial statements reflect IVI's financial results after
the acquisition of NTN, which was acquired in September 1996, and after IVI
Ingenico Inc., a business venture between IVI and its Alliance partner,
Ingenico, commenced operations in January, 1997.
OVERVIEW
IVI is engaged in the design, development and sale of electronic payment
solutions, which are sold directly to financial institutions, governments and
large retail POS users in Canada, the United States and Latin America. IVI's
products are also distributed through resellers and OEM relationships in Canada
and the United States. IVI's hardware and software products include debit,
credit, EFT and EBT terminals, check readers, smart card readers, POS printers
and secure PIN entry devices and related software.
IVI's business strategy is to establish technical and market leadership in
niche markets with mass market appeal. However, the electronic payment industry
within which IVI operates is characterized by rapid change and new technologies.
Recent market developments include the evolution of smart cards as an
alternative form of payment, electronic commerce through the Internet, and the
use of radio frequency and other wireless modes of communication. Consequently,
IVI must continually assess the impact, and consequential risks, that these
changes, as well as its competitors' responses to these changes, will have on
its own technology and market development initiatives. See "Risk Factors --
Technological Change and Product Obsolesence; Dependence on New Product
Development."
In anticipation of these changes, IVI continues to invest in market
development and technology initiatives which it believes will help increase its
share of domestic and international markets, reduce the cost of marketing and
manufacturing, and allow IVI to better focus its short and long-term product
development activities. There can be no assurances that such initiatives will
result in increased market share, cost reductions or enhanced product
development activities.
In March 1996, a consortium of companies, including IVI, created Internet
Payment Processing Inc. ("IPP") whose mandate was to develop and market a
network to facilitate the electronic payment of funds for goods and services
purchased through the Internet. While IVI reduced its investment in IPP to $0
after
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recording a $201,000 loss on its investment in 1996, IVI gained valuable
knowledge which will enable it to participate in such a venture in the future.
In September 1996, IVI acquired approximately 84% of NTN in exchange for
230,850 IVI Common Shares with a fair value of $1.8 million at that time. NTN
designs, integrates and markets POS electronic payment systems and software for
use in retail applications. The acquisition of NTN is expected to improve the
marketability of IVI's own products in the United States. Since acquiring
control of NTN, IVI has developed a growth strategy for NTN through: (i)
strengthening its internal competency in electronic payment software; (ii)
acquiring complementary products, such as those acquired in the acquisition of
the BancTec Open Payment Systems Group in January 1998; and (iii) strategic
acquisitions.
In December 1996, IVI entered into the Alliance with Ingenico to provide
IVI's customers with a full range of products with smart card capabilities.
Under the terms of the Alliance, each company has cross-licensed its
technologies to the other, entered into a mutual marketing and distribution
agreement for the other company's products, and agreed to establish a business
venture to become the exclusive distributor of IVI and Ingenico products in
Latin America. See "The Transaction -- Interests of Certain Persons in the
Transaction -- Ingenico Agreements."
In connection with the Alliance, Ingenico granted to IVI, in exchange for a
payment of U.S.$1.0 million, an irrevocable, royalty-free, exclusive license to
use and incorporate the UNICAPT technology and related intellectual property of
Ingenico into IVI's products. Having access to such advanced technology has
allowed IVI to redirect its future research and development initiatives to other
areas such as applications and software development.
The Alliance also improved IVI's manufacturing process through the use of
common components and procurement. This is intended to ensure consistent quality
and functionality of IVI's and Ingenico's products and to assist in achieving
manufacturing efficiencies. There can be no assurance that such consistencies
and efficiencies will be achieved.
An additional benefit of the Alliance to IVI was the sale to Ingenico of
1,439,000 IVI Common Shares for approximately $9.9 million -- an endorsement of
IVI's business strategy.
In January 1998, IVI announced that it had entered into the Combination
Agreement with Checkmate, subject to regulatory and shareholder approval. IVI
believes that the combination will allow the two companies to combine their
resources to enhance their ability to more effectively compete in the U.S.
market for electronic payment automation equipment. More specifically, IVI
believes that the Transaction will result in substantial opportunities for
synergy through (i) broader product offerings which will create a stronger
competitive position and (ii) increased purchasing power and cross-selling
opportunities. In addition, IVI anticipates significant ongoing cost savings
through product rationalization, improved manufacturing efficiencies and the
elimination of redundancy upon closure of IVI's U.S. operations in Boulder,
Colorado. In the first year of the combination, these savings are expected to be
offset by a one-time charge to earnings for costs associated with the
combination.
RESULTS FROM OPERATIONS
The table below sets forth IVI's sales by geographic region for the quarters
ended March 31, 1998 and 1997, and fiscal years 1997, 1996 and 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Canada..................................................... $ 8,680 $ 10,686 $ 41,570 $ 30,385 $ 42,239
United States.............................................. 10,218 4,585 29,343 16,358 15,863
International.............................................. 213 1 295 1,058 2,409
--------- --------- --------- --------- ---------
Total Revenue.............................................. $ 19,111 $ 15,272 $ 71,208 $ 47,801 $ 60,511
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
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REVENUE
IVI's revenue is derived primarily from sales of POS terminals and
peripherals, software development and software products. The level of sales in
any year depends upon several factors, such as the number and dollar value of
contracts with new customers, the number of additional terminals required by
existing customers and the ability to recognize and introduce new products to
satisfy market demands.
For the three months ended March 31, 1998, consolidated revenue increased by
approximately 25% to $19.1 million, compared to $15.3 million for the same
period in 1997. This growth in revenue was primarily a result of a 123% increase
in sales of POS terminals and check readers in the U.S. U.S. revenue increased
$10.2 million in the three months ended March 31, 1998 from $4.6 for the same
period in 1997. Canadian revenue decreased 18.8% to $8.7 million for the 1998
period from $10.7 million for the same period in 1997, primarily due to a
decrease from the record sales that were produced in 1997. IVI's management
believes that new product sales to be introduced in the second half of 1998 will
result in increased revenue.
For the year ended December 31, 1997, introduction of new products and the
shipment of existing products to both new and existing customers accounted for
approximately 20% and 80%, respectively, of the 1997 growth in consolidated
revenue from 1996 to 1997. Prices did not change significantly during the three
year period. The following paragraphs explain the changes in revenue in each of
IVI's geographical regions over the past three fiscal years. There can be no
assurance that demand for IVI's existing products will continue at current
levels, that future new products will receive wide market acceptance, or that
IVI can attract new customers in the future. Management, however, is not aware
of any material event that would negatively impact its future operations.
Canadian revenue increased 37% to $41.6 million in 1997 from $30.4 million
in 1996 as a result of several factors: (i) introduction of the Flash 400 -- a
new low cost dial terminal -- and the Scribe printer line, which resulted in
orders from a major financial institution in Canada with which IVI did not have
a previous business relationship; (ii) recovery from a nine month delay in
orders in 1996 from one of IVI's largest customers; and (iii) acceptance by
Canadians of debit technology which, in turn, precipitated further demands for
debit terminals.
Canadian revenue decreased 28% to $30.4 million in 1996 from $42.2 million
in 1995 due to a significant delay in orders from one of IVI's largest
customers. The delay began in the first quarter of 1996 and lasted until late
September 1996 when shipments to this customer resumed. The decrease in Canadian
revenue in 1996 as a result of this delay was partially offset by renewed sales
of terminal printers to a Canadian chartered bank and revenue derived by IVI as
a result of its becoming the national debit payment solutions supplier for
Canadian Tire.
Revenue in the U.S. increased to record levels in 1997 due to the successful
launch of new products -- Flash 400, CheckManager 3000, Scribe series of
printers -- and significant new contracts with large national retailers such as
Wal-Mart, Albertson's and CVS/Revco Drugs. The 79% increase in revenue was also
affected by a full year inclusion of revenue from NTN which was acquired in
September 1996. U.S. revenue increased 3% to $16.4 million in 1996 from $15.9
million in 1995. The growth in U.S. revenue as a percentage of total revenue to
41% in 1997 from 34% in 1996 and 26% in 1995 is consistent with IVI's long term
strategy of diversifying its revenue base through increasing its market share in
the U.S., such that more than 50% of its total revenue is derived from
non-Canadian sources.
The source of IVI's international revenue has changed in 1997. Prior to
1997, a portion of IVI's sales and marketing resources was directly allocated to
achieving international sales. However, an alliance with Ingenico in December
1996 gave Ingenico rights to market selected IVI products outside the Americas.
This, in essence, re-directed IVI's international sales and marketing resources
back to the Americas. Furthermore, in January 1997, IVI launched a business
venture with Ingenico called "IVI Ingenico Inc." for the purpose of selling both
IVI and Ingenico products in Latin America. With the change in marketing
strategy, international revenue for 1997 was minimal as a result of (1)
Ingenico's review and assessment during most of 1997 of which IVI products, if
any, that they will retain marketing rights to, and (2) the time requirements
necessary to set up a proper infrastructure in Latin America for generating
sales, including
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distribution channels and identification of customers and their unique product
and software requirements. IVI believes, however, that the revised marketing
strategy will result in significant improvements in international revenue.
International revenue for 1996 decreased 54% to $1.1 million from $2.4
million in 1995 due to the lack of smart card compatible products and a
reluctance by IVI to enter into commitments which may have affected its
negotiations with Ingenico.
GROSS MARGIN
Gross margin for the three months ended March 31, 1998 was 34% of revenue,
which is consistent with the first quarter of 1997. While cost reduction
programs continued to reduce the cost of goods sold, these gains were offset by
unfavorable product sales mix in the first quarter of 1998.
Gross margin for the 1997 fiscal year was 34% of revenue compared with 32%
in 1996 and 33% in 1995. Increasing competition in the electronic payments
industry has led to reduced selling prices in certain situations. To maintain
its margins, IVI has continued to implement manufacturing efficiencies and cost
reduction programs.
Margins were also affected by the mix of products sold. For 1997 and prior
years, IVI had been a reseller of POS printers which had margins well below what
IVI has normally experienced with proprietary products. However, during 1997,
IVI introduced its own family of Scribe printers which it began selling late in
the year in place of the resale printers. As a result of this change to
proprietary printers, margins are expected to improve in 1998.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES
For the three months ended March 31, 1998 and 1997, SG&A expenses increased
to $3.6 million from $3.3 million. SG&A expenses as a percentage of revenue were
19% and 21%, respectively in these two periods. The increase in SG&A expenses
was primarily a result of costs related to additional sales and marketing
personnel.
SG&A expenses increased to $14.6 million in 1997 from $11.5 million in 1996
and $9.5 million in 1995. SG&A expenses as a percentage of revenue were 20% in
1997 compared with 24% in 1996 and 16% in 1995. The lower percentage in 1997 is
attributable to several factors including a higher revenue base as a result of
expanded product offerings and a restructured and better organized sales force
in the U.S. IVI has reduced expenses but continues to invest in areas that
support growth in both revenue and customer base.
The higher percentage in 1996, as compared to 1995, was attributable to
several factors, including the lower revenue base, expenses for additional sales
personnel in the U.S. and inclusion of NTN expenses since the date of
acquisition.
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RESEARCH AND DEVELOPMENT ("R&D") EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross R&D expenditures........................................... $ 2,025 $ 1,819 $ 8,056 $ 5,718 $ 6,030
Deferred development costs....................................... 667 526 3,444 2,470 1,609
--------- --------- --------- --------- ---------
Net R&D expenses................................................. 1,358 1,293 4,612 3,248 4,421
Amortization of deferred development costs....................... 413 168 672 578 412
--------- --------- --------- --------- ---------
Total R&D expense................................................ $ 1,761 $ 1,461 $ 5,284 $ 3,826 $ 4,833
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Research and development as a percent of revenue:
Gross expenditures............................................... 10.6% 11.9% 11.3% 11.9% 10.0%
Net expense...................................................... 7.1% 8.5% 6.5% 6.8% 7.3%
Total expense.................................................... 9.2% 9.6% 7.4% 8.0% 8.0%
</TABLE>
Gross R&D expenditures consist primarily of personnel expenses associated
with software and hardware engineering, subcontracted research and development
costs and expenditures associated with equipment and facilities.
First quarter R&D expenditures in 1998 were $2.0 million, an 11% increase
over the $1.8 million spent in 1997. Development activities during the first
three months of 1998 included new smart card products, wireless products using
radio frequency and other modes of communication and expansion of IVI and NTN's
software capabilities. In addition, amortization expenses increased
substantially in 1998 as a result of the amortization of IVI's proprietary
ComPOSit software development expenses.
For the 1997 fiscal year, net R&D expenses increased 42% to $4.6 million in
1997 from $3.2 million in 1996.
As a result of the Alliance, IVI gained access to Ingenico's smart card
technology and products. This reduced R&D expenditures relating to IVI's
development of smart card technology, although some expenditures were still
required to modify Ingenico's smart card terminals to adapt to security
requirements and other features that are unique to Canada, the U.S. and Latin
America. As a result of these expenditures, IVI's smart card terminals are now
used in three of the largest smart card pilots in North America -- the Mondex
pilot in Guelph, Ontario, Canada; the Visa Cash pilot in Barrie, Ontario,
Canada; and the joint Mondex/Visa Cash project in New York City.
Another area of future growth for IVI is in expanding its software
expertise. Consequently, funds were allocated for development in this area. Two
large projects that took place in 1997 were the completion of the second phase
of IVI's proprietary ComPOSit software which began late in 1995 and the
development of a Windows NT platform by NTN which will continue throughout 1998.
The final area of development in 1997 was terminal products and check
readers as a response to market needs. Specific products that resulted were (i)
the Flash 400 -- a low cost dial terminal (see "-- Revenue"); (ii) the
CheckManager 3000 (Dial CheckReader) which IVI launched in the fourth quarter of
1997; and (iii) the development of IVI's own family of Scribe printers which is
expected to contribute to IVI's efforts to improve margins in 1998.
Net R&D expenses in 1996 decreased 27% from 1995. This decrease was
primarily the result of the increase in deferred development costs related to
the Caisse Desjardin customized Protege and the completion of the first phase,
and commencement of the second phase, of ComPOSit software.
WRITE-OFFS
In the first quarter of 1996, Management reviewed the recoverability of
unamortized goodwill which arose from the Soricon acquisition in December 1994.
The financial results of Soricon subsequent to the December 1994 acquisition
were below anticipated results upon which management based the Soricon
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purchase price. Soricon did not meet sales targets for its check reader and
costs were much higher than anticipated. As a result, in accordance with the
Company's accounting policy, Management compared the unamortized goodwill
against an estimate of the undiscounted cash flows arising from the business to
which the goodwill related, over the remaining amortization period. On the basis
of this, management determined that there was a permanent impairment in the
carrying value of the goodwill, and wrote off in the first quarter of 1996 the
entire unamortized balance of $9.3 million which remained at December 31, 1995
as the estimated net recoverable amount and fair value of this goodwill was nil.
This undiscounted cash flows were only sufficient to recover the value of the
fixed assets of approximately $895,000 which approximated fair value.
The incorporation of Ingenico's smart card technology into IVI's product
line resulted in certain IVI products becoming unmarketable and deferred
development costs related to these products becoming unrecoverable.
Consequently, a charge of $1.7 million or $0.23 per share was recorded by IVI
against 1996 earnings.
GAIN ON SALE OF MARKETABLE SECURITIES
IVI recognized a gain in 1998 on the sale of its investment in Checkmate. In
July 1997, IVI purchased shares of Checkmate Common Stock on the open market. On
March 13, 1998, IVI sold these shares in an arm's length transaction at fair
market value and realized a gain on such sale.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities declined from December 31, 1997 by
approximately $6 million in the quarter ended March 31, 1998, due to net cash
used in operating activities of $5.4 million.
Working capital was $27.8 million at March 31, 1998, compared to $25.0
million at December 31, 1997, compared to $20.7 million at December 31, 1996,
and $15.0 million at December 31, 1995. IVI continues to remain debt-free, and
has unused and available bank lines of credit totaling $6.0 million.
Accounts receivable fluctuate due to a variety of factors including overall
sales performance and the timing of shipments. Days sales outstanding as at
March 31, 1998 were 89 days compared with 62 days as at December 31, 1997, 56
days in 1996 and 67 days in 1995.
Gross inventories increased 9.4% to $9.2 million during the three months
ended March 31, 1998 primarily as a result of stockpiling finished goods in
anticipation of sales in the second quarter of 1998. Gross inventories were
significantly reduced during 1997, declining by 23% from 1996 inventory levels.
In addition to IVI's long-term program to efficiently manage its inventory, IVI
has also made a concerted effort during the year to physically purge and scrap
inventory of products that were either obsolete or had little value. Net
inventories in 1996 increased $5.1 million over 1995 primarily as a result of
IVI taking advantage of special year-end pricing on certain resale products, a
new policy of having sufficient finished goods on hand to shorten delivery lead
time and to quickly service customer requirements and, with the acquisition of
NTN, the inclusion of NTN's inventories.
IVI normally finances its research and development, capital expenditures and
investment activities through sales of its products and services, issuance of
equity securities and interest income.
Cash used in operations for the three months ended March 31, 1998 was $5.4
million. This use of cash was primarily the result of an increase from December
31, 1997 in accounts receivable and inventories by $6.8 million and $794,000
respectively.
Cash generated from operating activities was $2.4 million in 1997, $1.5
million in 1996 and $3.5 million in 1995.
Cash provided by financing activities for the three months ended March 31,
1998 was $682,000 primarily as a result of the receipt by IVI of proceeds from
option exercises.
Cash provided by financing activities was $4.1 million in 1997, $12.9
million in 1996, and $1.5 million in 1995. Cash was provided in each year by the
issuance of IVI Common Shares as a result of the exercising of stock options. In
addition, in 1997, $569,000 was received from minority shareholders of IVI
Ingenico
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Inc. and NTN, and in 1996, $9.9 million was received from the Alliance with
Ingenico, and $2.2 million was received from the acquisition of NTN.
Cash used in investing activities for the three months ended March 31, 1998
was $1.3 million. The investments made during this period include the purchase
of capital assets, the capitalization of development costs and the acquisition
of the assets of BancTec.
Cash used in investing activities for 1997, 1996 and 1995 was $4.8 million,
$6.2 million and $2.9 million, respectively. Cash used in investing activities
is normally for annual capital expenditures and capitalization of development
costs. However, in 1996, $2.2 million was also used for the acquisition of NTN
and the payment to Ingenico for exclusive licensing rights to their smart card
technology.
Under U.S. GAAP, the cash provided by financing activities is decreased by
$1.7 million with an offsetting decrease to cash used in investing activities in
1996 as the acquisition of NTN is a non-cash transaction for U.S. GAAP
reporting.
IVI anticipates that its current working capital will be sufficient to fund
its operating budget and capital equipment expenditures in 1998.
IVI's operating results have fluctuated on a quarterly basis in the past and
may vary significantly in future periods due to a variety of factors. These
factors include, but are not limited to, the timing of orders from, and
shipments to, major customers, the timing of new product introductions by IVI
and its competitors, variations in IVI's product mix and component costs, and
competitive pricing pressures. Due primarily to the above factors, the results
of any particular quarter may not be indicative of the results for the full
year.
INCOME TAXES
On December 31, 1997, IVI had $3.7 million in Canadian capital cost
allowances and development costs, which may be carried forward to reduce future
years' taxable income. Additionally, IVI has Canadian investment tax credits of
$3.0 million to be applied against future income taxes subject to a ten year
limitation from the date of original claim, and a capital loss carryforward of
$763,000. Non-capital losses in the U.S. totaling U.S. $8.2 million are also
available to offset taxable income. IVI has not recorded the future tax benefits
of these amounts for Canadian GAAP in the consolidated financial statements.
Under U.S. GAAP, there was a deferred tax asset of $2.8 million and $1.7 million
for 1997 and 1996, respectively.
INFLATION AND FOREIGN CURRENCY
Inflation has not had a significant effect on IVI's consolidated financial
results in recent years.
In 1997, while IVI saw the Canadian dollar weaken relative to the American
dollar, this foreign currency exchange rate fluctuation did not impact
significantly the 1997 financial results. However, as business in the U.S.
increases, the impact of currency fluctuations on IVI's earnings could increase.
Such impact is not expected to be significant in 1998.
YEAR 2000 COMPLIANCE
In addition to its internal accounting and administrative functions, IVI has
ascertained that its hardware and software products are Year 2000 compliant.
Furthermore, IVI is seeking assurances from its manufacturers and other critical
suppliers that they are also Year 2000 compliant and that their abilities to
continue with the production and support of IVI products will not be
compromised.
Certain of IVI's products operate in conjunction with third party hardware
and software products which are beyond the control of IVI. Consequently, in the
event that a customer has not adequately addressed the Year 2000 issue, the lack
of compliance of such customer's hardware or software products may impair the
operation of IVI products, which may indirectly result in shipment delays while
the customer's Year 2000 problem is corrected. It is IVI's belief that such
impairment is the responsibility of, and must be resolved by, the third party
provider. There can be no assurance that the failure or delay of IVI's customers
and suppliers in successfully addressing the Year 2000 issue or the costs
involved in such
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process will not have a material adverse effect on IVI's business, financial
condition and results of operations.
OUTLOOK
IVI put forth considerable efforts in 1997 to introduce new products for the
EFT, check reader and printer markets, as well as to have terminal products
capable of handling smart card transactions for immediate availability. These
new products, combined with more aggressive selling strategies, have resulted in
contracts from new customers in Canada and the U.S., and management of IVI
believes that these steps have raised the reputation and profile of IVI in the
investment community, in the banking industry and in the retail industry.
After IVI's unsatisfactory year in 1996, it has significantly improved
financially and operationally in 1997. IVI expects to continue this momentum
with revenue growth over the next 12 months in the U.S. and Latin American
marketplaces through (i) continued introduction of new products, (ii) expanding
software expertise, (iii) implementation of new distribution strategies and (iv)
further acceptance in 1998 of IVI's smart card-ready terminals and innovative
uses for IVI's POS terminals.
Management believes that the combination of IVI and Checkmate should allow
the combined company to hold a significant position in the check reader
business, and become the largest terminal provider in North America in the
multi-lane retail segment of the POS industry. Based on 1996 shipments, the
combined company would become the third largest POS provider with approximately
12% of the North American and Latin American markets, while VeriFone and
Hypercom, the two largest vendors in the U.S., have a 50% and 19% market share
respectively (Source: The Nilson Report, August 1997).
As discussed above, IVI's combination with Checkmate is expected to
positively affect future gross margins, SG&A expenses and R&D expenditures.
Other factors unrelated to the combination, however, should also influence these
areas, including:
- continued cost reduction programs and sales of IVI's proprietary Scribe
series of printers will contribute to improved gross margins in 1998;
- although SG&A expenses are expected to increase as IVI expands its
territorial sales coverage in the U.S., such expenses are expected to
decline as a percentage of revenue; and
- leveraging Ingenico smart cart technology and joint IVI/Ingenico
development efforts should reduce R&D expenditures in 1998.
Operating in a competitive industry that is characterized by rapid changes
in technology and increasing sophistication of products, management has and will
continue to explore the formation of alliances, strategic acquisitions or other
relationships.
PRINCIPAL SHAREHOLDERS
To the knowledge of the directors and officers of IVI, the persons who
beneficially own, directly or indirectly, or exercise control or direction over
shares carrying more than 10% of the voting rights attached to all outstanding
shares of IVI as of May 1, 1998, are as follows:
<TABLE>
<CAPTION>
SHAREHOLDER NUMBER OF COMMON SHARES PERCENTAGE OF COMMON SHARES
- --------------------------------------------------------- ------------------------- -------------------------------
<S> <C> <C>
Ingenico S.A............................................. 1,544,416 16.7%
</TABLE>
The address for Ingenico is 9, quai de Dion Bouton, Puteaux, France. As of
January 1, 1998, Mr. Jean-Jacques Poutrel, Chairman of Ingenico, beneficially
owned 42.5% of the voting stock of Ingenico.
DIRECTORS' COMPENSATION
Each director of IVI is paid a fee of Cdn.$4,000 per annum, and an
additional Cdn.$2,000 per annum if he serves as chairperson of a committee of
the IVI Board of Directors. Fees of Cdn.$500 are paid to each director for each
board meeting attended and for serving on specific committees that arise from
time to
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time and are project oriented. All of the above fees are paid only to directors
of IVI who are not officers of IVI. All directors are entitled to participate in
the IVI Option Plan.
The total cash remuneration paid to the directors in respect of services
during the fiscal year ended December 31, 1997, was Cdn.$54,750.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
IVI has purchased Cdn.$10,000,000 in liability insurance on behalf of the
directors and officers of IVI and its wholly owned subsidiaries, and is subject
to a deductible amount of Cdn.$25,000 for a Canadian claim or U.S. $50,000 for a
U.S. claim for any one loss. The insurance policy covers the period from July 1,
1997, to June 30, 1998.
For the most recently completed fiscal year, the total amount of premiums
paid by IVI for such coverage was Cdn.$43,470. No portion of the premiums was
paid by the directors and officers of IVI.
EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of IVI's previous
or future filings under the Securities Act, the Exchange Act or the Securities
Act (Ontario) (the "OSA") that might incorporate this Joint Proxy
Statement/Prospectus or future filings with the SEC or the OSC, in whole or in
part, the following report and the performance graph which follows shall not be
deemed to be incorporated by reference into any such filing.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee, which was established by the Board of Directors
in May 1995, administers IVI's executive compensation program. The Committee,
amongst its other functions, reviews and recommends to the Board for approval
the compensation of the Chairman and the President and Chief Executive Officer,
and any other executives that the Chairman or President refers to them.
The compensation policy of IVI is designed to provide an appropriate overall
compensation package that will attract, retain and reward qualified and
experienced executive officers who will contribute to the success of IVI.
The compensation plan for IVI's executives is comprised of three principal
components: base salary, an annual cash incentive bonus program, and stock
options. The effect of the bonus and stock option components are to place
considerable emphasis on the achievement of short term financial and long term
objectives of IVI.
In making recommendations, the Compensation Committee considered several
factors, including past and current performance, level of responsibility and
importance of the position to IVI, the executive's ability to achieve the long
term goals of IVI and to motivate and reward executives in reaching those goals.
Presented on behalf of the Compensation Committee:
W. Douglas M. Archibald (Chairman)
Peter E. Roode
Lawrence G. Tapp
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SUMMARY OF COMPENSATION
For the last completed fiscal year, IVI had seven executive officers. The
table below, presented in accordance with applicable securities legislation,
shows the aggregate compensation paid by IVI during each of the three most
recently completed fiscal years to the Chief Executive Officer and the four most
highly compensated executive officers, other than the Chief Executive Officer,
whose total salary and bonus for the last fiscal year exceeded Cdn.$100,000
(each a "Named Executive Officer" and, collectively, the "Named Executive
Officers"). Additional information concerning options granted to and exercised
by these executives during the year ended December 31, 1997 is set out in Tables
2 and 3 below.
TABLE 1: SUMMARY OF AGGREGATE COMPENSATION OF NAMED EXECUTIVE OFFICERS
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
OTHER LONG TERM
ANNUAL COMPENSATION
COMPENSATION (OPTIONS ALL OTHER
YEAR SALARY BONUS CDN.$ GRANTED) COMPENSATION
NAME AND POSITION ENDED CDN.$ CDN.$ (NOTE 1) # CDN.$
- ------------------------------------------------ ----------- --------- --------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
George Whitton.................................. 1997 207,644 -- -- 75,000 --
Chairman 1996 320,250 -- -- 50,000 --
1995 309,985 50,000 -- 90,000 --
L. Barry Thomson................................ 1997 250,008 50,000 -- 150,000 --
President and Chief Executive Officer 1996 231,826 50,000 -- 30,000 --
1995 218,801 50,000 -- 43,200 --
Geoff Bowen..................................... 1997 140,625 10,000 -- 30,000 --
Vice President, Sales 1996 75,311 -- -- 10,000 --
Canada (note 2) 1995 -- -- -- -- --
David Groves.................................... 1997 140,000 15,000 -- 30,000 --
Vice President, Engineering 1996 131,000 15,000 -- 17,000 --
1995 124,250 10,000 -- 17,300 --
Nicholas Dawson................................. 1997 135,000 15,000 -- 30,000 --
Vice President, Operations 1996 129,750 15,000 -- 12,000 --
1995 124,250 10,000 -- 14,400 --
</TABLE>
Note 1: The value of other benefits for each Named Executive Officer is less
than the lesser of Cdn.$25,000 and 15% of each Named Executive Officer's
total annual salary and bonus.
Note 2: Mr. Bowen joined the Company on May 27, 1996.
TABLE 2: OPTIONS GRANTED DURING FISCAL YEAR ENDED DECEMBER 31, 1997
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
PER SHARE
EXERCISE MARKET VALUE OF
COMMON SHARES % OF PRICE COMMON
UNDER OPTIONS TOTAL OPTIONS OF OPTIONS SHARES AT
GRANTED GRANTED IN (CDN.$ PER DATE OF GRANT EXPIRY
NAME # FISCAL YEAR SHARE) CDN.$ PER SHARE DATE
- -------------------------------- --------------- --------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
George Whitton.................. 75,000 8.0% $ 6.65 $ 6.65 Jan. 13, 1999
L. Barry Thomson................ 150,000 16.1% $ 6.65 $ 6.65 Jan. 13, 1999
25,000 2.7% $ 6.65 $ 6.65 Jan. 13, 1999
Geoff Bowen..................... 5,000 0.5% $ 12.10 $ 12.10 Jan. 13, 1999
David Groves.................... 30,000 3.2% $ 6.65 $ 6.65 Jan. 13, 1999
Nicholas Dawson................. 30,000 3.2% $ 6.65 $ 6.65 Jan. 13, 1999
</TABLE>
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TABLE 3: OPTIONS EXERCISED DURING FISCAL YEAR ENDED DECEMBER 31, 1997
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
UNEXERCISED IN-THE-MONEY
COMMON SHARES AGGREGATE OPTIONS AT OPTIONS
ACQUIRED ON VALUE DEC. 31, 1997 AT DEC. 31, 1997
EXERCISE REALIZED # $
NAME # $ (NOTE 1) (NOTE 1,2)
- ------------------------------------------------- --------------- ---------- ------------- -------------------
<S> <C> <C> <C> <C>
George Whitton................................... 50,000 $ 221,250 25,000 $ 87,500
L. Barry Thomson................................. 50,100 $ 221,495 99,900 $ 349,650
Geoff Bowen...................................... 35,000 $ 135,889 5,000 --
David Groves..................................... 35,000 $ 165,425 -- --
Nicholas Dawson.................................. 10,000 $ 26,580 20,000 $ 70,000
</TABLE>
Note 1: All unexercised options are fully exercisable.
Note 2: The value of unexercised in-the-money options represents the difference
between the closing price of Cdn.$10.15 per share of the underlying
securities on December 31, 1997, and the exercise price of such options.
PERFORMANCE GRAPH
The following graph illustrates the annual change of $100 invested in the
IVI Common Shares on March 31, 1993, over the following five fiscal years as
compared with an investment of the same amount at the same time in The Toronto
Stock Exchange 300 Index, assuming the reinvestment of dividends where
applicable. The intention of this comparison is to relate the performance of IVI
Common Shares to that of the leading stock index in Canada.
PERFORMANCE GRAPH
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN ($)
<S> <C> <C>
IVI TSE 300
3/31/93 100.00 100.00
3/31/94 56.37 123.37
12/31/94 23.64 122.22
12/31/95 31.65 136.71
12/31/96 20.90 171.90
12/31/97 30.97 194.30
Fiscal Year Ended
</TABLE>
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INDEBTEDNESS OF DIRECTORS AND OFFICERS OF IVI
No director or senior officer of IVI (or any "associate" (as defined in the
CBCA) of any such person) was indebted to IVI or any of IVI's subsidiaries in
any manner or amount which would be required to be disclosed under the CBCA or
the OSA during the fiscal year ended December 31, 1997.
INTERESTS OF MANAGEMENT OF IVI AND OTHERS IN CERTAIN TRANSACTIONS
No director or senior officer of IVI (or any "associate" or "affiliate" (as
defined in the CBCA) of any such person) has had any material interest, direct
or indirect, in any transaction during the fiscal year ended December 31, 1997,
or any proposed transaction, involving IVI that has materially affected or will
materially affect IVI or any of its affiliates and which would be required to be
disclosed under the CBCA or the OSA.
CORPORATE GOVERNANCE PRACTICES
In May 1995, the TSE passed a bylaw requiring companies listed on the TSE to
annually disclose the corporate practices of their board of directors. The
disclosure is to be made with respect to guidelines set out in the report of the
Toronto Stock Exchange Committee on Corporate Governance (the "TSE Guidelines").
IVI's Board of Directors believes that sound corporate governance is
essential to the well-being of IVI and its shareholders, and has adopted the
following approach.
MANDATE OF THE BOARD
The Board of Directors of IVI is responsible for overseeing the management
of IVI's business with a view to evaluating whether corporate resources are
being managed in a manner consistent with enhancing shareholder value. In
fulfilling its mandate, the Board, among other matters, is responsible for
overseeing IVI's strategic direction; appointing and monitoring key executives
and the issue of succession; providing to shareholders clear and accessible
information on IVI's operations and on its future plans. Frequency of meetings
of the Board as well as the nature of agenda items change depending upon the
state of IVI's affairs and in light of opportunities and risks which IVI faces.
There were seven meetings of the Board in the 1997 fiscal year.
CONSTITUTION OF THE BOARD
The Board of Directors of IVI is comprised of nine directors, seven of whom
are "unrelated" as defined by the TSE Guidelines. Five of the seven unrelated
directors do not have interests in or relationships with IVI other than
directors' fees and interests arising from shareholding. The other two unrelated
directors are representatives of IVI's largest shareholder, who is not
significantly involved with, nor has significant influence on the operations of
IVI. The two related directors are executive officers of IVI.
The Board of Directors of IVI is of the view that since seven of the nine
directors are unrelated and function independently of management, the investment
in IVI by shareholders is adequately reflected in the composition of the board.
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COMMITTEES OF THE IVI BOARD
The IVI Board has appointed three standing committees.
<TABLE>
<CAPTION>
COMMITTEE CHAIRMAN DUTIES AND RESPONSIBILITIES
- --------------------------- -------------------- ---------------------------------------------------------------
<S> <C> <C>
Audit Committee P.E. Roode - review and recommend to the Board for approval the
annual and interim financial statements, including
external auditors's report and all other public
disclosure documents.
- meet with the external auditors independently of
management.
- review nature and scope of annual audit and consider
engagement or re-appointment of external auditors for
board's review and approval by shareholders.
Compensation Committee W.D.M. Archibald - monitor the effectiveness of compensation policies to
ensure that IVI is able to recruit, retain and motivate
performance-oriented executives to the interests of
IVI's shareholders.
- oversee succession planning, and the appointment,
performance and remuneration of senior management.
- recommend to the board the remuneration for directors to
ensure it reflects the responsibilities and risks
involved in being an effective director.
Nominating and Governance L.G. Tapp - co-ordinate and manage the process of recruiting,
Committee interviewing and recommending candidates to the board,
including the subsequent orientation and training of new
directors.
- develop and recommend standards of performance for the
board, its committees and individual directors.
- review on an annual basis the composition and chairs of
the board's committees, together with periodic review of
the powers and mandate of the Committees, with
recommendations to the Board for changes if required.
- ensure IVI's governance manual is up-to-date and in
compliance with the TSE Guidelines.
</TABLE>
OTHER CORPORATE GOVERNANCE MATTERS
The IVI Board reports quarterly to the IVI shareholders and therefore
expects timely and effective data gathering, analysis and reporting from
management. Inquiries from IVI shareholders, analysts and other members of the
financial community are welcomed and receive a prompt response from the investor
relations department or an appropriate officer of IVI.
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CHECKMATE ELECTRONICS, INC.
BUSINESS
Checkmate develops, manufactures and markets payment automation solutions.
Checkmate's Payment System(2000TM) includes systems and terminals for check
reading and magnetic debit/credit card processing, signature capture and
verification, and MICR quality analyzing. Checkmate sells directly to large POS
users and financial institutions. Checkmate distributes products through
resellers and OEM relationships in the United States and worldwide.
Headquartered in Roswell, Georgia, Checkmate Electronics, Inc. has 185
employees. Checkmate's shares are traded on the Nasdaq National Market under the
symbol "CMEL".
Checkmate's MICR check readers, which accounted for 39.4% of Checkmate's net
revenues in 1997, utilize patented technology to read magnetic ink characters
that are printed on checks, travelers checks and other documents. The MICR check
readers also measure the signal strength of magnetic characters to ensure that
the characters conform to MICR quality standards, thereby helping eliminate
fraud and detecting most counterfeit and visually altered documents. Checkmate's
payment authorization products provide for the processing of credit, debit, EBT
and check transactions through "direct connect" peripherals to the merchant's
ECR/POS terminal and through "dial-up" connections. The patented signature
capture technology licensed by Checkmate streamlines the document retrieval
process for credit card drafts by electronically capturing signatures at the
point of sale. This device incorporates a sophisticated proprietary data
compression algorithm to minimize storage requirements and can also be used for
signature verification applications. Checkmate's MICR analyzer comprehensively
tests the MICR characters on documents to allow check printers, forms printers,
banks and other producers of high volumes of printed MICR documents to determine
whether the MICR information conforms to applicable American National Standards
Institute ("ANSI") specifications.
Checkmate is the successor to a company that was incorporated in Nevada in
1961 and engaged in various activities, including the check guarantee business,
through 1979. In 1979, Checkmate developed and patented the technology used in
its MICR analyzers and in 1986 began producing and delivering this MICR
analyzer. In 1989, Checkmate introduced its first check reader product. In June
1993, Checkmate changed its state of incorporation from Nevada to Georgia. In
September 1993, Checkmate completed a public offering of 2,415,000 shares of its
Common Stock and the Common Stock began trading on the the Nasdaq National
Market National Market System.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS
"MAY," "WOULD," "COULD," "WILL," "EXPECT," "ESTIMATE," "ANTICIPATE," "BELIEVE,"
"INTEND," "PLAN" AND SIMILAR EXPRESSIONS AND VARIATIONS THEREOF ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. MANAGEMENT CAUTIONS THAT THESE STATEMENTS
REPRESENT PROJECTIONS AND ESTIMATES OF FUTURE PERFORMANCE AND INVOLVE CERTAIN
RISKS AND UNCERTAINTIES. CHECKMATE'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS INCLUDING, WITHOUT LIMITATION, CHECKMATE'S HEAVY RELIANCE ON CHECK
READERS IN ITS PRODUCT MIX; DEPENDENCE BY CHECKMATE ON LIMITED SUPPLIERS AND
MANUFACTURERS OF COMPONENT PARTS OF ITS PRODUCTS; RAPID AND SIGNIFICANT
TECHNOLOGICAL DEVELOPMENTS THAT COULD DELAY THE INTRODUCTION OF IMPROVEMENTS IN
EXISTING PRODUCTS OR OF NEW PRODUCTS; ANY DEPENDENCIES ON ANY PROPRIETARY
TECHNOLOGIES (WHICH MAY BE INDEPENDENTLY DEVELOPED BY COMPETITORS); DEPENDENCE
ON A SMALL NUMBER OF LARGE RETAIL AND BANK CUSTOMERS; POTENTIAL FLUCTUATION IN
FINANCIAL RESULTS AS A RESULT OF ANY INABILITY TO MAKE SALES TO LARGE CUSTOMERS
AS WELL AS THE VOLUME AND TIMING OF BOOKINGS RECEIVED DURING A QUARTER AND
VARIATIONS IN SALES MIX; COMPETITION FROM EXISTING COMPANIES AS WELL AS NEW
MARKET ENTRANTS; DEPENDENCE ON KEY PERSONNEL; SUCCESSFUL INTEGRATION OF THE
COMPANIES; AND THE OTHER FACTORS SET FORTH IN "RISK FACTORS" ABOVE.
OVERVIEW
Checkmate supplies innovative electronic payment solutions for distributors,
retailers and financial service institutions. Checkmate's products include POS
software and terminals, comprising check readers,
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MICR analyzers, payment authorization and point-of-transaction promotion/loyalty
systems, signature capture devices and electronic transaction processing
equipment, all packaged and integrated in cost justified solutions. As a full
service provider, Checkmate also offers professional services including
application development, consulting, project management, installation services
and TotalCARE support and maintenance.
Historically, Checkmate derived the majority of its net revenues from direct
sales of check readers to major retailers. Checkmate has focused its sales
efforts in the past three years on expanding its product offerings and sales
channels, while maintaining its strength in its existing areas. From 1995 to
1997, Checkmate increased its net revenues by 15.0%. This increase was the
result of increases in revenues from debit/credit card terminals and combination
units, which were partially offset by decreases in net revenues from check
readers and signature capture devices.
In 1995, 82.6% of net revenues were derived from direct sales to end users,
15.2% from sales to domestic and international resellers, and 2.2% from service
and other sources. In 1997, direct sales to end users declined to 67.6% of net
revenues, while sales to domestic and international resellers increased to
21.9%, service and other increased to 5.4%, and banking was added as a channel
and was 5.1% of net revenues.
The results reflected above demonstrate that Checkmate was successful in its
efforts to expand its product offerings and sales channels but was not effective
in maintaining its strength in existing areas. Management believes that this
ineffectiveness is due to a combination of factors, including limited market
saturation of its existing check reader in major retailers, the absence of a
"full solution" product in the signature capture market, and the absence of
sufficient new product offerings to sustain the high growth in net revenues that
Checkmate enjoyed through 1996.
In order to address the above factors, Checkmate has increased its efforts
in a number of areas. Checkmate has increased its internal research and
development efforts in order to improve existing products and develop new
products. In 1997, these efforts enabled Checkmate to announce three major
accomplishments. Checkmate introduced the new CM 2100 payment terminal, which
generated first year revenues in excess of any other product introduced by
Checkmate. In addition, Checkmate announced its new GEN4(TM) terminal
architecture and the base application for the CM 2010 combination unit, and is
developing additional new products for release in 1998.
In addition to the internal research and development efforts, Checkmate has
improved its product offerings through external media. In January 1998,
Checkmate completed its acquisition of Total Retail Solutions, a software
development and consulting organization specializing in electronic payments and
transaction handling solutions for supermarkets and retail businesses. Also in
January 1998, Checkmate and IVI entered into the Combination Agreement in order
to combine the two companies to become the third largest in the electronic
payment solutions industry in North America, according to The Nilson Report. The
Transaction is expected to be completed during the second quarter of 1998, and
should immediately broaden product offerings for both companies while providing
operational synergies which are expected to make the combined company a more
efficient, profitable entity. There can be no assurance that the Transaction
will be completed or that such results will be realized. From time to time,
Checkmate is engaged in discussions to acquire payment automation solutions, but
currently has no binding commitments with respect to any potential acquisitions.
There can be no assurance that Checkmate will be able to complete successfully
any acquisitions.
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RESULTS OF OPERATIONS
The following table sets forth certain items derived from Checkmate's
statements of operations from 1995 to March 31, 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------------------------------- --------------------------------------------------
1998 1997 1997 1996
------------------------ ------------------------ ------------------------ ------------------------
PERCENT PERCENT PERCENT PERCENT
OF NET OF NET OF NET OF NET
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (DOLLARS IN THOUSANDS)
Net revenues:
Check readers.......... $ 3,495 36.2% $ 4,114 43.3% $ 13,189 39.4% $ 17,295 49.3%
Debit/credit card
terminals............ 4,377 45.4 4,228 44.5 14,461 43.1 12,062 34.4
Combination units...... 136 1.4 321 3.4 1,904 5.7 542 1.5
Signature capture
devices.............. 574 6.0 205 2.2 1,046 3.1 2,749 7.8
Service and other...... 1,059 11.0 638 6.6 2,926 8.7 2,456 7.0
----------- ----- ----------- ----- ----------- ----- ----------- -----
9,641 100.0 9,506 100.0 33,526 100.0% 35,104 100.0%
----------- ----- ----------- ----- ----------- ----- ----------- -----
Cost of goods sold..... 5,584 57.9 5,513 58.0 20,879 62.3 20,572 58.6
----------- ----- ----------- ----- ----------- ----- ----------- -----
Gross profit........... 4,057 42.1 3,993 42.0 12,647 37.7 14,532 41.4
Operating expenses:
Selling, general and
administrative....... 2,829 29.3 2,675 28.1 11,306 33.7 9,325 26.6
Research and
development.......... 355 3.7 234 2.5 1,129 3.4 991 2.8
Depreciation and
amortization......... 270 2.8 168 1.8 722 2.1 579 1.6
----------- ----- ----------- ----- ----------- ----- ----------- -----
Total operating
expenses............. 3,454 35.8 3,077 32.4 13,157 39.2 10,895 31.0
----------- ----- ----------- ----- ----------- ----- ----------- -----
Operating income
(loss)............... 603 6.3 916 9.6 (510) -1.5 3,637 10.4
----------- ----- ----------- ----- ----------- ----- ----------- -----
Interest income, net... 47 0.4 85 0.9 312 0.9 371 1.0
----------- ----- ----------- ----- ----------- ----- ----------- -----
Income (loss) before
income taxes......... 650 6.7 1,001 10.5 (198) -0.6 4,008 11.4
Provision for income
tax expense
(benefit)............ 234 2.4 340 3.5 (69) -0.2 1,453 4.1
----------- ----- ----------- ----- ----------- ----- ----------- -----
Net income (loss)...... $ 416 4.3% $ 661 7.0% $ (129) -0.4% $ 2,555 7.3%
----------- ----- ----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- ----- ----------- -----
<CAPTION>
1995
------------------------
PERCENT
OF NET
AMOUNT REVENUES
----------- -----------
<S> <C> <C>
Net revenues:
Check readers.......... $ 20,194 69.3%
Debit/credit card
terminals............ 5,273 18.1
Combination units...... 0 0.0
Signature capture
devices.............. 2,567 8.8
Service and other...... 1,126 3.8
----------- -----
29,160 100.0%
----------- -----
Cost of goods sold..... 17,184 58.9
----------- -----
Gross profit........... 11,976 41.1
Operating expenses:
Selling, general and
administrative....... 7,310 25.1
Research and
development.......... 499 1.7
Depreciation and
amortization......... 496 1.7
----------- -----
Total operating
expenses............. 8,305 28.5
----------- -----
Operating income
(loss)............... 3,671 12.6
----------- -----
Interest income, net... 429 1.4
----------- -----
Income (loss) before
income taxes......... 4,100 14.0
Provision for income
tax expense
(benefit)............ 1,558 5.3
----------- -----
Net income (loss)...... $ 2,542 8.7%
----------- -----
----------- -----
</TABLE>
Any trends that may be derived from the above table are not necessarily
indicative of Checkmate's future operations.
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
Net revenues increased 1.4% in the three months ended March 31, 1998 as
compared to the same period in 1997. The increase in net revenues was
experienced primarily in sales of debit/credit card terminals, signature capture
devices and service offerings. Check reader and combination unit revenues
decreased slightly in the quarter.
Cost of goods sold as a percentage of net revenues was 57.9% in the three
months ended March 31, 1998, compared to 58.0% in the three months ended March
31, 1997. The overall percentage was consistent between periods, despite
fluctuations in the gross margin by product. Generally, material costs were
lower in the 1998 period, but this decrease was offset by an increase in
amortization of deferred development costs, resulting in a consistent gross
margin percentage between periods. The Company anticipates that cost of goods
sold as a percentage of net revenues will be affected in the future by changes
in product mix, selling prices and unit costs among other factors.
Selling, general and administrative expenses increased 5.8% over the first
quarter of 1997. As a percentage of net revenues, selling, general and
administrative expenses increased to 29.3% in the three months ended March 31,
1998 from 28.1% in the comparable period in 1997. The increases are due
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primarily to higher personnel and related costs in sales and engineering as a
result of increased hiring designed to accelerate new product development and
our overall sales effort.
Product development expenditures include research and development expense
and capitalized software development costs and consist primarily of labor. A
summary of product development efforts is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Gross product development expenditures....................................... $ 936 $ 523
Capitalized software development costs....................................... (581) (289)
--------- ---------
Research and development expense............................................. 355 234
Amortization of previously capitalized costs................................. 181 108
--------- ---------
Total expense................................................................ $ 536 $ 342
--------- ---------
--------- ---------
Product development as a percent of net revenues:
Gross expenditures......................................................... 9.7% 5.5%
Research and development expense........................................... 3.7% 2.5%
Total expense.............................................................. 5.6% 3.6%
</TABLE>
Gross product development expense increased by $413,000 or 79.0% and net
research and development expense increased by $121,000 or 51.7% in the three
months ended March 31, 1998. The increase in the dollar amount of product
development expenditures resulted from the Company's continuing efforts to
remain at the forefront of payment automation technology. Checkmate announced
several new product introductions during 1997, and plans to introduce several
additional products during 1998. The Company expects to continue to increase
product development expenditures for the foreseeable future as the Company is
dedicated to developing new products and enhancing its existing products.
Depreciation and amortization expenses increased by 60.6% for the three
months ended March 31, 1998 due primarily to capital expenditures associated
with the expansion of facilities in April 1997 and upgrades of computer software
and equipment.
Interest income, net decreased 43.9% in the three months ended March 31,
1998 due to lower average investment balances outstanding.
The effective tax rate was 36.0% and 34.0% in three months ended March 31,
1998 and 1997, respectively. The increase in the effective tax rate in 1998 was
due primarily to a higher effective state tax rate caused by the addition of
several states to which the Company must pay income taxes.
As a result of the above factors, net income decreased by 37.0% in the three
months ended March 31, 1998. Basic earnings per share was $0.08 in 1998 compared
to $0.13 in 1997. Diluted earnings per share was $0.08 in 1998 compared to $0.12
in 1997. The weighted average diluted shares outstanding for the quarter
decreased 4.4% from 1997 to 1998 due to a lower market price for the Company's
common stock, which resulted in fewer stock options being considered common
stock equivalents in the computation of the weighted average diluted shares
outstanding.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1996
Net revenues decreased 4.5% in 1997. This decline primarily was due to
decreases of 23.7% and 62.0% in revenues from sales of check readers and
signature capture devices, respectively. These declines were partially offset by
an increase of 19.9% in sales of debit/credit card terminals, which contributed
43.1% of net revenues in 1997, up from 34.4% in 1996. By channel, net revenues
from sales to domestic and international resellers increased 31.6% in 1997,
while direct sales to end users decreased by 15.1% in the same period. The
decrease in sales of check readers and the decline in direct sales to end users
are related trends. Checkmate believes that the market for its existing check
readers in the top 100 retailers is
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becoming saturated, thereby decreasing the available marketplace for Checkmate's
existing products. However, management of Checkmate believes that there is a
demand for new product offerings planned to be released in 1998, which are
expected to reverse the trend of declining revenues from check readers and from
direct sales to end users. However, there can be no assurance that planned new
products will actually be released, that the introduction of any new products
will not be delayed, that any new products will not contain errors or that any
new products will be accepted by the market.
Cost of goods sold as a percentage of net revenues was 62.3% in 1997 and
58.6% in 1996. The primary reason for the increase in this percentage was
selling price pressure from major retailers, as reflected in the decrease in net
revenues, and inefficiencies associated with start-up production of the new
CM2100 terminal. Additionally, depreciation and amortization included in cost of
goods sold increased by 70.8% as a percentage of net revenues from 1996 to 1997.
This increase is due to higher capitalized costs being depreciated without a
corresponding increase in net revenues. Checkmate anticipates that cost of goods
sold will be affected in the future by changes in product mix as well as by
selling price and unit cost changes, among other factors.
Selling, general and administrative expenses increased 21.2% in 1997. As a
percentage of net revenues, selling, general and administrative expenses
increased to 33.7% in 1997 from 26.6% in 1996. The increases were due primarily
to an increase in personnel and related costs required to support Checkmate's
anticipated growth in new products and net revenues. In addition, of the 21.2%
increase in dollar amount, 4.0% was due to costs incurred in connection with
severance arrangements for Checkmate's former president and chief executive
officer.
Gross product development expenditures include research and development
expense and capitalized and purchased software development costs and consist
primarily of labor costs. A summary of product development expenses and costs is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Gross product development expenditures.................................. $ 2,828 $ 1,634 $ 1,246
Less capitalized software development costs............................. 1,699 643 747
------------ ------------ ------------
Net research and development expense.................................... 1,129 991 499
Amortization of previously capitalized cost............................. 556 356 272
------------ ------------ ------------
Total expense........................................................... $ 1,685 $ 1,347 $ 771
------------ ------------ ------------
------------ ------------ ------------
Product development as a percent of net revenues:
Gross expenditures...................................................... 8.4% 4.7% 4.3%
Net expense............................................................. 3.4% 2.8% 1.7%
Total expense........................................................... 5.0% 3.8% 2.6%
</TABLE>
Gross product development expenditures increased by 73.1% and net research
and development expense increased by 13.9% in 1997 as a result of Checkmate's
continuing efforts to remain at the forefront of payment automation technology
by developing new products and enhancing its existing products. As noted in "--
Overview" above, Checkmate increased its efforts in the product development area
and announced several new product introductions during 1997. Checkmate focused
the increase in product development efforts on improving software solutions,
resulting in higher capitalized software development costs.
Depreciation and amortization expenses increased 24.7% in 1997 due primarily
to capital expenditures associated with the expansion of facilities in April
1997, upgrades of computer software and equipment, purchases of molds and
deferred development costs.
Interest expense decreased 24.3% in 1997 due to lower average principal
balance of long-term liabilities. Interest income decreased 16.9% in 1997 due to
lower average investments outstanding.
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<PAGE>
The effective tax rate was 34.9% in 1997 and 36.3% in 1996. The primary
reason for the decrease in the effective tax rate in 1997 was a lower effective
state tax rate.
As a result of the above factors, Checkmate incurred a loss of $129,000 in
1997 as compared to net income of $2.6 million in 1996. Basic earnings per share
(loss per share) was a loss of $0.02 in 1997 as compared to income of $0.50 in
1996. Diluted earnings per share (loss per share) was a loss of $0.02 in 1997 as
compared to income of $0.50 in 1996. The weighted average diluted shares
outstanding decreased 4.2% in 1997 due to the exclusion of common stock
equivalents from the computation of weighted average shares in 1997 resulting
from the net loss position for the year.
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1995
Net revenues increased 20.4% in 1996. Growth in net revenues in 1996
primarily was generated by the newer debit/credit card terminals, which
contributed 34.4% of net revenues. Sales of signature capture devices and
service and other net revenues also increased in 1996 as compared to 1995. Net
revenues from check readers decreased 14.4% from 1995 to 1996. The decrease in
1996 is due primarily to the completion in 1995 of a large sale to a single
significant customer. By channel, net revenues from sales to domestic and
international resellers increased 55.1% in 1996, while direct sales to end users
decreased by 11.0% in the same period. These results are consistent with
Checkmate's efforts to transition itself from essentially a one product company
with one sales channel into a multi-product, multi-channel organization.
Cost of goods sold as a percentage of net revenues was 58.6% in 1996 and
58.9% in 1995. Various factors combined to result in the slight improvement from
1995 to 1996, none of which individually was significant.
Selling, general and administrative expenses increased 27.6% in 1996. These
expenses stated as a percentage of net revenues were 26.6% in 1996 and 25.1% in
1995. The increases in the dollar amounts were due primarily to an increase in
personnel and related costs required to support Checkmate's growth in net
revenues and new products.
Product development expenditures include research and development expense
and capitalized and purchased software development costs and consist primarily
of labor costs. A summary of product development efforts is included in the
comparison of 1997 and 1996 results of operations above. Gross product
development expenditures increased by 31.1% in 1996 and net research and
development expense increased by 98.6% in 1996 as a result of Checkmate's
continuing efforts to remain at the forefront of payment automation technology.
The increase in net research and development expense exceeded the increase in
gross expenditures due to an increase in hardware development efforts, which are
not capitalized as software development costs.
Depreciation and amortization expenses increased 16.6% in 1996 but decreased
as a percentage of net revenues to 1.6% in 1996 from 1.7% in 1995. The increase
in the dollar amount in 1996 primarily resulted from capital expenditures
associated with the expansion of Checkmate's headquarters during 1995. The
decrease as a percentage of net revenues is a result of the larger net revenue
base.
Interest expense decreased 27.8% in 1996 due to lower average principal
balance of long-term liabilities. Interest income decreased 15.8% in 1996 due to
lower average investments outstanding.
The effective tax rate was 36.3% in 1996 and 38.0% in 1995. The primary
reason for the decrease in the effective tax rate in 1996 was a lower effective
state tax rate.
Net income increased 0.5% in 1996. Basic earnings per share was $0.50 in
1996 and 1995. Diluted earnings per share was $0.46 in 1996 and $0.47 in 1995.
The weighted average diluted shares outstanding increased 3.0% in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities was $3,957,000 in the
three months ended March 31, 1998 and $(5,000) in the three months ended March
31, 1997. The net cash provided by operating activities in the 1998 period
resulted from the net income reported for the period, increased by
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<PAGE>
depreciation and amortization, a 3.3% decrease in accounts receivable, a 57.3%
increase in accounts payable and deferred revenues, partially offset by a 427.2%
increase in prepaid expenses. The net cash used in operating activities in 1997
included sources of net cash from net income reported for the period, increased
by depreciation and amortization and a 52.7% increase in accounts payable,
accrued liabilities and deferred revenues, offset by a 27.6% increase in
accounts receivable and a 19.4% increase in inventories. Net cash provided by
(used in) operating activities was $(1.8) million in 1997, $2.9 million in 1996
and $(345,000) in 1995. The net cash used in operating activities in 1997 was
primarily due to a 30.7% increase in accounts receivable and a 43.2% increase in
inventories. These increases were partially offset by a 46.2% increase in
depreciation and amortization, and a 42.9% increase in accounts payable and
accrued liabilities. Net cash provided by operating activities in 1996 was
primarily due to a 39.9% increase in depreciation and amortization, a 15.4%
increase in accounts receivable and a 5.1% increase in inventories, and was
partially offset by a 408.9% increase in prepaid expenses. The decrease in the
use of net cash during 1995 was primarily due to a 74.3% increase in net income,
a 47.1% increase in depreciation and amortization and a 31.5% increase in
inventories in 1995. Checkmate experiences normal fluctuations in its accounts
receivable balance, including days outstanding, due to a variety of factors,
including Checkmate's overall sales performance when compared to prior periods,
the timing of shipments to its customers and individual customer negotiated
terms of sale. The rate of inventory turnover experienced by Checkmate also
depends upon a variety of factors, including anticipated inventory requirements
to fulfill current and future customer orders in a timely manner, individual
customer negotiated contracts of sale and the availability of key components
used in the manufacturing process. Increases in accounts receivable and
inventories during the three months ended March 31, 1998, 1997, 1996 and 1995
were caused by successively higher sales volumes in the fourth quarter of each
year and by new product introductions. Checkmate anticipates that fluctuations
in these accounts will continue in the future.
Net cash used in investing activities was $1,024,000 in the three months
ended March 31, 1998 and $14,000 in the three months ended March 31, 1997.
Purchases of property and equipment and additions to deferred development costs
and other noncurrent assets were $1,079,000 and $989,000 in the three months
ended March 31, 1998 and 1997, respectively. These uses of net cash were offset
by net proceeds from the sale of investments of $55,000 in 1998 and $975,000 in
1997. Net cash provided by (used in) investing activities was $(1.4) million in
1997, $(2.7) million in 1996 and $308,000 in 1995. Purchases of property and
equipment and additions to capitalized software and other noncurrent assets were
$4.8 million in 1997, $2.5 million in 1996 and $2.7 million in 1995. The
increase in these purchases in 1997 was due to expansion into an additional
facility, upgrades of computer hardware and software, increased software
development efforts, and purchases of molds for new products. These uses of net
cash were partially offset by the receipt of net proceeds from the sale of
investments of $3.4 million in 1997 and $3.0 million in 1995, and were increased
by the net purchase of investments of $190,000 in 1996.
Net cash provided by (used in) financing activities was $(39,000) in the
three months ended March 31, 1998 and $651,000 in the three months ended March
31, 1997. The change in net cash provided by (used in) financing activities was
due to the exercise of stock options in 1997, primarily by the estate of a
former employee. No stock option exercises occurred in the 1998 period. Net cash
provided by financing activities was $1.3 million in 1997, $1.1 million in 1996
and $169,000 in 1995. The increases in net cash provided by financing activities
in 1997 and 1996 were due to an increase in proceeds from the exercise of stock
options, primarily by the estate of a former employee.
Checkmate's working capital position was $22,646,000 at March 31, 1998 and
$22,647,000 at December 31, 1997. Checkmate had no commitments for material
capital expenditures as of March 31, 1998. During the remainder of 1998,
Checkmate anticipates that it will spend approximately $4,000,000 for capital
expenditures, including additions to deferred development costs. Checkmate
believes that its working capital position at March 31, 1998, together with
anticipated future cash flows from operations and the borrowing available under
its revolving credit agreement, are sufficient to meet Checkmate's operating
needs, including possible increases in accounts receivable and inventories,
along with planned capital expenditures for at least the next twelve to eighteen
months.
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<PAGE>
Checkmate's operating results have fluctuated on a quarterly basis in the
past and may vary significantly in future periods due to a variety of factors.
These factors include, but are not limited to, the timing of orders from and
shipments to major customers, the timing of new product introductions by
Checkmate and its competitors, variations in Checkmate's product mix and
component costs, and competitive pricing pressures. Due primarily to the above
factors, the results of any particular quarter may not be indicative of the
results for the full year.
IMPACT OF YEAR 2000
Checkmate's business and relationships with its customers depend
significantly on a number of computer software programs, internal operating
systems and connections to other networks, and the failure of any of these
programs, systems or networks to successfully address the Year 2000 data
rollover problem could have a material adverse effect on Checkmate's business,
financial condition and results of operations. Many installed computer software
and network processing systems currently accept only two-digit entries in the
date code field and may need to be upgraded or replaced in order to accurately
record and process information and transactions on and after January 1, 2000.
Checkmate believes that it has completed substantially all modifications of its
affected software programs and has minimal additional work required to finalize
these modifications. However, Checkmate is not certain as to whether the
computer software and business systems of its customers and suppliers are Year
2000 compliant. There can be no assurance that the failure or delay of
Checkmate's customers and suppliers in successfully addressing the Year 2000
issue or the costs involved in such process will not have a material adverse
effect on Checkmate's business, financial condition and results of operations.
112
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
In the event that the Transaction is consummated, IVI shareholders will, at
the Effective Time, have their IVI Common Shares transferred to the Company for
shares of Company Common Stock or to IVI for Exchangeable Shares. Exchangeable
Shares are the economic equivalent of shares of Company Common Stock. Holders of
Exchangeable Shares will have the right at any time to retract the Exchangeable
Shares for an equivalent number of shares of Company Common Stock (such
one-to-one ratio is subject to adjustment or modification in the event of
certain stock splits or other changes to the capital structure of the Company so
as to maintain the economic equivalence of the initial one-to-one ratio). In
addition, at the Effective Time, each share of Checkmate Common Stock will be
converted into the right to receive 1.2775 shares of Company Common Stock.
The Company is a corporation organized under the DGCL. While the rights and
privileges of shareholders of a Canadian corporation (IVI) and a Georgia
corporation (Checkmate) are, in many instances, comparable to those of
stockholders of a Delaware corporation, there are certain differences. These
differences arise from differences between Ontario, Canadian, Georgia and
Delaware law, between the CBCA, GBCC and DGCL and between the IVI Articles and
IVI Bylaws, the Checkmate Articles and Checkmate Bylaws and the Company
Certificate and Company Bylaws. For a description of the respective rights of
the holders of IVI Common Shares, Checkmate Common Stock and Company Common
Stock, see respectively, "Description of Capital Stock -- Company Capital
Stock," "-- IVI Share Capital" and "-- Checkmate Capital Stock."
VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
IVI. Under the CBCA, certain extraordinary corporate actions, such as
amalgamations (other than an amalgamation between a parent corporation and one
or more of its wholly owned subsidiaries or between two or more of such
subsidiaries), continuances, sales, leases or exchanges of all or substantially
all the property of a corporation other than in the ordinary course of business,
and other extraordinary corporate actions such as liquidations, dissolutions or,
if ordered by a court, other arrangements are required to be approved by special
resolution of the shareholders, whether or not the shares held by them are
designated as voting shares in the corporation's articles of incorporation and,
in certain cases, such special resolution is also required to be approved
separately by each affected class or series, including by a class or series that
does not otherwise carry the right to vote.
CHECKMATE. The GBCC requires the affirmative vote of a majority of the
outstanding stock entitled to vote thereon voting as a single group and a
majority of all votes entitled to be cast by holders of shares of a voting group
entitled to vote separately thereon to authorize any merger, consolidation,
dissolution or sale of substantially all of the assets of a corporation.
Checkmate's Bylaws expressly provide that the terms and requirements of Sections
14-2-1110 through 14-2-1113 and Sections 14-2-1131 through 14-2-1133 of the GBCC
will be applicable to Checkmate and to any business combination involving
Checkmate and an interested shareholder. As a result, Section 14-2-1111 requires
that a "business combination" with an "interested shareholder" (basically, a 10%
or more shareholder of Checkmate) be (i) unanimously approved by the continuing
directors, provided that the continuing directors constitute at least three
members of the board of directors at the time of such approval, or (ii)
recommended by at least two-thirds of the continuing directors and approved by a
majority of the votes entitled to be cast by the holders of voting shares of the
corporation (other than the voting shares beneficially owned by the interested
shareholder who is a party to the business combination). These voting
requirements are required in addition to any vote otherwise required by law or
the Articles of Incorporation of Checkmate. Further, Section 14-2-1112 states
that the voting requirements in Section 14-2-1111 do not apply as long as all of
the shareholders of Checkmate receive a fair price in return for their stock as
a result of the business combination. In addition, Sections 14-2-1131 through
14-2-1133 of the GBCC provide that Checkmate may not engage in a business
combination with any interested shareholder for a period of five years following
the time that such shareholder became an interested shareholder unless: (i)
prior to such time, directors approved the business combination or transaction
which resulted in such shareholder becoming an
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<PAGE>
interested shareholder, (ii) in the transaction which resulted in such
shareholder becoming an interested shareholder, the interested shareholder
became the beneficial owner of at least 90% of the voting stock of Checkmate
(excluding shares owned by directors, officers and their affiliates and
associates, Checkmate's subsidiaries, and certain employee stock plans
maintained by Checkmate) or (iii) subsequent to becoming an interested
shareholder, such shareholder became the beneficial owner of 90% of the
outstanding voting stock (excluding shares owned by Checkmate's directors,
officers, and their affiliates and associates, its subsidiaries, and certain
employee stock plans maintained by it) and the business combination was approved
by holders of a majority of Checkmate's voting stock entitled to vote, excluding
from such vote stock held by the interested shareholder or Checkmate's
directors, officers, and their affiliates and associates, its subsidiaries, and
certain employee stock plans maintained by Checkmate. However, the voting
requirements contained within the Checkmate Articles of Incorporation would
continue to apply to any such business combinations.
The provisions of the Checkmate Bylaws relating to business combinations and
Sections 14-2-1110 through 14-2-1113 of the GBCC are designed as anti-takeover
measures, and to protect the minority shareholders of Checkmate against some of
the inequities which arise in certain hostile takeover attempts.
Effective October 13, 1997, the Board of Directors of Checkmate declared a
distribution of one Right (as defined in the Checkmate Rights Plan) for each
outstanding share of Checkmate Common Stock, to shareholders of record at the
close of business on October 24, 1997, and for each share of Checkmate Common
Stock issued (including shares distributed from treasury) by Checkmate
thereafter and prior to the Separation Time (as defined in the Checkmate Rights
Plan). Each Right entitles the registered holder to purchase from Checkmate one
share of Common Stock, at a purchase price of $50.00 per share, subject to
adjustment. The description and terms of the Rights are set forth in the
Checkmate Rights Plan which is filed as an exhibit to this Registration
Statement.
The Rights will separate from the Checkmate Common Stock upon the earlier of
(i) ten business days (unless otherwise accelerated or delayed by the Board)
following public announcement that a person or group of affiliated or associated
persons has acquired, obtained the right to acquire, or otherwise obtained
beneficial ownership of 15% or more of the then outstanding shares of Checkmate
Common Stock, or (ii) ten business days (unless otherwise delayed by the Board)
following the commencement of a tender offer or exchange offer that would result
in the person or group beneficially owning 15% or more of the then outstanding
shares of Common Stock. If such an event occurs, and if Checkmate has not
redeemed the Rights as described below or otherwise amended the Checkmate Rights
Plan, then the Rights will entitle the holders thereof to acquire shares of
Checkmate Common Stock having a value equal to twice the Right's exercise price.
If Checkmate is acquired in a merger or consolidation where Checkmate does
not survive or the Checkmate Common Stock is changed or exchanged, or 50% or
more of Checkmate's assets or assets generating 50% or more of Checkmate's
operating income or cash flow is transferred in one or more transactions to
persons who at that time control Checkmate, then the Rights will entitle the
holders thereof to acquire for the exercise price shares of the acquiring party
having a value equal to twice the Right's exercise price.
At any time until the rights become exercisable, the Board of Directors may
redeem the Rights for $.01 per Right or may otherwise amend or terminate the
Checkmate Rights Plan without shareholder action. The Board of Directors may
condition redemption of the Rights upon the occurrence of a specified future
time or event.
THE COMPANY. The Delaware General Corporation Law (the "DGCL") requires the
affirmative vote of a majority of the outstanding stock entitled to vote thereon
to authorize any merger, consolidation, dissolution or sale of substantially all
of the assets of a corporation, except that, unless required by its certificate
of incorporation, (a) no authorizing stockholder vote is required of a
corporation surviving a merger if (i) such corporation's certificate of
incorporation is not amended by the merger, (ii) each share of stock of such
corporation will be an identical share of the surviving corporation after the
merger, and
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(iii) the number of shares to be issued in the merger does not exceed 20% of
such corporation's outstanding common stock immediately prior to the effective
date of the merger; and (b) no authorizing stockholder vote is required of a
corporation to authorize a merger with or into a single direct or indirect
wholly owned subsidiary of such corporation (provided certain other limited
circumstances apply). Stockholder approval is also not required under the DGCL
for mergers or consolidations in which a parent corporation merges or
consolidates with a subsidiary of which it owns at least 90% of the outstanding
shares of each class of stock.
AMENDMENT TO GOVERNING DOCUMENTS
IVI. Under the CBCA, any amendment to the articles of continuance generally
requires approval by special resolution. If the amendment is of a nature
affecting a particular class or series, that class or series is entitled to vote
on the amendment whether or not it otherwise carries the right to vote. The CBCA
provides that shareholders entitled to vote at shareholder meetings may confirm,
reject or amend any bylaw by "ordinary resolution" (as defined in the CBCA),
which must be passed by a majority of the votes cast by shareholders who voted
thereon.
CHECKMATE. The Checkmate Articles and Bylaws are generally silent with
respect to the issue of amending the Checkmate Articles, and thus, the GBCC
dictates the requirements for making such an amendment. The GBCC generally
provides that other than in the case of certain routine amendments which may be
made by a corporation's board of directors without shareholder action (such as
changing the corporate name), and other amendments which the GBCC specifically
allows without shareholder action, the corporation's board of directors must
recommend the amendment to the shareholders (unless the board elects to make no
such recommendation because of a conflict of interest or other special
circumstances, and the board communicates the reasons for its election to the
shareholders) and the affirmative vote of a majority of the votes entitled to be
cast on the amendment by each voting group entitled to vote on the amendment
(unless the GBCC, the articles of incorporation, or the board require a greater
vote or a vote by voting groups) is required to amend a corporation's articles
of incorporation.
The Checkmate Bylaws generally provide that the Bylaws may be made, amended
or repealed by the Checkmate Directors unless the Articles of Incorporation or
the GBCC reserve the power to amend or repeal the Bylaws exclusively to the
stockholders in whole or in part, or the stockholders, in amending or repealing
a particular Bylaw, provide expressly that the Board of Directors may not amend
or repeal that Bylaw. The Checkmate Bylaws expressly permit the Checkmate
shareholders to make, alter or rescind any bylaws.
THE COMPANY. The DGCL requires a vote of the corporation's board of
directors followed by the affirmative vote of a majority of the outstanding
stock entitled to vote for any amendment to the certificate of incorporation,
unless a greater level of approval is required by the certificate of
incorporation. The DGCL also states that the power to adopt, amend or repeal the
by-laws of a corporation shall be in the stockholders entitled to vote, provided
that the corporation in its certificate of incorporation may confer such power
on the corporation's board of directors. The Company's Bylaws provide that a
majority of the Company's Board may alter, amend or repeal the Company's Bylaws.
The Company's Bylaws may also be altered, amended or repealed by the holders of
a majority of the outstanding shares of stock present, in person or by proxy,
and entitled to vote upon such matter.
DISSENTERS RIGHTS
IVI. Shareholders of a CBCA corporation are entitled to exercise dissenters
rights and to be paid the fair value of their shares in connection with (i) an
amendment to the corporation's articles to add, change or remove any provisions
restricting or constraining the issue, transfer or ownership of shares of any
class; (ii) an amendment to the corporation's articles to add, change or remove
any restriction upon the business or businesses that the corporation may carry
on; (iii) certain other amendments to the corporation's articles of a nature
requiring a separate class or series vote; (iv) an amalgamation (other than an
amalgamation between a parent corporation and one or more of its wholly owned
subsidiaries or between
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two or more of such subsidiaries); (v) a continuance under the laws of another
jurisdiction; (vi) a sale, lease or exchange of all or substantially all the
property of the corporation other than in the ordinary course of business; or
(vii) a court order permitting a shareholder to dissent in connection with an
application to the court for an order approving an arrangement proposed by the
corporation; provided that a shareholder is not entitled to dissent if an
amendment to the articles is effected by a court order approving a
reorganization or a court order rectifying a matter that is oppressive or
unfairly prejudicial to or that unfairly disregards the interests of any
security holder, creditor, director or officer.
CHECKMATE. Subject to the exception provided below, under the GBCC,
shareholders of a Georgia corporation are entitled to exercise dissenters
rights, under certain circumstances, upon (i) the merger of the corporation,
(ii) the consummation of a plan of share exchange to which the corporation is
the acquired party, (iii) the sale or other disposition of all or substantially
all the corporate assets, (iv) an amendment of the articles of incorporation
that materially and adversely affects rights in respect of a dissenter's shares
in ways specified in the GBCC, or (v) any corporate action taken pursuant to a
shareholder vote to the extent that the close corporation section of the GBCC or
the articles of incorporation, the bylaws or a resolution of the board of
directors provides that stockholders are entitled to dissenters rights. However,
there shall be no right of dissent in favor of the holder of shares of any class
or series which, at the record date fixed to determine the shareholders entitled
to receive notice of and to vote at a meeting at which a plan of merger or share
exchange or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 stockholders, unless: (1) in the
case of a plan of merger or share exchange, the holders of shares of the class
or series are required under the plan of merger or share exchange to accept for
their shares anything except shares of the surviving corporation or another
publicly held corporation which at the effective date of the merger or share
exchange are either listed on a national securities exchange or held of record
by more than 2,000 shareholders, except for scrip or cash payments in lieu of
fractional shares, or (2) the articles of incorporation or a resolution of the
board of directors approving the transaction provides otherwise.
THE COMPANY. Under the DGCL, holders of shares of any class or series of
the capital stock of a Delaware corporation have the right, in certain
circumstances, to dissent from a merger or consolidation by demanding payment in
cash for their shares equal to the fair value (excluding any appreciation or
depreciation as a consequence or in expectation of the transaction) of such
shares, as determined by agreement with the corporation or by an independent
appraiser appointed by a court in an action timely brought by the corporation or
the dissenters. The DGCL grants dissenters appraisal rights only in the case of
mergers or consolidations and not in the case of a sale or transfer of assets or
a purchase of assets for stock regardless of the number of shares being issued.
Further, no appraisal rights are available for shares of any class or series
listed on a national securities exchange or designated as a national market
system security on the Nasdaq National Market or held of record by more than
2,000 stockholders, unless the agreement of merger or consolidation converts
such shares into anything other than (a) stock of the surviving corporation, (b)
stock of another corporation which is either listed on a national securities
exchange or designated as a national market system security on the Nasdaq
National Market or held of record by more than 2,000 stockholders, (c) cash in
lieu of fractional shares, or (d) some combination of the above.
STOCKHOLDER CONSENT IN LIEU OF MEETING
IVI. Under the CBCA, shareholder action without a meeting may only be taken
by resolution in writing signed by all shareholders entitled to vote thereon at
a meeting.
CHECKMATE. With respect to whether action required or permitted to be taken
by Checkmate shareholders must be effected at a duly called meeting of
shareholders or whether such action may be effected by any written consent by
the shareholders, Section 14-2-704 of the GBCC provides that, unless otherwise
provided in the articles of incorporation, action required or permitted by the
GBCC to be taken at an annual or special meeting may be taken without a meeting
if the action is taken by all the
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shareholders entitled to vote on the action, or, if provided in the articles of
incorporation, by persons who would be entitled to vote at a meeting shares
having voting power to cast not less than the minimum number (or numbers, in the
case of voting by groups) of votes that would be necessary to authorize or take
the action at a meeting at which all shareholders entitled to vote were present
and voted. Checkmate's Bylaws provide for the action by shareholders of
Checkmate without a meeting provided that any such action must be taken by the
written consent of shareholders consituting the minimum number of votes entitled
to vote on the action that would be necessary to authorize the action taken had
there been a vote at a meeting of the shareholders.
THE COMPANY. Under the DGCL, unless otherwise provided in the certificate
of incorporation, any action required to be taken or which may be taken at an
annual or special meeting of stockholders of a Delaware corporation may be taken
without a meeting if a consent in writing is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize such action at a meeting at which all shares entitled to
vote were present and voted. The Company's Certificate of Incorporation permits
action by written consent of holders of Company Common Stock.
DIRECTOR QUALIFICATIONS
IVI. The CBCA requires that a majority of the directors of every
corporation organized thereunder, other than a non-resident corporation, be
resident Canadians. A corporation, any of the securities of which are or were
part of a distribution to the public and remain outstanding, must have not fewer
than three directors, at least two of whom are not officers or employees of the
corporation or its affiliates.
CHECKMATE. The GBCC does not have comparable requirements.
THE COMPANY. The DGCL does not have comparable requirements.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
IVI. The CBCA and IVI's By-laws provide that a corporation may indemnify a
director or officer of the corporation against all costs, charges and expenses
reasonably incurred by him or her in respect of any civil, criminal or
administrative action or proceeding to which he or she is made a party by reason
of being or having been a director or officer of such corporation including an
amount paid to settle an action or satisfy a judgment. However, such indemnity
is limited to circumstances in which the director or officer acted in good faith
with a view to the best interests of the corporation, and in the case of a
criminal or administrative action or proceeding that is enforced by a monetary
penalty, the director or officer must have had reasonable grounds for believing
that his or her conduct was lawful.
CHECKMATE. The Checkmate Articles generally provide that any director who
is deemed eligible will be indemnified against liability and other expenses
incurred in a proceeding which is initiated against such person by reason of his
serving as a director, to the fullest extent authorized by the GBCC; provided,
however, that Checkmate will not indemnify any director for any liability or
expenses incurred by such director (i) for any appropriation, in violation of
his duties, of any business opportunity of Checkmate; (ii) for any acts or
omissions which involve intentional misconduct or a knowing violation of law;
(iii) for the types of liability set forth in Section 14-2-832 of the GBCC or
successor provisions; or (iv) for any transaction from which the director
derives an improper personal benefit. Checkmate's Articles and Bylaws provide
for the advancement of expenses to its directors at the outset of a proceeding,
upon the receipt from such director of the written affirmation and repayment
promise required by Section 14-2-856 of the GBCC.
THE COMPANY. The DGCL provides that a Delaware corporation may indemnify
its present and former directors, officers, employees and agents (each, an
"indemnitee") against all reasonable expenses (including attorneys' fees) and,
except in actions initiated by or in the right of the corporation, against all
judgments, fines and amounts paid in settlement in actions brought against them,
if such individual acted in good faith and in a manner which he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe
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his or her conduct was unlawful. The corporation shall indemnify an indemnitee
to the extent that he or she is successful on the merits or otherwise in the
defense of any claim, issue or matter associated with an action. The Company's
Certificate of Incorporation provides for indemnification of directors and
officers to the fullest extent authorized by the DGCL.
The DGCL and the Company's Certificate of Incorporation allow for the
advance payment of an indemnitee's expenses prior to the final disposition of an
action, provided that the indemnitee undertakes to repay any such amount
advanced if it is later determined that the indemnitee is not entitled to
indemnification with regard to the action for which the expenses were advanced.
ANTI-TAKEOVER PROVISIONS AND INTERESTED STOCKHOLDER TRANSACTIONS
IVI. Policies of certain Canadian securities regulatory authorities,
including Policy 9.1 of the OSC ("Policy 9.1"), contain requirements in
connection with "related party transactions." A related party transaction means,
generally, any transaction by which an issuer, directly or indirectly, acquires
or transfers an asset or acquires or issues treasury securities or assumes or
transfers a liability from or to, as the case may be, a related party by any
means in any one or any combination of transactions. "Related party" is defined
in Policy 9.1 and includes directors, senior officers and holders of at least
10% of the voting securities of the issuer.
Policy 9.1 requires more detailed disclosure in the proxy material sent to
security holders in connection with a related party transaction, and, subject to
certain exceptions, the preparation of a formal valuation of the subject matter
of the related party transaction and any non-cash consideration offered therefor
and the inclusion of a summary of the valuation in the proxy material. Policy
9.1 also requires, subject to certain exceptions, that the minority shareholders
of the issuer separately approve the transaction, by a simple majority or
two-thirds of the votes cast, depending on the circumstances.
CHECKMATE. See discussion above under "-- Vote Required for Extraordinary
Transactions."
THE COMPANY. Section 203 of the DGCL, in general, prohibits a "business
combination" between a corporation and an "interested stockholder" within three
years of the time such stockholder became an "interested stockholder" unless (i)
prior to such time the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, exclusive of shares owned by
directors who are also officers and by certain employee stock plans, or (iii)
after such time, the business combination is approved by the board of directors
and authorized by the affirmative vote at a stockholders' meeting of at least 66
2/3% of the outstanding voting stock which is not owned by the interested
stockholder. The term "business combination" is defined to include, among other
transactions between the interested stockholder and the corporation or any
direct or indirect majority-owned subsidiary thereof, a merger or consolidation,
a sale, pledge, transfer or other disposition (including as part of a
dissolution) of assets having an aggregate market value equal to 10% or more of
either the aggregate market value of all assets of the corporation on a
consolidated basis or the aggregate market value of all the outstanding stock of
the corporation; certain transactions that would increase the interested
stockholder's proportionate share ownership of the stock of any class or series
of the corporation or such subsidiary; and any receipt by the interested
stockholder of the benefit of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the corporation or any such
subsidiary. In general, and subject to certain exceptions, an "interested
stockholder" is any person who is the owner of 15% or more of the outstanding
voting stock (or, in the case of a corporation with classes of voting stock with
disparate voting power, 15% or more of the voting power of the outstanding
voting stock) of the corporation, and the affiliates and associates of such
person. The term "owner" is broadly defined to include any person that
individually or with or through his or its affiliates or associates, among other
things, beneficially owns such stock, or has the right to acquire such stock
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement or understanding or upon the exercise of
warrants or options or otherwise or has the right to
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vote such stock pursuant to any agreement or understanding, or has an agreement
or understanding with the beneficial owner of such stock for the purpose of
acquiring, holding, voting or disposing of such stock. The restrictions of
Section 203 of the DGCL do not apply to corporations that have elected, in the
manner provided therein, not to be subject to such section or which do not have
a class of voting stock that is listed on a national securities exchange or
authorized for quotation on an interdealer quotation system of a registered
national securities association or held of record by more than 2,000
stockholders.
As a Delaware corporation, the Company would be subject to Section 203 of
the DGCL as described above unless provided otherwise in the Company
Certificate. The Company Certificate does contain a provision electing out of
the application of Section 203 of the DGCL, and the Company has taken all action
necessary for it to elect out of such provision. As a result, the provisions of
Section 203 are not applicable to transactions between the Company and any of
its respective "interested stockholders."
DIVIDENDS AND DISTRIBUTIONS
IVI. Under the CBCA, a corporation may not declare or pay a dividend if
there are reasonable grounds for believing that (i) the corporation is, or would
after the payment of the dividend be, unable to pay its liabilities as they
become due, or (ii) the realizable value of the corporation's assets would
thereby be less than the aggregate of its liabilities and stated capital of all
classes.
CHECKMATE. Unless provided otherwise by its articles of incorporation, a
Georgia corporation may pay dividends or make other distributions with respect
to its shares if after the dividend or distribution the corporation has the
ability to pay its debts as they become due and has net assets in excess of all
senior claims upon dissolution.
THE COMPANY. A Delaware corporation, unless otherwise restricted by its
certificate of incorporation, may pay dividends out of surplus, or if no surplus
exists, out of net profits for the fiscal year in which the dividend is declared
and/or for the preceding fiscal year (but the directors may not declare and pay
dividends out of such net profits if the amount of capital of the corporation is
less than the aggregate amount of capital represented by the issued and
outstanding stock of all classes having preference upon the distribution of
assets). The Company is subject to certain restrictions on its ability to pay
dividends as discussed below in "Description of Capital Stock -- Company Capital
Stock."
STOCKHOLDER INSPECTION RIGHTS
IVI. The CBCA provides that shareholders, creditors, their agents and legal
representatives may examine certain of the corporation's records during usual
business hours and take extracts therefrom free of charge.
CHECKMATE. Under the GBCC, a shareholder of a Georgia corporation is
entitled to inspect and copy, during regular business hours at a reasonable
location specified by the corporation, any of the records of the corporation
provided such shareholder gives to the corporation written notice of demand at
least five days in advance of the date such shareholder wishes to inspect and
copy.
THE COMPANY. Under the DGCL, any stockholder may inspect the books and
records of a Delaware corporation so long as such inspection is for a proper
purpose and provided that such inspection request is made in good faith and for
a proper purpose.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 99,000,000 shares of
common stock, par value $.01 per share, and 1,000,000 shares of preferred stock,
par value $.01 per share, of which one share has been designated as Special
Preferred Voting Stock.
COMPANY CAPITAL STOCK
COMPANY COMMON STOCK
All shares of Company Common Stock issued in the Transaction will be fully
paid and nonassessable. The holders of Company Common Stock are entitled to one
vote for each share held on all matters submitted to a vote of common
stockholders. The Company Common Stock does not have cumulative voting rights.
Shares of Company Common Stock have no preemptive rights, conversion rights,
redemption rights or sinking fund provisions. Company Common Stock is not
subject to redemption by the Company.
Subject to the rights of the holders of any class of capital stock of the
Company having any preference or priority over the Company Common Stock, the
holders of Company Common Stock are entitled to dividends in such amounts as may
be declared by the Company's Board of Directors from time to time out of funds
legally available for such payments and, in the event of liquidation, to share
ratably in any assets of the Company remaining after payment in full of all
creditors and provision for any liquidation preferences on any outstanding
preferred stock ranking prior to the Company Common Stock.
COMPANY PREFERRED STOCK
The Company's Board of Directors, without further stockholder action, is
authorized to issue up to 1,000,000 shares of preferred stock in one or more
series and to fix and determine as to any series all the relative rights and
preferences of shares in the series, including voting rights, dividend rights,
liquidation preferences, terms of redemption, and conversion rights.
COMPANY SPECIAL PREFERRED VOTING STOCK
The Company's Board of Directors will designate and issue one (1) of the
1,000,000 authorized shares of preferred stock as the Voting Share. The Trustee
shall hold such Voting Share as trustee for and on behalf of, and for the use
and benefit of, the holders of Exchangeable Shares and in accordance with the
Voting and Exchange Trust Agreement. The Certificate of Designations for the
Voting Share includes the following principal terms:
DIVIDENDS. No dividend shall be paid to the Trustee, as the holder of the
Voting Share.
VOTING RIGHTS. The Trustee, as the holder of record of the Voting Share,
shall be entitled to all of the voting rights attached to the Voting Share.
Except as otherwise described herein or required by law, the holder of the
Voting Share will vote together with the shares of Company Common Stock as a
single class and not as a separate class or series apart therefrom. The holder
of the Voting Share will have that number of votes equal to the number of
Exchangeable Shares outstanding which are not owned by the Company, its
subsidiaries or any person directly controlled by or under common control with
the Company (subject to certain adjustments to maintain the economic equivalence
of the Exchangeable Shares and shares of Common Stock) and will be entitled to
exercise that number of votes for which it receives instructions to do so.
CONVERSION. The Voting Share is not convertible into any other class or
series of the capital stock of the Company or into cash, property or other
rights.
REDEMPTION. The Voting Share may not be redeemed, except at such time as no
Exchangeable Shares shall be outstanding (except for shares held by the Company,
any of its subsidiaries or any person directly or indirectly controlled by or
under common control with the Company), in which case, the Voting Share shall be
redeemed at the election of the Company. The redemption price due and payable
upon such redemption will be equal to a $1.00 liquidation preference. The Voting
Share will be deemed retired and
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will be canceled upon any purchase or other acquisition thereof by the Company.
After such cancellation, the Voting Share may not be reissued or otherwise
disposed of by the Company.
LIQUIDATION. The Voting Share will rank prior to each share of Company
Common Stock with respect to the distribution of assets upon a voluntary or
involuntary liquidation, dissolution or winding-up of the Company. In the event
of any such liquidation, dissolution or winding up, the holder of the Voting
Share will be entitled to receive, before any distribution to the holders of
Company Common Stock, but only after the liquidation preference of any other
shares of preferred stock of the Company has been paid in full, a liquidation
preference equal to $1.00.
RANKING. The Voting Share will rank junior to any other outstanding series
of preferred stock of the Company in all respects.
For a more detailed description of the Company's Special Preferred Voting
Stock and the Voting Share, see the terms and conditions thereof set forth on
Annex J hereto. See also "-- Voting and Exchange Trust Agreement."
CHECKMATE CAPITAL STOCK
After giving effect to the consummation of the Transaction, the share
capital of Checkmate after the Effective Time will consist of one class of
common stock, par value $.01 per share, 1,000 shares authorized, with 100 of
such authorized shares which are issued and outstanding to be held by the
Company.
IVI SHARE CAPITAL
After giving effect to the consummation of the Transaction, the share
capital of IVI will have the rights and preferences summarized below. Such
summary is qualified in its entirety by reference to the Plan of Arrangement and
the Exchangeable Share Provisions which are attached as Annexes K and L hereto,
respectively.
IVI COMMON SHARES
The holder of IVI Common Shares will be entitled to receive notice of and to
attend all meetings of the shareholders of IVI and will be entitled to one vote
for each share held of record on all matters submitted to a vote of holders of
IVI Common Shares. The holder of IVI Common Shares will be entitled to receive
such dividends as may be declared by IVI Board of Directors out of funds legally
available therefor. The holders of IVI Common Shares will be entitled upon any
liquidation, dissolution or winding-up of IVI, subject to the prior rights any
other shares ranking senior to IVI Common Shares, to receive the remaining
property and assets of IVI.
EXCHANGEABLE SHARES OF IVI
RANKING. The Exchangeable Shares will rank prior to the IVI Common Shares
and any other shares ranking junior to the Exchangeable Shares with respect to
the payment of dividends and the distribution of assets in the event of the
liquidation, dissolution or winding-up of IVI.
DIVIDENDS. Holders of Exchangeable Shares will be entitled to receive
dividends equivalent to dividends paid from time to time by the Company on
shares of Company Common Stock. The declaration date, record date and payment
date for dividends on the Exchangeable Shares will be the same as that for the
corresponding dividends on shares of Company Common Stock.
CERTAIN RESTRICTIONS. Without the approval of the holders of the
Exchangeable Shares, IVI will not:
(a) pay any dividend on the IVI Common Shares, or any other shares
ranking junior to the Exchangeable Shares, other than stock dividends
payable in such other shares ranking junior to the Exchangeable Shares;
(b) redeem, purchase or make any capital distribution in respect of IVI
Common Shares or any other shares ranking junior to the Exchangeable Shares;
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(c) redeem or purchase any other shares of IVI ranking equally with the
Exchangeable Shares with respect to the payment of dividends or on any
liquidation distribution;
(d) issue any Exchangeable Shares other than by stock dividends to the
holders of the Exchangeable Shares (or otherwise pro rata to the holders of
Exchangeable Shares) or as contemplated in the Support Agreement or pursuant
to any agreements or rights in existence at the Effective Date; or
(e) issue any other shares of IVI ranking equally with or senior to the
Exchangeable Shares.
The restrictions in (a), (b) and (c) above will not apply at any time when
the dividends on the outstanding Exchangeable Shares corresponding to dividends
declared on the Company Common Stock have been declared and, if paid to holders
of shares of Company Common Stock, paid in full.
LIQUIDATION. In the event of the liquidation, dissolution or winding-up of
IVI a holder of Exchangeable Shares will be entitled to receive for each
Exchangeable Share one share of Company Common Stock, together with a cash
amount equivalent to the full amount of all unpaid dividends on such
Exchangeable Share (such one-to-one ratio is subject to adjustment or
modification in the event of certain stock splits or other changes to the
capital structure of the Company so as to maintain the economic equivalence of
the initial one-to-one ratio). See "-- Voting and Exchange Trust Agreement."
RETRACTION OF EXCHANGEABLE SHARES BY HOLDERS. A holder of Exchangeable
Shares will be entitled at any time prior to the tenth anniversary of the
Effective Date (or earlier in certain circumstances) to require IVI to retract
(i.e., require IVI to redeem) any or all of the Exchangeable Shares held by such
holder for an equivalent number of shares of Company Common Stock plus an
additional amount equivalent to the full amount of all unpaid dividends thereon,
which shall be delivered to the retracting holder on the "retraction date"
(which shall be six business days after the date on which the Transfer Agent
receives the retraction request from the holder) (such one-to-one ratio is
subject to adjustment or modification in the event of certain stock splits or
other changes to the capital structure of the Company so as to maintain the
economic equivalence of the initial one-to-one ratio).
If, as a result of liquidity or solvency provisions of applicable law, IVI
is not permitted to redeem all Exchangeable Shares tendered by a retracting
holder, IVI will redeem only those Exchangeable Shares tendered by the holder
(rounded down to a whole number of shares) as would not be contrary to such
provisions of applicable law. The holder of any Exchangeable Shares not redeemed
by IVI will be deemed to have required the Company to purchase such unretracted
shares in exchange for shares of Company Common Stock, plus an additional amount
equivalent to the full amount of all unpaid dividends thereon, on the retraction
date pursuant to the Voting and Exchange Trust Agreement. See "-- Voting and
Exchange Trust Agreement."
REDEMPTION OF EXCHANGEABLE SHARES. On the Automatic Redemption Date, IVI
will redeem all but not less than all of the then outstanding Exchangeable
Shares by paying one share of Company Common Stock for each Exchangeable Share
plus an additional amount equivalent to the full amount of all unpaid dividends
thereon (such one-to-one ratio is subject to adjustment or modification in the
event of certain stock splits or other changes to the capital structure of the
Company so as to maintain the economic equivalence of the initial one-to-one
ratio).
VOTING RIGHTS. Except as required by applicable law including, without
limitation, the CBCA, the holders of the Exchangeable Shares shall not be
entitled as such to receive notice of or attend any meeting of the shareholders
of IVI or to vote at any such meeting. In any such circumstances, an Automatic
Redemption Date would occur.
AMENDMENT AND APPROVAL. The rights, privileges, restrictions and conditions
attaching to the Exchangeable Shares may be changed only with the approval of
the holders thereof. Any such approval or any other approval or consent to be
given by the holders of the Exchangeable Shares will be sufficiently given if
given in accordance with applicable law and subject to a minimum requirement
that such approval or consent be evidenced by a resolution passed by not less
than two-thirds of the votes cast thereon at a meeting of the holders of
Exchangeable Shares duly called and held at which holders of at least 50% of the
then outstanding Exchangeable Shares are present or represented by proxy (other
than shares beneficially
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owned by the Company or entities controlled by the Company). In the event that
no such quorum is present at such meeting within one-half hour after the time
appointed therefor, then the meeting will be adjourned to such place and time
not less than 10 days later as may be determined by the Chairman of the original
meeting and the holders of Exchangeable Shares present or represented by proxy
at the adjourned meeting may transact the business for which the meeting was
originally called. At the adjourned meeting, a resolution passed by the
affirmative vote of not less than two-thirds of the votes cast thereon will
constitute the approval or consent of the holders of the Exchangeable Shares.
ACTIONS OF THE COMPANY UNDER THE SUPPORT AGREEMENT. Under the Support
Agreement, the Company will agree to take all such actions and do all such
things as are necessary or advisable to perform and comply with its obligations
under, and to ensure the performance and compliance by IVI with its obligations
under, the Exchangeable Share Provisions.
SUPPORT AGREEMENT
The following is a summary description of the material provisions of the
Support Agreement and is qualified in its entirety by reference to the full text
of the Support Agreement, which is attached as Annex I hereto.
Under the Support Agreement, the Company will agree that: (i) it will not
declare or pay dividends on the Company Common Stock unless IVI is able to and
simultaneously pays an equivalent dividend on the Exchangeable Shares; (ii) it
will advise IVI in advance of the declaration of any dividend on shares of
Company Common Stock and ensure that the declaration date, record date and
payment date for dividends on the Exchangeable Shares are the same as those for
dividends on the Company Common Stock; (iii) it will take all actions and do all
things necessary to ensure that IVI is able to provide to the holders of the
Exchangeable Shares the equivalent number of shares of Company Common Stock in
the event of a liquidation, dissolution, or winding-up of IVI, a retraction
request by a holder of Exchangeable Shares, or a redemption of Exchangeable
Shares by IVI; and (iv) it will not vote or otherwise take any action or omit to
take any action causing the liquidation, dissolution or winding-up of IVI.
The Company has agreed that so long as there remain outstanding any
Exchangeable Shares not owned by IVI or any entity controlled by the Company,
the Company will remain the beneficial owner, directly or indirectly, of all
outstanding shares of IVI other than the Exchangeable Shares.
With the exception of administrative changes for the purpose of adding
covenants for the protection of the holders of the Exchangeable Shares, making
certain necessary amendments or curing ambiguities or clerical errors (in each
case provided that the board of directors of each of the Company and IVI is of
the opinion that such amendments are not prejudicial to the interests of the
holders of the Exchangeable Shares), the Support Agreement may not be amended
without the approval of the holders of the Exchangeable Shares.
Under the Support Agreement, the Company has agreed not to exercise any
voting rights attached to the Exchangeable Shares owned by it or any entity
controlled by it on any matter considered at meetings of holders of Exchangeable
Shares (including any approval sought from such holders in respect of matters
arising under the Support Agreement).
VOTING AND EXCHANGE TRUST AGREEMENT
The following is a summary description of the material provisions of the
Voting and Exchange Trust Agreement and is qualified in its entirety by
reference to the full text of the Voting and Exchange Trust Agreement which is
attached as Annex H hereto. Under the terms of the Voting and Exchange Trust
Agreement, the Company will issue and grant to the Trustee, for the benefit of
the holders of the Exchangeable Shares, the Voting Rights and the Exchange
Rights.
VOTING RIGHTS. Under the Voting and Exchange Trust Agreement, the Company
will issue the Voting Share to the Trustee for the benefit of the holders (other
than the Company and its subsidiaries) of the Exchangeable Shares. The Voting
Share will carry a number of votes, exercisable at any meeting at which Company
stockholders are entitled to vote, equal to the number of outstanding
Exchangeable Shares
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(other than shares held by the Company and its subsidiaries or any person
controlled by or under common control with the Company) (such one-to-one ratio
is subject to adjustment or modification in the event of certain stock splits or
other changes to the capital structure of the Company so as to maintain the
economic equivalence of the initial one-to-one ratio) and will be entitled to
exercise that number of votes for which it receives instructions to do so. With
respect to any written consent sought from the Company stockholders, each vote
attached to the Voting Share will be exercisable in the same manner as set forth
above.
Each holder of an Exchangeable Share on the record date for any meeting at
which Company stockholders are entitled to vote will be entitled to instruct the
Trustee to exercise one of the votes attached to the Voting Share for such
Exchangeable Share (such one-to-one ratio is subject to adjustment or
modification in the event of certain stock splits or other changes to the
capital structure of the Company so as to maintain the economic equivalence of
the initial one-to-one ratio). The Trustee will exercise each vote attached to
the Voting Share only as directed by the relevant Exchangeable Share holder and,
in the absence of instructions from a holder as to voting, will not exercise
such votes. A holder may, upon instructing the Trustee, obtain a proxy from the
Trustee entitling the holder to vote directly at the relevant meeting the votes
attached to the Voting Share to which the holder is entitled.
The Trustee will send to the holders of the Exchangeable Shares the notice
of each meeting at which the holders of Company Common Stock are entitled to
vote, together with the related meeting materials and a statement as to the
manner in which the holder may instruct the Trustee to exercise the votes
attaching to the Voting Share, at the same time as the Company sends such notice
and materials to the holders of Company Common Stock. The Trustee will also send
to the holders of Exchangeable Shares copies of all information statements,
interim and annual financial statements, reports and other materials sent by the
Company to the holders of Company Common Stock at the same time as such
materials are sent to the holders of the Company Common Stock. To the extent
such materials are provided to the Trustee by the Company, the Trustee will also
send to the holders of Exchangeable Shares all materials sent by third parties
to holders of Company Common Stock, including dissident proxy circulars and
tender and exchange offer circulars.
All rights of a holder of Exchangeable Shares to exercise votes attached to
the Voting Share will cease upon the exchange of all such holder's Exchangeable
Shares for shares of Company Common Stock.
EXCHANGE RIGHTS. Under the Voting and Exchange Trust Agreement, the Company
will grant the Exchange Rights to the Trustee for the benefit of the holders of
the Exchangeable Shares.
OPTIONAL EXCHANGE RIGHT. Upon the occurrence and during the continuance of
an IVI Insolvency Event or an event of default by IVI under the Exchangeable
Share Provisions ("Default Event"), a holder of Exchangeable Shares will be
entitled to instruct the Trustee to exercise the optional Exchange Right with
respect to any or all of the Exchangeable Shares held by such holder, thereby
requiring the Company to purchase such Exchangeable Shares from the holder.
Immediately upon the occurrence of an IVI Insolvency Event or Default Event or
any event which may with the passage of time or the giving of notice, become an
IVI Insolvency Event or Default Event, the Company and IVI will give written
notice thereof to the Trustee. As soon as practicable thereafter, the Trustee
will notify each holder of Exchangeable Shares of such event or potential event
and will advise the holder of its rights with respect to the optional Exchange
Right.
The consideration for each Exchangeable Share to be acquired under the
optional Exchange Right will be one share of Company Common Stock plus an
additional amount equivalent to the full amount of all dividends declared and
unpaid on the Exchangeable Share (such one-to-one ratio is subject to adjustment
or modification in the event of certain stock splits or other changes to the
capital structure of the Company so as to maintain the economic equivalence of
the initial one-to-one ratio).
AUTOMATIC EXCHANGE RIGHT. In the event of a Liquidation Event, the Company
will be required to acquire each outstanding Exchangeable Share by exchanging
one share of Company Common Stock for each such Exchangeable Share, plus an
additional amount equivalent to the full amount of all declared and
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unpaid dividends on the Exchangeable Shares (such one-to-one ratio is subject to
adjustment or modification in the event of certain stock splits or other changes
to the capital structure of the Company so as to maintain the economic
equivalence of the initial one-to-one ratio).
DELIVERY OF COMPANY COMMON STOCK
The Company will ensure that all shares of Company Common Stock to be
delivered by it under the Support Agreement or on the exercise of the Exchange
Rights under the Voting and Exchange Trust Agreement are duly registered,
qualified or approved under applicable Canadian and United States securities
laws, if required, so that such shares may be freely traded by the holder
thereof (other than any restriction on transfer by reason of a holder being a
"control person" of the Company for purposes of Canadian law or an "affiliate"
of the Company for purposes of United States law). In addition, the Company will
take all actions necessary to cause all such shares of Company Common Stock to
be listed or quoted for trading on all stock exchanges or quotation systems on
which outstanding shares of Company Common Stock are then listed or quoted for
trading.
CALL RIGHTS
The following description of the Call Rights is qualified in its entirety by
reference to the full text of the Plan of Arrangement and the Exchangeable Share
Provisions, which are attached as Annexes K and L hereto, respectively.
In the circumstances described below, the Company will have certain
overriding rights to acquire Exchangeable Shares from holders thereof for one
share of Company Common Stock for each Exchangeable Share acquired, plus an
amount equivalent to the full amount of all declared and unpaid dividends on the
Exchangeable Shares (such one-to-one ratio is subject to adjustment or
modification in the event of certain stock splits or other changes to the
capital structure of the Company so as to maintain the economic equivalence of
the initial one-to-one ratio). Different Canadian federal income tax
consequences to a holder of Exchangeable Shares may arise depending upon whether
the Call Rights are exercised by the Company or whether the relevant
Exchangeable Shares are redeemed by IVI pursuant to the Exchangeable Share
Provisions in the absence of the exercise by the Company of the Call Rights. See
"Material Income Tax Considerations to IVI Shareholders."
RETRACTION CALL RIGHT. Pursuant to the Plan of Arrangement and Exchangeable
Share Provisions, a holder requesting IVI to redeem the Exchangeable Shares will
be deemed to offer such shares to the Company, and the Company will have an
overriding Retraction Call Right to acquire all but not less than all of the
Exchangeable Shares that the holder has requested IVI to redeem in exchange for
one share of Company Common Stock for each Exchangeable Share, plus an
additional amount equivalent to the full amount of all declared and unpaid
dividends thereon (such one-to-one ratio is subject to adjustment or
modification in the event of certain stock splits or other changes to the
capital structure of the Company so as to maintain the economic equivalence of
the initial one-to-one ratio).
At the time of a Retraction Request by a holder of Exchangeable Shares, the
Transfer Agent will immediately notify the Company. The Company must then advise
IVI within five business days as to whether the Company will exercise the
Retraction Call Right. If the Company does not advise the Transfer Agent within
such five business day period, the Transfer Agent will notify the holder as soon
as possible thereafter that the Company will not exercise the Retraction Call
Right. On the Retraction Date the Exchangeable Shares that the holder has
requested IVI to redeem will be acquired by the Company (assuming the Company
exercises its Retraction Call Right) or redeemed by IVI, as the case may be, in
each case for one share of Company Common Stock for each Exchangeable Share plus
an additional amount equivalent to the full amount of all declared and unpaid
dividends on the Exchangeable Shares (such one-to-one ratio is subject to
adjustment or modification in the event of certain stock splits or other changes
to the capital structure of the Company so as to maintain the economic
equivalence of the initial one-to-one ratio).
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LIQUIDATION CALL RIGHT. Pursuant to the Plan of Arrangement, the Company
will be granted an overriding Liquidation Call Right, in the event of and
notwithstanding a proposed liquidation, dissolution or winding up of IVI, to
acquire all but not less than all of the Exchangeable Shares then outstanding in
exchange for Company Common Stock and, upon the exercise by the Company of the
Liquidation Call Right, the holders thereof will be obligated to transfer such
shares to the Company for one share of Company Common Stock for each
Exchangeable Share plus an additional amount equivalent to the full amount of
all declared and unpaid dividends on the Exchangeable Shares (such one-to-one
ratio is subject to adjustment or modification in the event of certain stock
splits or other changes to the capital structure of the Company so as to
maintain the economic equivalence of the initial one-to-one ratio). The
acquisition by the Company of all of the outstanding Exchangeable Shares upon
the exercise of the Liquidation Call Right will occur on the effective date of
the voluntary or involuntary liquidation, dissolution or winding-up of IVI.
REDEMPTION CALL RIGHT. Pursuant to the Plan of Arrangement, the Company
will be granted an overriding Redemption Call Right, notwithstanding the
proposed automatic redemption of the Exchangeable Shares by IVI pursuant to the
Exchangeable Share Provisions, to acquire on the Automatic Redemption Date all
but not less than all of the Exchangeable Shares then outstanding in exchange
for Company Common Stock plus an additional amount equivalent to the full amount
of all declared and unpaid dividends on the Exchangeable Shares and, upon the
exercise by the Company of the Redemption Call Right, the holders thereof will
be obligated to transfer such shares to the Company for one share of Company
Common Stock for each Exchangeable Share plus an additional amount equivalent to
the full amount of all declared and unpaid dividends on the Exchangeable Shares
(such one-to-one ratio is subject to adjustment or modification in the event of
certain stock splits or other changes to the capital structure of the Company so
as to maintain the economic equivalence of the initial one-to-one ratio).
EFFECT OF CALL RIGHT EXERCISE. If the Company exercises one or more of its
Call Rights, it will directly issue shares of Company Common Stock to holders of
Exchangeable Shares and will become the holder of such Exchangeable Shares. The
Company will not be entitled to exercise any voting rights attached to the
Exchangeable Shares it so acquires. If the Company declines to exercise its Call
Rights when applicable, it will be required, pursuant to the Support Agreement,
to issue shares of Company Common Stock to IVI which will, in turn, transfer
such stock to the holders of Exchangeable Shares in consideration for the return
and cancellation of such Exchangeable Shares. The tax consequences resulting
from the Company's exercise of one or more of the Call Rights are discussed in
"Material Income Tax Considerations to IVI Shareholders -- Canadian Federal
Income Tax Considerations," which includes a discussion on deemed dividends and
Part VI.1 tax.
DISSENTING SHAREHOLDERS' RIGHTS
IVI. The following description of the rights of dissenting registered
shareholders of IVI is not a comprehensive statement of the procedures to be
followed by a dissenting shareholder who seeks payment of the fair value of its
IVI Common Shares and is qualified in its entirety by the reference to the full
text of the Interim Order and Section 190 of the CBCA which are attached to this
Joint Proxy Statement/ Prospectus as Annexes C and D, respectively. A
shareholder who intends to exercise his right of dissent should carefully
consider and comply with the provisions of Section 190, as modified by the
Interim Order and should seek his own legal advice. Failure to comply with the
provisions of that section, as modified by the Interim Order and to adhere to
the procedures established therein may result in the loss of all rights
thereunder.
The Court hearing the application for the Final Order, has the discretion to
alter the rights of dissent described herein based on the evidence presented to
such hearing.
Under the Interim Order, any registered holder of IVI Common Shares is
entitled to be paid the fair value of such shares in accordance with Section 190
of the CBCA if such registered holder dissents in respect of the Arrangement
Resolution. A registered holder of IVI Common Shares is not entitled to dissent
with respect to such Arrangement Resolution under the CBCA if such holder votes
any IVI
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Common Shares in favour of the Arrangement Resolution at the Meeting. The
execution or exercise of a proxy does not constitute a written objection for
purposes of the CBCA.
Persons who are beneficial owners of IVI Common Shares registered in the
name of others, such as clearing agencies, securities brokers, banks, trust
companies or nominees should be aware that only the registered owner of such
shares are entitled to exercise rights of dissent in respect of the IVI Common
Shares beneficially owned by the beneficial owners and only upon receipt of the
beneficial owner's specific instructions.
Under Section 190 of the CBCA, the dissenting registered shareholder is
required to send a written objection to the Arrangement Resolution to IVI at or
prior to the Meeting. A vote against the Arrangement Resolution or withholding
votes does not constitute a written objection. Within ten (10) days after the
Arrangement Resolution is approved by the IVI shareholders, IVI must so notify
the dissenting shareholder who is then required, within twenty (20) days after
receipt of such notice (or if it does not receive such notice within twenty (20)
days after they learn of the approval of the Arrangement Resolution) to send to
IVI a written notice ("Dissent Notice") containing such holder's name and
address, the number of IVI Common Shares in respect of which such holder
dissents and a demand for payment of the fair value of such shares and, within
thirty (30) days after sending such written notice, to send to IVI the
appropriate share certificate or certificates representing all of the IVI Common
Shares held by the dissenting shareholder. If the proposal contemplated in the
Arrangement Resolution becomes effective, IVI is required to determine the fair
value of the IVI Common Shares and to make a written offer to pay such amount to
the dissenting shareholder. If such offer is not made or is not accepted with
fifty (50) days after the proposal in the Arrangement Resolution becomes
effective, IVI may apply to the Court to fix the fair value of such shares.
There is no obligation on IVI to apply to the Court. If IVI fails to make such
an application, a dissenting shareholder has the right to so apply within a
further twenty (20) days. If an application is made by either party, the
dissenting shareholder will be entitled to be paid the amount fixed by the
Court.
A dissenting shareholder may make an agreement with IVI for the purchase of
his IVI Common Shares in the amount of IVI's offer (or otherwise) at any time
before the Court pronounces an order fixing the fair value of the IVI Common
Shares. A dissenting shareholder is not required to give security for costs in
respect of an application. On the application, the Court will make an order
fixing the fair value of the IVI Common Shares of all dissenting shareholders
whose shares have not been purchased by IVI giving judgment in that amount
against IVI and in favour of each of those dissenting shareholders and fixing
the time within which IVI must pay that amount payable to the dissenting
shareholders. The Court may, in its discretion, allow a reasonable rate of
interest on the amount payable to each dissenting shareholder calculated from
the date on which the shareholder ceases to have any rights as a shareholder
until the date of payment.
On sending a Dissent Notice, the dissenting shareholder will cease to have
any rights as a shareholder other than the right to be paid the fair value of
the IVI Common Shares in the amount agreed to between IVI and the dissenting
shareholder or in the amount of the judgement, as the case may be. Until IVI
makes an offer in accordance with the CBCA, the shareholder may withdraw his
dissent or the directors of IVI may rescind the Arrangement Resolution and in
either event, his rights as a shareholder are reinstated.
CHECKMATE. If the Combination Agreement and the transactions contemplated
thereby are consummated, any shareholder of Checkmate who properly dissents from
the Merger in connection with the Checkmate Shareholders Meeting may be entitled
to receive in cash the fair value of such shareholder's shares of Checkmate
Common Stock determined immediately prior to the Merger, excluding any
appreciation or depreciation in anticipation of the Merger. FAILURE TO COMPLY
WITH THE PROCEDURES PRESCRIBED BY APPLICABLE LAW WILL RESULT IN THE LOSS OF
DISSENTERS RIGHTS.
Any shareholder of Checkmate entitled to vote on the Combination Agreement
has the right to receive payment of the fair value of his or her shares of
Checkmate Common Stock upon compliance with the applicable provisions of the
GBCC. A record shareholder may assert dissenters rights as to fewer than all of
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by
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any one beneficial shareholder and notifies the corporation in writing of the
name and address of each person on whose behalf he asserts dissenters rights.
The rights of a partial dissenter under Section 14-2-1303 of the GBCC are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders. Any Checkmate shareholder
intending to enforce the right to dissent (i) may not vote in favor of the
Combination Agreement, and (ii) must file a written notice of intent to demand
payment for his or her shares (the "Objection Notice") with Checkmate, 1003
Mansell Road, Roswell, Georgia (telephone: (770) 594-6000, Attention: John J.
Neubert), before the vote on the proposal to approve the Combination Agreement
and the transactions contemplated thereby is taken at the meeting. The Objection
Notice must state that the shareholder intends to demand payment for his or her
shares of Checkmate Common Stock if the Merger is effected. A VOTE AGAINST
APPROVAL OF THE COMBINATION AGREEMENT, IN AND OF ITSELF, WILL NOT CONSTITUTE AN
OBJECTION NOTICE SATISFYING THE REQUIREMENTS OF THE GBCC.
If the Combination Agreement is approved by Checkmate's shareholders at the
Checkmate Shareholders Meeting, each shareholder who has properly filed an
Objection Notice and who has not voted in favor of the Combination Agreement
will be notified by Checkmate of such approval within ten days of the Checkmate
Shareholders Meeting ("Dissenters Notice"). Such Dissenters Notice shall contain
the following information: (i) where the payment demand must be sent and where
and when the certificates representing the Checkmate Common Stock must be
deposited; (ii) the extent to which the transfer of uncertificated shares will
be restricted after the payment demand is received; (iii) the date by which the
corporation must receive the payment demand (which date may not be fewer than 30
nor more than 60 days after the Dissenters Notice is delivered); and (iv) a copy
of Title 14, Chapter 2, Article 13 of the GBCC (relating to dissenters rights).
Following the receipt of such Dissenters Notice, any shareholder electing to
dissent must demand payment of the fair value of such shares and deposit the
certificates representing the Checkmate Common Stock in accordance with the
terms of, and by the date set out in the Dissenters Notice. Such shareholder
will retain all other rights of a shareholder until those rights are canceled or
modified by the consummation of the Merger. A RECORD SHAREHOLDER WHO DOES NOT
DEMAND PAYMENT OR DEPOSIT SUCH HOLDER'S SHARE CERTIFICATES WHERE REQUIRED, EACH
BY THE DATE SET FORTH IN THE DISSENTERS NOTICE, IS NOT ENTITLED TO PAYMENT FOR
SUCH HOLDER'S SHARES UNDER TITLE 14, CHAPTER 2, ARTICLE 13 OF THE GBCC.
Except as described below, within ten days of the later of the date the
proposed corporate action is taken or the date of receipt of a payment demand,
Checkmate must by written notice offer to each shareholder who has properly
filed a payment demand, and who has deposited his or her certificates
representing the Checkmate Common Stock, to pay an amount Checkmate estimates to
be a fair value for the shareholder's shares, plus accrued interest from the
Effective Time. Such offer of payment must be accompanied by (i) certain of
Checkmate's recent financial statements, (ii) a statement of Checkmate's
estimate of the fair value of the shares involved, (iii) an explanation of how
the interest was calculated, (iv) a statement of the dissenter's right to demand
payment under Section 14-2-1327 of the GBCC, and (v) a copy of Title 14, Chapter
2, Article 13 of the GBCC. Any shareholder who accepts such offer by written
notice to Checkmate within 30 days of the offer, or who is deemed to have
accepted such offer due to his or her failure to respond to such offer within 30
days, shall receive payment for the dissenting Shareholder's shares within 60
days of such offer to pay or consummation of the Merger, whichever is later. If
the Merger is not consummated within 60 days following the date set for
demanding payment and depositing share certificates, Checkmate must return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares. If Checkmate then consummates the Merger, it must send a
new Dissenters Notice and repeat the payment demand procedure.
In the event that Checkmate fails to make any payment offer within ten days
of the later of the date the proposed corporate action is taken or the date of
receipt of a payment demand, Checkmate must provide certain information to the
shareholder (the financial statements and other information required to
accompany Checkmate's payment offer) within ten days after receipt of a written
demand from such dissenting shareholder for such information. Additionally, such
dissenting shareholder may, at any time
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within the three years following the consummation of the Merger, notify
Checkmate of his own estimate of the fair value of his shares and the interest
due thereon, and demand payment of such amounts. If (i) a dissenting shareholder
is dissatisfied with an offer for payment made by Checkmate within the time
period set forth above, or (ii) Checkmate, having failed to effect the Merger,
does not return the deposited certificates and release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for demanding
payment, such dissenting shareholder may notify Checkmate in writing of his own
estimate of the fair value of his shares and the interest due thereon, and
demand payment of such amounts. A DISSENTING SHAREHOLDER WAIVES SUCH HOLDER'S
RIGHT TO DEMAND PAYMENT UNDER SECTION 14-2-1327 OF THE GBCC UNLESS SUCH HOLDER
NOTIFIES CHECKMATE OF SUCH HOLDER'S DEMAND IN WRITING WITHIN 30 DAYS AFTER
CHECKMATE MAKES OR OFFERS PAYMENT FOR SUCH HOLDER'S SHARES.
If such a demand for payment from any dissenting shareholder remains
unsettled, within 60 days following the receipt by Checkmate of such demand for
payment, Checkmate must institute proceedings in the superior court of the
county where Checkmate's registered office is located requesting a nonjury
equitable determination of the fair value of such dissenting shareholder's
shares and the accrued interest owed to such dissenting shareholder. If
Checkmate fails to file such action within the 60 day time period, Checkmate
must pay each dissenting shareholder whose demand remains unsettled the amount
demanded by such dissenting shareholder. Checkmate is required to make all
dissenting shareholders whose demands remain unsettled parties to the proceeding
and to serve a copy of the petition upon each such dissenting shareholder. The
court may, in its discretion, appoint an appraiser to receive evidence and
recommend a decision on the question of fair value. Each dissenting shareholder
made a party to the proceeding will be entitled to judgment for the amount which
the court finds to be the fair value of his or her shares, plus interest to the
date of judgment.
The court will determine and assess the costs and expenses of such
proceeding (including reasonable compensation for and the expenses of the
appraiser, but excluding fees and expenses of counsel and experts) against
Checkmate, except that the court may assess such costs and expenses as it deems
appropriate against any or all of the dissenting shareholders if it finds that
their demand for additional payment was arbitrary, vexatious or otherwise not in
good faith. The court may award fees and expenses of counsel and experts in
amounts the court finds equitable: (i) against Checkmate if Checkmate did not
substantially comply with the requirements of a corporation as set out in Title
14, Chapter 2, Article 13, Part 2 of the GBCC; (ii) against either Checkmate or
the dissenting shareholder(s), if the court finds that either party's actions
were arbitrary, vexatious or otherwise not in good faith; or (iii) if the court
finds that the services of attorneys for any dissenting shareholder were of
substantial benefit to other dissenting shareholders similarly situated, and
that the fees for those services should not be assessed against Checkmate, the
court may award those attorneys reasonable fees out of the amounts awarded the
dissenting shareholders who were benefited. NO ACTION BY ANY DISSENTING
SHAREHOLDER TO ENFORCE DISSENTERS RIGHTS MAY BE BROUGHT MORE THAN THREE YEARS
AFTER THE CORPORATE ACTION WAS TAKEN, REGARDLESS OF WHETHER NOTICE OF THE
CORPORATE ACTION AND OF THE RIGHT TO DISSENT WAS GIVEN BY CHECKMATE IN
COMPLIANCE WITH THE DISSENTERS NOTICE AND PAYMENT OFFER REQUIREMENTS OF SECTIONS
14-2-1320 AND 14-2-1322 OF THE GBCC.
THE FOREGOING SUMMARY OF THE APPLICABLE PROVISIONS OF TITLE 14, CHAPTER 2,
ARTICLE 13 OF THE GBCC IS NOT INTENDED TO BE A COMPLETE STATEMENT OF SUCH
PROVISIONS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SECTIONS,
WHICH ARE INCLUDED AS ANNEX E HEREOF. THE PROVISIONS OF THE STATUTES ARE
TECHNICAL IN NATURE AND COMPLEX. IT IS SUGGESTED THAT ANY SHAREHOLDER WHO
DESIRES TO EXERCISE THE RIGHT TO OBJECT TO THE COMBINATION AGREEMENT CONSULT
COUNSEL. FAILURE TO COMPLY WITH THE PROVISIONS OF THE STATUTE MAY DEFEAT A
SHAREHOLDER'S RIGHT TO DISSENT. NO FURTHER NOTICE OF THE EVENTS GIVING RISE TO
DISSENTERS RIGHTS OR ANY STEPS ASSOCIATED THEREWITH WILL BE FURNISHED TO
CHECKMATE SHAREHOLDERS, EXCEPT AS INDICATED ABOVE OR OTHERWISE REQUIRED BY LAW.
Any dissenting Checkmate shareholder who perfects such holder's right to be
paid the value of such holder's shares will recognize taxable gain or loss upon
receipt of cash for such shares for federal income tax purposes. See "Material
U.S. Federal Income Tax Consequences to Checkmate Shareholders."
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ADDITIONAL MATTERS FOR CONSIDERATION BY
IVI SHAREHOLDERS
In addition to the consideration of and voting on the Arrangement
Resolution, at the IVI Shareholders Meeting the shareholders of IVI will be
asked to vote on the following additional matters.
ELECTION OF DIRECTORS
Under the articles of continuance of IVI, the IVI Board of Directors
consists of a minimum of three members and a maximum of fifteen members; the
number of directors within such range is to be determined by the IVI Board of
Directors from time to time. The number of directors is currently fixed at nine.
The persons named below will be presented for election at the Meeting as
Management's nominees and the persons named in the accompanying form of proxy
intend to vote for the election of these nominees. Management does not
contemplate that any of these nominees will be unable to serve as a director,
but should that occur for any reason prior to the Meeting, the persons named in
the accompanying form of proxy shall have the right to vote for another nominee
in their discretion unless the shareholder who has given such proxy has directed
that the shares be withheld from voting in the election of directors. Each
director elected will hold office until the next annual meeting of IVI or until
his successor is duly elected or appointed. It is anticipated that those
directors who are currently members of the Compensation Committee, Audit
Committee and Nominating and Governance Committee of the IVI Board of Directors
will continue in those positions. If the Transaction is completed, each member
of the IVI Board of Directors immediately prior to the Effective Time will
resign as of the Effective Time, other than L. Barry Thomson, George Whitton,
Peter E. Roode and W. Douglas M. Archibald, and IVI's sole voting shareholder,
the Company, will appoint two new directors to the IVI Board of Directors
effective as of the Effective Time.
130
<PAGE>
The following table sets out the names of the nominees for election as
directors, all offices of IVI now held by each of them, the period of time for
which each has been a director of IVI and the number of shares of IVI
beneficially owned by each, directly or indirectly.
<TABLE>
<CAPTION>
NUMBER OF COMMON
DIRECT SHARES
OR BENEFICIALLY
NAME AND PRINCIPAL OCCUPATION SINCE OWNED
- -------------------------------------------------------------------------------------- ----------- -----------------
<S> <C> <C>
GEORGE WHITTON(1,2)
CHAIRMAN, INTERNATIONAL VERIFACT INC. 1986 103,100
W. DOUGLAS M. ARCHIBALD(3)
PRESIDENT AND CHIEF EXECUTIVE OFFICER, DESIGN RECOVERY INC. 1983 13,000
GERARD COMPAIN(2)
MANAGING DIRECTOR, INGENICO S.A. 1997 1,564,116
GARETH OWEN
MANAGING DIRECTOR, INGENICO INTERNATIONAL (PACIFIC) PTY LIMITED 1997 0
PIERRE PANET-RAYMOND(1)
DIRECTOR, MCDERMID ST. LAWRENCE SECURITIES LIMITED 1991 8,900
PETER E. ROODE(1,3)
PRESIDENT, TRIARCH CORPORATION 1992 27,000
LAWRENCE G. TAPP(2,3)
DEAN OF RICHARD IVEY SCHOOL OF BUSINESS, THE UNIVERSITY OF WESTERN ONTARIO 1995 1,000
L. BARRY THOMSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER, INTERNATIONAL VERIFACT INC. 1995 99,900
R. BRUCE BARR
DIRECTOR, ERNST & YOUNG 1997 20,000
</TABLE>
- ------------------------
(1) Member of the audit committee.
(2) Member of the nominating and governance committee.
(3) Member of the compensation committee.
APPOINTMENT OF AUDITORS
The persons designated in the enclosed form of proxy intend to vote for the
reappointment of IVI's current independent auditors, Coopers & Lybrand, as
independent auditors of IVI and to authorize the directors to fix their
remuneration.
131
<PAGE>
EXPERTS
The consolidated financial statements of IVI as at December 31, 1997 and
1996 and for the years ended December 31, 1997, 1996 and 1995, included in the
Joint Proxy Statement/Prospectus of IVI Checkmate Corp., which is referred to
and made a part of this Joint Proxy Statement/Prospectus have been audited by
Coopers & Lybrand, chartered accountants, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of said firm as experts in accounting and auditing.
The financial statements of Checkmate at December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, and the financial
statements of the Company at March 31, 1998 and for the period from January 15,
1998 (date of inception) to March 31, 1998, included in the Joint Proxy
Statement/Prospectus of IVI Checkmate Corp., which is referred to and made a
part of this Joint Proxy Statement/Prospectus, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the Transaction will be passed upon
for Checkmate and the Company by Alston & Bird LLP, Atlanta, Georgia, and for
IVI by Meighen Demers, Toronto, Ontario and Morgan, Lewis and Bockius LLP, New
York, New York.
132
<PAGE>
GLOSSARY
Unless the context otherwise requires, the following terms shall have the
meanings set forth below when used in this Joint Proxy Statement/Prospectus.
These defined terms are not used in the financial statements attached hereto.
"Acquisition Proposal" means any event in which IVI or Checkmate (each a
"Company" for the purposes of this definition), or any of their respective
subsidiaries, either directly or indirectly through advisors, agents or other
intermediaries, or by authorizing or permitting any of its or their officers,
directors, agents, representatives, advisors, or subsidiaries to (i) solicit,
initiate or knowingly take any action to facilitate the submission of inquiries,
proposals or offers from any Third Party relating to (A) any acquisition or
purchase of 5% or more of the assets of such Company and its subsidiaries as
stated in the consolidated balance sheet contained in IVI's most recent OSC
Report or Checkmate's most recent Checkmate SEC Document, as the case may be, or
of 5% or more of the number of outstanding equity securities of any class of
such Company or any of its subsidiaries, (B) any tender offer (including a self
tender offer) or exchange offer, (C) any merger, consolidation, business
combination, sale of substantially all assets, recapitalization, liquidation,
dissolution or similar transaction involving such Company or any of its
subsidiaries whose assets, individually or in the aggregate, constitute 5% or
more of the assets of such Company and its subsidiaries as stated in the
consolidated balance sheet contained in IVI's most recent OSC Report or
Checkmate's most recent Checkmate SEC Document, as the case may be, other than
the transactions contemplated by the Combination Agreement, the Shareholders
Agreements and any transaction pursuant to the Participation Right, or (D) any
other transaction the consummation of which would, or could reasonably be
expected to materially impede, interfere with, prevent or delay the Transaction.
"Affiliate" means each affiliate (as such term is defined pursuant to Rule
145 under the Securities Act) of the Company, IVI or Checkmate, as the context
requires.
"Affiliate Agreements" mean the affiliate agreements executed by each
Affiliate of IVI or Checkmate and agreed to and accepted by the Company,
Checkmate and IVI in the form provided as an exhibit to the Combination
Agreement.
"Arrangement" means the reorganization of capital of IVI under Section 192
of the CBCA pursuant to the Plan of Arrangement whereby each of the issued and
outstanding IVI Common Shares will be exchanged, at the holder's election, for
either one share of Company Common Stock or one Exchangeable Share.
"Arrangement Resolution" means the special resolution of IVI shareholders
concerning the Arrangement in the form set out in Annex B to this Joint Proxy
Statement/Prospectus.
"Automatic Exchange Rights" means the benefit of the obligation of the
Company to effect the automatic exchange of shares of Company Common Stock for
Exchangeable Shares pursuant to the Voting and Exchange Trust Agreement.
"Automatic Redemption Date" means the tenth anniversary of the Effective
Date or such earlier time as described in "The Transaction."
"BT Alex. Brown" means BT Alex. Brown Incorporated, the financial advisor
for Checkmate in connection with the Transaction.
"BT Alex. Brown Opinion" means the opinion delivered by BT Alex. Brown dated
January 16, 1998 that, as of such date, the Checkmate Exchange Ratio is fair to
Checkmate and its shareholders from a financial point of view.
"Call Rights" means the Liquidation Call Right, the Redemption Call Right
and the Retraction Call Right, collectively.
"Canadian dollar equivalent" means the product obtained by multiplying the
U.S. dollar amount by the Currency Exchange Rate.
"Canadian dollars" or "Cdn.$" means Canadian dollars.
133
<PAGE>
"Canadian GAAP" means generally accepted accounting principles in Canada.
"Canadian Tax Act" means the Income Tax Act (Canada), as amended.
"CBCA" means the Canada Business Corporations Act, as amended.
"Certificate of Arrangement" means the certificate of arrangement issued by
the Director under the CBCA giving effect to the Arrangement.
"Certificate of Merger" means the certificate of merger filed by Checkmate
with the Secretary of State of the State of Georgia.
"Checkmate" means Checkmate Electronics, Inc., a Georgia corporation.
"Checkmate Articles" means the articles of incorporation of Checkmate.
"Checkmate Board" means the board of directors of Checkmate.
"Checkmate Bylaws" means the bylaws of Checkmate.
"Checkmate Common Stock" means the Common Stock, $.01 par value per share,
of Checkmate.
"Checkmate Exchange Ratio" means the ratio of 1.2775 shares of Company
Common Stock to each share of Checkmate Common Stock.
"Checkmate Option" means an outstanding option to purchase Checkmate Common
Stock under a Checkmate Option Plan.
"Checkmate Option Plans" means Checkmate's 1988 Employee Incentive Stock
Option Plan, 1993 Stock Option Plan and 1994 Directors' Stock Option Plan
(individually, each a "Checkmate Stock Option Plan").
"Checkmate Record Date" means April 14, 1998.
"Checkmate Rights Plan" means the Shareholder Rights Plan dated as of
October 13, 1997, by and between Checkmate and First Union National Bank, as
rights agent, as amended.
"Checkmate SEC Document" means any document filed with the Commission by
Checkmate pursuant to the Securities Act or the Exchange Act.
"Checkmate Shareholders Meeting" means the special meeting of shareholders
of Checkmate to be held with respect to the approval of the Combination
Agreement and the Merger.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Combination Agreement" means the Combination Agreement by and among the
Company, IVI, Checkmate and Sub dated as of January 16, 1998, a copy of which is
attached hereto as Annex A.
"Commission" means the United States Securities and Exchange Commission.
"Company" and "Registrant" mean IVI Checkmate Corp., a Delaware corporation.
"Company Board" means the Board of Directors of the Company.
"Company Common Stock" means the common stock, $.01 par value per share, of
the Company.
"Company Preferred Stock" means the preferred stock, $.01 par value, of the
Company.
"Court" means the Ontario Court of Justice (General Division).
"Currency Exchange Rate" means the Noon Buying Rate or the Noon Spot Rate,
as the case may be.
"Default Event" means any failure, other than by reason of an Insolvency
Event, of IVI to comply with the terms of the Exchangeable Share Provisions,
including without limitation its obligation to redeem any Exchangeable Shares
subject to a Retraction Request.
"DGCL" means the Delaware General Corporation Law, as amended.
"Director Plan" means the IVI Checkmate Corp. 1998 Directors' Stock Option
Plan.
"Dissent Notice" means a written objection to the Arrangement sent to IVI by
a registered shareholder of IVI in accordance with applicable law.
134
<PAGE>
"Effective Date" means the date shown on the certificate of arrangement
issued by the Registrar under the CBCA giving effect to the Arrangement.
"Effective Time" means 2:00 p.m. (Toronto time) on the Effective Date.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Ratios" means the IVI Exchange Ratio and Checkmate Exchange Ratio.
"Exchange Rights" means the Automatic Exchange Rights and the optional
exchange right granted to the Trustee for the use and benefit of the holders of
the Exchangeable Shares pursuant to the Voting and Exchange Trust Agreement to
require the Company to purchase Exchangeable Shares from the holders thereof in
exchange for shares of Company Common Stock upon the occurrence and during the
continuance of an IVI Insolvency Event or Default Event.
"Exchangeable Share Provisions" means the rights, privileges, restrictions
and conditions attaching to the Exchangeable Shares, which are attached hereto
as Annex L.
"Exchangeable Shares" means the exchangeable shares of IVI having the
rights, privileges, restrictions and conditions set forth in the Exchangeable
Share Provisions.
"Final Order" means the final order of the Court approving the Arrangement.
"FTC" means the United States Federal Trade Commission and all successors
thereto.
"GBCC" means Title 14, Chapter 2 of the Official Code of Georgia Annotated.
"HSR Act" means the United States Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Incentive Plan" means the IVI Checkmate Corp. 1998 Long Term Incentive
Plan.
"Ingenico" means Ingenico S.A., a French public company and holder of
approximately 16.7% of the IVI Common Shares.
"Ingenico Agreements" means the Master Alliance Agreement, the Marketing and
Distribution Agreement, the Joint Development and Procurement Agreement, the
Technology License Agreement, the Latin America Joint Venture Shareholders
Agreement, and the Investment Agreement.
"Insolvency Event" means the institution by IVI of any proceeding to be
adjudicated a bankrupt or insolvent or to be dissolved or wound up, or the
consent of IVI to the institution of bankruptcy, insolvency, dissolution or
winding up proceedings against it, or the filing of a petition, answer or
consent seeking dissolution or winding up under any bankruptcy, insolvency or
analogous laws, including without limitation the Companies Creditors'
Arrangement Act (Canada) and the Bankruptcy and Insolvency Act (Canada), and the
failure by IVI to contest in good faith any such proceedings commenced in
respect of IVI within 15 days of becoming aware thereof, or the consent by IVI
to the filing of any such petition or to the appointment of a receiver, or the
making by IVI of a general assignment for the benefit of creditors, or the
admission in writing by IVI of its inability to pay its debts generally as they
become due, or IVI not being permitted, pursuant to solvency requirements of
applicable law, to redeem any Exchangeable Shares subject to a Retraction
Request pursuant to section 5.1 of the Exchangeable Share Provisions.
"Interim Order" means the interim order of the Court dated February 24,
1998, a copy of which is attached hereto as Annex C.
"IVI" means International Verifact Inc., a Canadian corporation.
"IVI Articles" means the IVI articles of continuance.
"IVI Bylaws" means the bylaws of IVI.
"IVI Board" and "IVI Board of Directors" mean the Board of Directors of IVI.
"IVI Common Shares" means the common shares of IVI, authorized and
outstanding prior to the Closing.
135
<PAGE>
"IVI Exchange Ratio" is equal to 1.0000 (subject to adjustment as provided
in Section 5.5 of the Combination Agreement).
"IVI Option" means an outstanding option to purchase IVI Common Shares under
the IVI Option Plan.
"IVI Option Plan" means outstanding option to purchase IVI Common Shares
under IVI's 1997 Stock Option Plan.
"IVI Record Date" means May 12, 1998.
"IVI Shareholders Meeting" means the annual and special meeting of IVI
shareholders to be held with respect to approval of the Arrangement Resolution,
the election of directors and the appointment of independent auditors.
"Joint Proxy Statement/Prospectus" mean this joint proxy statement relating
to the IVI Shareholders Meeting and the Checkmate Shareholders Meeting which is
also the prospectus of the Company relating to the offering of Company Common
Stock to Checkmate shareholders in connection with the Merger.
"Letter of Transmittal" means the letter mailed to holders of Checkmate
Common Stock immediately after the Effective Date which, when duly completed and
returned with a certificate representing shares of Checkmate Common Stock will
enable such shareholder to exchange such certificate for Company Common Stock.
"Letter of Transmittal and Election Form" means the letter mailed to holders
of IVI Common Shares together with this Joint Proxy Statement/Prospectus which,
when duly completed and returned with a certificate representing IVI Common
Shares, will enable such shareholder to exchange such certificate for Company
Common Stock, Exchangeable Shares or a combination thereof.
"Liquidation Call Right" means the right of the Company, in the event of a
proposed liquidation, dissolution or winding-up of IVI, to purchase all of the
outstanding Exchangeable Shares from the holders thereof on the effective date
of any such liquidation, dissolution or winding-up in exchange for shares of
Company Common Stock pursuant to the Plan of Arrangement.
"Liquidation Event" means (i) any determination by the Company's Board of
Directors to institute voluntary liquidation, dissolution, or winding-up
proceedings with respect to the Company or to effect any other distribution of
assets of the Company among its stockholders for the purpose of winding-up its
affairs; and (ii) any threatened or instituted claim, suit, petition or other
proceedings with respect to the involuntary liquidation, dissolution or
winding-up of the Company or to effect any other distribution of assets of the
Company among its stockholders for the purpose of winding-up its affairs.
"Merger" means the transaction whereby Sub, a wholly owned subsidiary of the
Company, will merge with and into Checkmate, with Checkmate as the surviving
corporation of the merger becoming a wholly owned subsidiary of the Company.
"MICR" means magnetic ink character recognition.
"Noon Buying Rate" means the noon buying rate in New York City for cable
transfers in Canadian dollars, as certified for customs purposes by the Federal
Reserve Bank of New York.
"Noon Spot Rate" means the noon spot rate of the Bank of Canada .
"NTN" means National Transaction Network, Inc., a Delaware corporation.
"OSA" means the Securities Act (Ontario), as amended, and the rules,
regulations and policy statements promulgated thereunder.
"OSC" means the Ontario Securities Commission.
"OSC Reports" means all forms, reports and documents required to be filed
with the OSC by IVI pursuant to the OSA.
136
<PAGE>
"Participation Right" means the right of Ingenico to purchase IVI Common
Shares to maintain its 15% ownership of the IVI Common Shares pursuant to the
Investment Agreement between IVI and Ingenico dated December 5, 1996, as
amended.
"Person" means an individual, corporation, partnership, association, trust,
unincorporated organization, other entity or group (to the extent such group is
deemed a "person" under Section 13(d)(3) of the Exchange Act).
"Plan of Arrangement" means the plan of arrangement proposed under Section
192 of the CBCA substantially in the form attached hereto as Annex K, as
amended, modified or supplemented from time to time in accordance with its
terms.
"Policy 9.1" means Policy 9.1 of the OSC.
"Redemption Call Right" means the right of the Company to purchase all of
the outstanding Exchangeable Shares from the holders thereof on the Automatic
Redemption Date in exchange for shares of Company Common Stock pursuant to the
Plan of Arrangement.
"Registrant" and "Company" mean IVI Checkmate Corp., a Delaware corporation.
"Registration Statement" mean the Registration Statement of the Company on
Form S-4 of which this Joint Proxy Statement/Prospectus is a part.
"Retraction Call Right" means the overriding right of the Company, in the
event of a proposed retraction of Exchangeable Shares by a holder thereof, to
purchase from such holder on the Retraction Date the Exchangeable Shares
tendered for retraction in exchange for shares of Company Common Stock pursuant
to the Plan of Arrangement.
"Retraction Date" means the sixth business day after a Retraction Request is
received by the Transfer Agent.
"Retraction Request" means a duly executed statement prepared by a holder of
Exchangeable Shares in the form of Schedule A to the Exchangeable Share
Provisions, or in such other form as may be acceptable to the Transfer Agent and
IVI.
"Robertson Stephens" means BancAmerica Robertson Stephens, the financial
advisor for IVI in connection with the Transaction.
"Robertson Stephens Opinion" means the opinion delivered by Robertson
Stephens dated January 15, 1998, a copy of which is attached as Annex F hereto,
that, as of such date and subject to certain assumptions, the Checkmate Exchange
Ratio (in light of the IVI Exchange Ratio) is fair to IVI from a financial point
of view.
"SEC" and "Commission" mean the United States Securities and Exchange
Commission.
"Securities Act" means the United States Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Service" means the Internal Revenue Service.
"Shareholders Agreements" means those agreements executed by IVI and Messrs.
Spence and Moore, and Checkmate and Ingenico each dated as of January 16, 1998
which provide that IVI and Checkmate are directed to vote the shares of Spence
and Moore, and Ingenico, respectively, in favor of the Combination Agreement.
"Shareholders Meetings" means the IVI Shareholders Meeting and the Checkmate
Shareholders Meeting.
"Stock Option Plans" means the IVI Option Plan and the Checkmate Option
Plans.
"Stockholders Agreement" means that agreement by and among Ingenico, Mr.
Spence and Mr. Moore dated as of January 16, 1998.
"Sub" means Future Merger Corporation, a Georgia corporation.
137
<PAGE>
"Superior Proposal" means a bona fide Acquisition Proposal that the Board of
Directors of either Checkmate or IVI (each a "Company" for the purposes of this
definition) subject to such Acquisition Proposal believes, in its good faith
judgment (based on the advice of a financial advisor of nationally recognized
reputation, taking into account all the terms and conditions of the Acquisition
Proposal, including any break-up fees, expense reimbursement provisions and
conditions to consummation) is more favorable, from a financial point of view,
to the stockholders or shareholders of such Company than the Combination
Agreement and the Transaction and that the funds or other consideration
necessary for the Acquisition Proposal are reasonably likely to be available.
"Support Agreement" means the Support Agreement to be entered into between
the Company and IVI, substantially in the form of Annex I hereto.
"Third Party" means any "group," as described in Rule 13d-5(b) promulgated
under the Exchange Act, or person, other than IVI, Checkmate or any of their
respective affiliates as of January 16, 1998.
"Transaction" means the transactions contemplated by the Combination
Agreement, including the Merger and the Arrangement.
"Trustee" means Montreal Trust Company of Canada, or any successor thereto,
pursuant to the Voting and Exchange Trust Agreement.
"TSE" means The Toronto Stock Exchange.
"U.S. dollars" or "$" means United States dollars.
"U.S. GAAP" means generally accepted accounting principles in the United
States.
"Voting and Exchange Trust Agreement" means the voting and exchange trust
agreement to be entered into among the Company, IVI and the Trustee,
substantially in the form of Annex H hereto.
"Voting Rights" means the rights of the holders of Exchangeable Shares to
direct the voting of the Voting Share in accordance with the Voting and Exchange
Trust Agreement.
"Voting Share" means the one share of Series B Special Voting Preferred
Stock, par value $.01 per share, of the Company to be issued by the Company and
deposited with the Trustee pursuant to the Voting and Exchange Trust Agreement.
"Voting Trust Agreement" means the Voting and Exchange Trust agreement
entered into among the Company, IVI and the Trustee.
138
<PAGE>
APPROVAL OF PROXY STATEMENT BY
IVI BOARD OF DIRECTORS
The contents of this joint management circular and proxy statement and the
sending thereof to the shareholders of IVI have been approved by the IVI Board
of Directors.
By Order of the
International Verifact Inc. Board of
Directors
/s/ L. BARRY THOMSON
------------------------------------------------------------------
L. Barry Thomson
President & Chief Executive Officer
May 22, 1998
Toronto, Ontario
139
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
IVI CHECKMATE CORP.:
Audited March 31, 1998 Financial Statements
Report of Independent Auditors....................................................... F-4
Consolidated Balance Sheet as of March 31, 1998...................................... F-5
Consolidated Statement of Operations for the period from January 15, 1998 (date of
inception) through March 31, 1998.................................................. F-6
Consolidated Statement of Stockholder's Equity for the period from January 15, 1998
(date of inception) through March 31, 1998......................................... F-7
Consolidated Statement of Cash Flows for the period from January 15, 1998 (date of
inception) through March 31, 1998.................................................. F-8
Notes to Consolidated Financial Statements........................................... F-9
INTERNATIONAL VERIFACT INC.:
Unaudited 1998 Quarterly Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as at March 31, 1998 and December 31, 1997..... F-11
Condensed Consolidated Statements of Operations for the three months ended March 31,
1998 and 1997...................................................................... F-12
Condensed Consolidated Statements of Changes in Financial Position for the three
months ended March 31, 1998 and 1997............................................... F-13
Notes to Condensed Consolidated Financial Statements................................. F-14
1997 Financial Statements
Statement Regarding Management's Responsibility for Financial Reporting.............. F-16
Auditors' Report..................................................................... F-17
Consolidated Balance Sheets as at December 31, 1997 and 1996......................... F-18
Consolidated Statements of Operations and Deficit
for the years ended December 31, 1997, 1996 and 1995............................... F-19
Consolidated Statements of Changes in Financial Position
for the years ended December 31, 1997, 1996 and 1995............................... F-20
Notes to Consolidated Financial Statements........................................... F-21
CHECKMATE ELECTRONICS, INC.:
Unaudited 1998 Quarterly Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997..... F-34
Condensed Consolidated Statements of Operations for the three months ended March 31,
1998 and 1997...................................................................... F-35
Condensed Consolidated Statements of Cash Flows for the three months ended March 31,
1998 and 1997...................................................................... F-36
Notes to Condensed Consolidated Financial Statements................................. F-37
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
1997 Financial Statements
Report of Independent Auditors....................................................... F-40
Balance Sheets as of December 31, 1997 and 1996...................................... F-41
Statements of Operations for the years ended December 31, 1997, 1996 and 1995........ F-42
Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995................................................... F-43
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995........ F-44
Notes to Financial Statements........................................................ F-45
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS OF IVI CHECKMATE
CORP.:
Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet as of March 31,
1998............................................................................... F-58
Unaudited Pro Forma Condensed Combined Consolidated Statements of Operations for the
quarter ended March 31, 1998....................................................... F-59
Unaudited Pro Forma Condensed Combined Consolidated Statements of Operations for the
quarter ended March 31, 1997....................................................... F-60
Unaudited Pro Forma Condensed Combined Statements of Operations
for the years ended December 31, 1997, 1996 and 1995............................... F-61
Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial Statements.... F-64
</TABLE>
F-2
<PAGE>
AUDITED MARCH 31, 1998 CONSOLIDATED FINANCIALS STATEMENTS OF IVI CHECKMATE CORP.
F-3
<PAGE>
Report of Independent Auditors
The Board of Directors
IVI Checkmate Corp.
We have audited the accompanying consolidated balance sheet of IVI Checkmate
Corp. as of March 31, 1998, and the related consolidated statements of
operations, stockholder's equity and cash flows for the period from January 15,
1998 (date of inception) through March 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IVI Checkmate
Corp. at March 31, 1998, and the consolidated results of its operations and its
cash flows for the period from January 15, 1998 (date of inception) through
March 31, 1998 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Atlanta, Georgia
May 4, 1998
F-4
<PAGE>
IVI Checkmate Corp.
Consolidated Balance Sheet
March 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash................................................................. $ --
---------
Total assets......................................................... $ --
---------
---------
STOCKHOLDER'S EQUITY
Common stock, $0.01 par value, 99,000,000 shares authorized, 10
shares issued and outstanding.................................... $ --
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none
issued and outstanding........................................... --
Additional paid-in capital......................................... 100
Subscription receivable............................................ (100)
Retained earnings.................................................. --
---------
Total stockholder's equity........................................... --
---------
$ --
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
IVI Checkmate Corp.
Consolidated Statement of Operations
Period From January 15, 1998 (date of inception) through March 31, 1998
<TABLE>
<CAPTION>
Revenues:
<S> <C>
Net Revenues.................................................. $ --
Cost of sales................................................... --
---------
Gross profit.................................................... --
Selling, general and administrative expenses.................... --
---------
Income from operations.......................................... --
Interest expense................................................ --
Interest income................................................. --
Other income, net............................................... --
---------
Net income...................................................... $ --
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
IVI Checkmate Corp.
Consolidated Statement of Stockholder's Equity
Period From January 15, 1998 (date of inception) through March 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
$.01 PAR VALUE $.01 PAR VALUE ADDITIONAL
---------------- ---------------- PAID-IN SUBSCRIPTION RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE EARNINGS
------ -------- ------ -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
January 15, 1998 (date of inception)..................... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock................................. 10 -- -- -- 100 (100) --
------ -------- ------ -------- ----- ----- --------
March 31, 1998........................................... 10 $ -- -- $ -- $ 100 $ (100) $ --
------ -------- ------ -------- ----- ----- --------
------ -------- ------ -------- ----- ----- --------
<CAPTION>
TOTAL
STOCKHOLDER'S
EQUITY
-------------
<S> <C>
January 15, 1998 (date of inception)..................... $ --
Issuance of common stock................................. --
-------------
March 31, 1998........................................... $ --
-------------
-------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
IVI Checkmate Corp.
Consolidated Statement of Cash Flows
Period From January 15, 1998 (date of inception) through March 31, 1998
<TABLE>
<CAPTION>
OPERATING ACTIVITIES
<S> <C>
Net income...................................................... $ --
---------
Increase in cash and cash equivalents........................... --
Cash at beginning of the period................................. --
---------
Cash at end of the period....................................... $ --
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-8
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
IVI Checkmate Corp. (a Delaware corporation) ("IVI Checkmate" or the
"Company"), was formed on January 15, 1998 solely for the purpose of becoming
the holding company for the operations of International Verifact Inc. ("IVI")
and Checkmate Electronics, Inc. ("Checkmate") upon consummation of the merger of
IVI and Checkmate in accordance with the terms of the combination agreement
described below in Note 2. The Company is currently a 100% owned subsidiary of
Checkmate.
On January 15, 1998, the Company also formed a subsidiary, Future Merger
Corporation (a Georgia corporation). The Company subscribed for 100% of the
issued and outstanding shares of common stock in Future Merger Corporation. The
Company's investment in Future Merger Corporation has been eliminated in
consolidation.
Neither the Company nor Future Merger Corporation has conducted any
operations to date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. PROPOSED MERGER OF IVI AND CHECKMATE
On January 16, 1998, Checkmate and IVI entered into a definitive agreement
(the "Combination Agreement") to combine the two companies, which are engaged in
similar businesses. IVI and Checkmate intend for the combination to be accounted
for on a pooling of interest basis. Under the terms of the Combination
Agreement, IVI shareholders will receive, for each IVI common share, either one
share of common stock of this newly formed company, IVI Checkmate Corp., or one
exchangeable share of IVI which can be exchanged for a share of IVI Checkmate
Corp. common stock in the future. Checkmate shareholders will receive 1.2775
shares of IVI Checkmate Corp. common stock for each Checkmate common share.
Closing of the transaction is expected to occur in June 1998, subject to
shareholder approvals, Ontario Court approval, and customary closing conditions.
Upon consummation of the merger of IVI and Checkmate, Future Merger
Corporation will merge with and into Checkmate, with Checkmate as the surviving
corporation thereby becoming a wholly-owned subsidiary of the Company. As a
result of the share exchange under the Combination Agreement and the merger of
Checkmate and Future Merger Corporation, IVI and Checkmate will become operating
subsidiaries of the Company.
F-9
<PAGE>
INTERNATIONAL VERIFACT INC.
UNAUDITED 1998 QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
INTERNATIONAL VERIFACT INC.
F-10
<PAGE>
INTERNATIONAL VERIFACT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars)
<TABLE>
<CAPTION>
MARCH 31 December 31
1998 1997
----------- ------------
<S> <C> <C>
(UNAUDITED) (NOTE)
ASSETS
CURRENT ASSETS
Cash and marketable securities........................................................ $ 10,134 $ 16,090
Accounts receivable................................................................... 18,935 12,098
Inventories........................................................................... 9,202 8,408
Other................................................................................. 1,109 604
----------- ------------
39,380 37,200
Capital assets........................................................................ 3,170 3,451
Other assets.......................................................................... 9,480 8,845
Goodwill.............................................................................. 890 917
----------- ------------
$ 52,920 $ 50,413
----------- ------------
----------- ------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities.............................................. $ 12,581 $ 11,852
Deferred revenue...................................................................... 563 298
Current portion of capital lease obligations.......................................... 11 54
----------- ------------
13,155 12,204
Long term capital lease obligations................................................... -- 33
Minority interest..................................................................... 15 75
----------- ------------
13,170 12,312
SHAREHOLDERS' EQUITY.................................................................. 39,750 38,101
----------- ------------
$ 52,920 $ 50,413
----------- ------------
----------- ------------
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1997 has been
derived from the consolidated audited financial statements of the Company
at that date but does not include all of the information required by
generally accepted accounting principles for complete financial
statements.
F-11
<PAGE>
INTERNATIONAL VERIFACT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands of Canadian dollars, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
March 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenue.................................................................................. $ 19,111 $ 15,272
Cost of sales............................................................................ 12,651 10,009
--------- ---------
Gross margin............................................................................. 6,460 5,263
--------- ---------
Expenses
Selling, general and administration...................................................... 3,562 3,273
Research and development................................................................. 1,358 1,293
Depreciation and amortization............................................................ 810 494
--------- ---------
5,730 5,060
--------- ---------
Earnings before interest and minority interest........................................... 730 203
Interest and other income................................................................ 73 94
Gain on sale of marketable securities.................................................... 136 --
Minority interest........................................................................ 29 104
--------- ---------
Net earnings for the period.............................................................. $ 968 $ 401
--------- ---------
--------- ---------
Net earnings per share................................................................... $ 0.11 $ 0.05
--------- ---------
--------- ---------
Weighted average common shares outstanding (thousands)................................... 9,199 8,679
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
INTERNATIONAL VERIFACT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Unaudited, in thousands of Canadian dollars)
<TABLE>
<CAPTION>
Three months ended
March 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH USED IN OPERATING ACTIVITIES
Net earnings............................................................................. $ 968 $ 401
Non-cash items:
Depreciation and amortization.......................................................... 816 494
Minority interest...................................................................... (29) (104)
Cash from operations..................................................................... 1,755 791
Change in non-cash working capital....................................................... (7,137) (1,703)
--------- ---------
(5,382) (912)
--------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES
Issuance of common shares................................................................ 759 336
Change in capital lease obligations...................................................... (77) (6)
--------- ---------
682 330
--------- ---------
CASH USED IN INVESTMENT ACTIVITIES
Purchase of capital assets............................................................... (105) (296)
Capitalization of development costs...................................................... (667) (526)
Acquisition of BancTec assets............................................................ (449) --
Change in other assets................................................................... (35) 71
--------- ---------
(1,256) (751)
--------- ---------
NET CHANGE IN CASH AND MARKETABLE SECURITIES............................................. (5,956) (1,333)
CASH AND MARKETABLE SECURITIES--BEGINNING OF PERIOD...................................... 16,090 14,443
--------- ---------
CASH AND MARKETABLE SECURITIES--END OF PERIOD............................................ $ 10,134 $ 13,110
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
INTERNATIONAL VERIFACT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with Canadian generally accepted accounting
principles ("GAAP") for interim financial information and with the instructions
to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. These statements should be read in conjunction
with the Company's audited financial statements included in the Company's 1997
Annual Report. Operating results for the three months ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998 or any interim period.
2. INVENTORIES
Inventories are summarized by class as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Raw materials and work-in-process......................... $ 3,246 $ 3,674
Finished goods............................................ 7,638 6,581
------- -------
10,884 10,255
Provision for obsolescence................................ (1,682) (1,847)
------- -------
$ 9,202 $ 8,408
------- -------
------- -------
</TABLE>
3. AVAILABLE-FOR-SALE MARKETABLE SECURITIES
On March 31, 1998, the Company sold its investment in 260,000 shares of
common stock of Checkmate Electronics, Inc. in an arm's-length transaction over
the NASDAQ National Market System. Consequently, net earnings for the three
months ended March 31, 1998 included a gain of $136,000 that resulted from this
sale.
F-14
<PAGE>
1997 CONSOLIDATED FINANCIAL STATEMENTS OF INTERNATIONAL VERIFACT INC.
F-15
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of International Verifact Inc. have
been prepared by and are the responsibility of Management in accordance with
generally accepted accounting principles. When alternative accounting methods
exist, Management has chosen those it deems most appropriate in the
circumstances. Financial statements are not precise since they include certain
amounts based on estimates and judgements. Management has determined such
amounts on a reasonable basis in order to ensure that the financial statements
are presented fairly, in all material respects.
International Verifact Inc. maintains systems of internal accounting and
administrative controls which are of high quality, consistent with reasonable
cost. Such systems are designed to provide reasonable assurance that the
financial information is relevant, reliable and accurate and that the Company's
assets are appropriately accounted for and adequately safeguarded.
The Board of Directors is responsible for ensuring that Management fulfills
its responsibilities for financial reporting and is ultimately responsible for
reviewing and approving the financial statements. The Board carries out this
responsibility principally through its Audit Committee.
The Audit Committee is appointed by the Board, and a majority of its members
are outside directors. The Committee meets quarterly with Management, as well as
with external auditors as required, to discuss internal controls over the
financial reporting process, auditing matters and financial reporting issues.
The Committee has reported its findings to the Board which has approved the
financial statements for issuance to the shareholders. The Committee also
considers, for review by the Board and approval by the shareholders, the
engagement or re-appointment of the external auditors.
The consolidated financial statements have been audited by Coopers &
Lybrand, the external auditors, in accordance with generally accepted auditing
standards. Coopers & Lybrand has full and free access to the Audit Committee.
<TABLE>
<S> <C>
L. Barry Thomson Peter H. Henry
President and Chief Executive Officer Vice President, Finance and
February 12, 1998 Administration
</TABLE>
F-16
<PAGE>
AUDITORS' REPORT
TO THE DIRECTORS OF INTERNATIONAL VERIFACT INC.
We have audited the consolidated balance sheets of International Verifact
Inc. as at December 31, 1997 and 1996 and the consolidated statements of
operations and deficit and changes in financial position for the years ended
December 31, 1997, 1996 and 1995. These financial statements are the
responsibility of the Company's Management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by Management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1997 and 1996 and the results of its operations and the changes in its financial
position for the years ended December 31, 1997, 1996 and 1995 in accordance with
Canadian generally accepted accounting principles.
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS
TORONTO, CANADA
FEBRUARY 12, 1998
F-17
<PAGE>
INTERNATIONAL VERIFACT INC.
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NOTE 1997 1996
----- ---------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and marketable securities..................................................... $ 16,090 $ 14,443
Accounts receivable (net of $434 provision, 1996--$407)............................ 12,098 9,463
Inventories........................................................................ 2 8,408 9,529
Other.............................................................................. 604 411
---------- ----------
37,200 33,846
Capital assets..................................................................... 3 3,451 3,214
Other assets....................................................................... 4 8,845 6,209
Goodwill........................................................................... 917 1,021
---------- ----------
$ 50,413 $ 44,290
---------- ----------
---------- ----------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities........................................... $ 11,852 $ 12,055
Deferred revenue................................................................... 298 1,100
Current portion of capital lease obligations....................................... 5 54 35
---------- ----------
12,204 13,190
Long-term capital lease obligations................................................ 5 33 26
Minority interest.................................................................. 75 126
---------- ----------
12,312 13,342
---------- ----------
SHAREHOLDERS' EQUITY
Capital stock...................................................................... 8 56,665 53,204
Contributed surplus................................................................ 1,065 1,065
Deficit............................................................................ (19,629) (23,321)
---------- ----------
38,101 30,948
---------- ----------
---------- ----------
$ 50,413 $ 44,290
---------- ----------
---------- ----------
</TABLE>
APPROVED ON BEHALF OF THE BOARD
DIRECTOR /S/ L. BARRY THOMSON
................................................
DIRECTOR /S/ PETER G. ROODE
................................................
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-18
<PAGE>
INTERNATIONAL VERIFACT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTE 1997 1996 1995
----- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue................................................................ $ 71,208 $ 47,801 $ 60,511
Cost of sales.......................................................... 47,193 32,388 40,571
---------- ---------- ----------
Gross margin........................................................... 24,015 15,413 19,940
---------- ---------- ----------
Expenses
Selling, general and administrative.................................... 14,576 11,524 9,519
Research and development............................................... 4,612 3,248 4,421
Depreciation and amortization.......................................... 2,019 1,626 2,729
---------- ---------- ----------
21,207 16,398 16,669
---------- ---------- ----------
Earnings (loss) before interest, minority interest
and unusual items.................................................... 2,808 (985) 3,271
Interest income........................................................ 264 203 154
Minority interest...................................................... 620 27 --
Share of losses of associated company.................................. 10 -- (201) --
Write-off of goodwill.................................................. 10 -- (9,285) --
Ingenico alliance product writedown.................................... 10 -- (1,660) --
---------- ---------- ----------
Net earnings (loss) for the year....................................... 3,692 (11,901) 3,425
Deficit -- beginning of year........................................... (23,321) (11,420) (14,845)
---------- ---------- ----------
Deficit -- end of year................................................. $ (19,629) $ (23,321) $ (11,420)
---------- ---------- ----------
---------- ---------- ----------
Earnings (loss) per share.............................................. 7 $ 0.42 $ (1.67) $ 0.52
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-19
<PAGE>
INTERNATIONAL VERIFACT INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NOTE 1997 1996 1995
----- --------- ---------- ---------
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net earnings (loss) for the year......................................... $ 3,692 $ (11,901) $ 3,425
Non-cash items:
Depreciation and amortization.......................................... 2,019 1,626 2,729
Share of losses of associated company.................................. -- 201 --
Loss on disposal of capital assets..................................... -- 29 --
Minority interest...................................................... (620) (27) --
Writeoff of goodwill................................................... -- 9,285 --
Ingenico alliance product writedown.................................... -- 1,660 --
--------- ---------- ---------
Cash from operations..................................................... 5,091 873 6,154
Change in non-cash working capital....................................... (2,712) 613 (2,614)
--------- ---------- ---------
2,379 1,486 3,540
--------- ---------- ---------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issue of common shares, net of issuance costs............................ 3,461 12,952 1,571
Received from minority shareholders...................................... 569 -- --
Change in capital lease obligations...................................... 26 (38) (62)
--------- ---------- ---------
4,056 12,914 1,509
--------- ---------- ---------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchase of capital assets............................................... (1,344) (1,537) (1,249)
Capitalization of development costs...................................... (3,444) (2,470) (1,609)
Purchase of technology licensing rights.................................. 9 -- (1,351) --
Acquisition of National Transaction Network, Inc......................... 9 -- (817) --
--------- ---------- ---------
(4,788) (6,175) (2,858)
--------- ---------- ---------
NET CHANGE IN CASH AND MARKETABLE SECURITIES............................. 1,647 8,225 2,191
CASH AND MARKETABLE SECURITIES--BEGINNING OF YEAR........................ 14,443 6,218 4,027
--------- ---------- ---------
CASH AND MARKETABLE SECURITIES--END OF YEAR.............................. $ 16,090 $ 14,443 $ 6,218
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-20
<PAGE>
INTERNATIONAL VERIFACT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(tabular amounts in thousands of Canadian dollars, except for per share amounts)
1. ACCOUNTING POLICIES
International Verifact Inc. (the "Company") is engaged primarily in the
design, development and sale of terminals, check readers, smart card readers,
software and software products, and related products and services in electronic
funds transfer ("EFT"), electronic benefits transfer ("EBT") and point of sale
("POS") applications.
The preparation of the consolidated financial statements is the
responsibility of Management. The consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles
("Canadian GAAP") and conform in all material respects with generally accepted
accounting principles in the United States (U.S. GAAP), except as described in
note 13.
(A) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries: International Verifact Inc. (U.S.) -- wholly owned;
National Transaction Network, Inc. ("NTN") -- 83.3% owned; and IVI Ingenico Inc.
- -- 51% owned. All intercompany balances and transactions are eliminated on
consolidation.
(B) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
(C) REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment, except for
evaluation units which are recognized on customer acceptance. Any rebates and
estimated warranty costs are accrued at time of sale.
(D) FOREIGN CURRENCY
The financial statements of the Company's subsidiaries have been translated
into Canadian dollars as follows:
- monetary assets and liabilities at the year end rate of exchange;
- non-monetary assets and liabilities at the historical rate of exchange;
- revenue and expenses at the weighted average rate of exchange for the
year;
- foreign currency translation differences are recognized in income.
Transactions denominated in foreign currencies are translated to Canadian
dollars at the prevailing rate of exchange.
(E) CASH AND MARKETABLE SECURITIES
Cash and marketable securities consists of cash on deposit with banks,
highly liquid investments with a maturity from date of purchase of three months
or less and marketable securities available for sale.
F-21
<PAGE>
INTERNATIONAL VERIFACT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(tabular amounts in thousands of Canadian dollars, except for per share amounts)
1. ACCOUNTING POLICIES (CONTINUED)
(F) INVENTORIES
Raw materials and work-in-process are valued at the lower of actual cost,
replacement cost and net realizable value. Finished goods are valued at the
lower of actual cost and net realizable value. The actual inventory cost is
calculated using standard costing applied on a first-in, first-out basis.
Provision is made for those inventories for which Management considers
recoverability to be impaired. This assessment is made based upon a review of
the condition of inventory, historic and anticipated sales and developments in
technologies. By their nature, these estimates of required provisions are
subject to measurement uncertainty and may impact the financial statements of
future periods.
(G) CAPITAL ASSETS
Capital assets are recorded at cost, and are depreciated in a rational and
systematic manner appropriate to the nature of the assets using straight-line or
diminishing balance methods over the estimated life of the assets as follows:
<TABLE>
<S> <C>
Furniture, fixtures and equipment.............. 20% per annum on declining balance
33 1/3% per annum on declining
Computer hardware and software................. balance
Straight-line over the term of the
Leasehold improvements......................... lease
Molds and other................................ Straight-line over three years
</TABLE>
(H) GOODWILL
Goodwill is amortized on a straight line basis over its useful life, not to
exceed 10 years. Goodwill is written down to its estimated net recoverable
amount when it is determined that a permanent impairment in ongoing value has
occurred. The Company assesses the recoverability of unamortized goodwill based
on an estimate of undiscounted cash flow over the remaining period of
amortization for each business to which the goodwill relates.
(I) DEVELOPMENT COSTS
Costs related to the development of software products are deferred once
technological feasibility has been established until commercial production has
been attained, provided that the recoverability of such costs is reasonably
assured through expected sales less related selling expenses. Amortization of
these costs commences upon first customer shipment following beta testing, on a
straight-line basis over the estimated useful lives, not to exceed five years.
(J) TECHNOLOGY LICENSING RIGHTS
Costs incurred in acquiring the rights to use certain technology are
recorded as assets when access to the technology is made available to the
Company. The right is amortized on a straight-line basis over the life of the
agreement governing the usage.
(K) LEASES
Where the Company has substantially all the benefits and risks incident to
the ownership of property, the lease is classified as a capital lease. All other
leases are classified as operating leases. Assets recorded under capital leases
are depreciated using rates that are consistent with similar company-owned
assets.
F-22
<PAGE>
INTERNATIONAL VERIFACT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(tabular amounts in thousands of Canadian dollars, except for per share amounts)
1. ACCOUNTING POLICIES (CONTINUED)
(L) INCOME TAXES
The Company provides for income taxes under the tax allocation basis of
accounting, whereby income taxes are provided for in the year in which the
related income is reflected in the financial statements. Deferred income tax
provisions result from timing differences in the recognition of income and
expense for income tax and financial statement purposes.
2. INVENTORIES
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Raw materials and work-in-process............................................................ $ 3,674 $ 5,109
Finished goods............................................................................... 6,581 8,142
--------- ---------
10,255 13,251
Provision for obsolescence................................................................... (1,847) (3,722)
--------- ---------
$ 8,408 $ 9,529
--------- ---------
--------- ---------
</TABLE>
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
1997 1996
------------------------------------- -------------------------------------
ACCUMULATED NET BOOK ACCUMULATED NET BOOK
COST DEPRECIATION VALUE COST DEPRECIATION VALUE
--------- --------------- --------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Furniture, fixtures and equipment.......... $ 2,287 $ 1,412 $ 875 $ 2,706 $ 1,612 $ 1,094
Computer hardware and software............. 3,633 2,364 1,269 3,264 2,309 955
Leasehold improvements..................... 671 376 295 607 323 284
Molds and other............................ 2,646 1,634 1,012 2,093 1,212 881
--------- ------ --------- --------- ------ ---------
$ 9,237 $ 5,786 $ 3,451 $ 8,670 $ 5,456 $ 3,214
--------- ------ --------- --------- ------ ---------
--------- ------ --------- --------- ------ ---------
Included in capital assets are the
following amounts under capital leases
(note 5)................................. $ 171 $ 60 $ 111 $ 141 $ 68 $ 73
--------- ------ --------- --------- ------ ---------
--------- ------ --------- --------- ------ ---------
</TABLE>
4. OTHER ASSETS
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred development costs..................................................................... $ 9,665 $ 6,210
Technology licensing right..................................................................... 1,351 1,351
Other.......................................................................................... 57 68
--------- ---------
11,073 7,629
Accumulated amortization....................................................................... 2,228 1,420
--------- ---------
$ 8,845 $ 6,209
--------- ---------
--------- ---------
</TABLE>
F-23
<PAGE>
INTERNATIONAL VERIFACT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(tabular amounts in thousands of Canadian dollars, except for per share amounts)
5. COMMITMENTS
(A) LEASES
Future minimum lease payments under capital leases (note 3) and operating
leases at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1998............................................................................... $ 60 $ 542
1999............................................................................... 36 451
2000............................................................................... -- 352
2001............................................................................... -- 340
2002............................................................................... -- 156
--- -----------
Total lease payments............................................................... 96 $ 1,841
-----------
-----------
Less interest included in capital leases at an average rate
of 15.8% per annum............................................................... (9)
---
Obligations under capital leases (including current installments of $54)........... $ 87
---
---
</TABLE>
(B) PRODUCT PURCHASES
The Company has contractual obligations with its turnkey manufacturer for
finished goods purchases. Based upon purchase orders and forecasts provided to
the manufacturer as at December 31, 1997, the value of committed purchases is
$3.9 million.
6. INCOME TAXES
(A) CANADA
As at December 31, 1997, the Company has approximately $3.7 million
(1996--$9.5 million) of capital cost allowances and development costs available
for deduction in future years with no time limits.
In addition the Company has unutilized scientific research and development
income tax credits of approximately $3.0 million at December 31, 1997 (1996 -
$2.0 million) originating from fiscal years 1988 to 1997. Under Canadian tax
laws, the utilization of these tax credits are subject to a ten year limitation
from the date of original claim.
Furthermore, a capital loss carryforward of $763,000 (1996 -$763,000) is
also available to offset capital gains in future years with no time limits on
its expiry.
(B) UNITED STATES
The Company incurred a loss for income tax purposes in the U.S. of US$1.3
million which increased the Company's non-capital losses in its U.S. operations
to approximately US$8.2 million (1996 -- US$6.9 million). Utilization of these
losses for income tax purposes is subject to certain limitations. Under U.S. tax
rules losses incurred are available to offset income for the succeeding 15
years.
F-24
<PAGE>
INTERNATIONAL VERIFACT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(tabular amounts in thousands of Canadian dollars, except for per share amounts)
6. INCOME TAXES (CONTINUED)
The potential future income tax benefits of the items noted above in Canada
and the U.S. have not been recorded in these financial statements, but the
implications under U.S. GAAP are discussed further in note 13.
(C) TAX RECONCILIATION
The following table reconciles income taxes calculated at the statutory rate
with the income tax provision in the financial statements:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Combined basic
Canadian federal and provincial
tax rate.................................. 44.62% 44.62% 44.58%
Increase (decrease) in the tax rate resulting
from:
Benefit of losses not previously
recognized.............................. (73.71) 9.65 (54.84)
Non-deductible expenses................... -- (41.58) 10.26
Tax rate differences on U.S. losses....... 6.27 (2.74) --
Tax recovery on U.S. losses not
recognized.............................. 22.82 (9.95) --
--------- --------- ---------
Effective tax rate............................ -- -- --
--------- --------- ---------
--------- --------- ---------
</TABLE>
7. PER SHARE INFORMATION
Earnings per share is calculated using the weighted average number of shares
outstanding (1997 -- 8,802,799; 1996 -- 7,120,169; 1995 -- 6,591,186). There is
no material dilution in basic earnings per share when calculated on a
fully-diluted basis.
F-25
<PAGE>
INTERNATIONAL VERIFACT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(tabular amounts in thousands of Canadian dollars, except for per share amounts)
8. CAPITAL STOCK
(A) ISSUED AND FULLY PAID
The Company is authorized to issue an unlimited number of common shares
without par value, and an unlimited number of preferred shares issuable in
series.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- --------- ---------- --------- ---------- ---------
Common Shares
Beginning of year....................... 8,636,440 $ 53,204 6,775,615 $ 40,252 6,555,065 $ 38,681
Exercise of options..................... 499,750 3,277 190,600 1,773 220,100 1,564
Investment by Ingenico.................. 21,070 178 1,439,000 9,453 -- --
Exercise of warrants.................... 375 6 375 6 450 7
Acquisition of NTN...................... -- -- 230,850 1,720 -- --
---------- --------- ---------- --------- ---------- ---------
Total Share Capital..................... 9,157,635 $ 56,665 8,636,440 $ 53,204 6,775,615 $ 40,252
---------- --------- ---------- --------- ---------- ---------
---------- --------- ---------- --------- ---------- ---------
</TABLE>
(B) STOCK OPTIONS
<TABLE>
<CAPTION>
SHARES UNDER
OUTSTANDING OPTIONS
----------------------------
<S> <C> <C>
NUMBER OF PRICE PER
SHARES SHARE
----------- ---------------
Balance, December 31, 1995.......................................................... 755,300 $ 6.00--$23.70
Options canceled.................................................................. (196,900) $ 6.00--$23.70
Options granted................................................................... 231,400 $ 6.00--$10.75
Options exercised................................................................. (190,600) $ 6.00--$10.50
----------- ---------------
Balance, December 31, 1996.......................................................... 599,200 $ 6.00--$10.75
Options canceled.................................................................. (549,500) $ 6.00--$12.10
Options granted................................................................... 932,650 $ 6.30--$12.10
Options exercised................................................................. (499,750) $ 6.00--$ 7.55
----------- ---------------
Balance, December 31, 1997.......................................................... 482,600 $ 6.65--$12.10
----------- ---------------
----------- ---------------
</TABLE>
The 1997 Stock Option Plan (the "1997 Plan"), which the Company's
shareholders approved on May 8, 1996 to replace the then existing Amended and
Restated Stock Option Plan (the "Old Plan"), took effect on January 14, 1997.
The maximum number of shares that could be issued under the 1997 Plan is
1,075,000. One condition of the 1997 Plan was that options to purchase common
shares of the Company could no longer be granted under the Old Plan, and that
all options issued and outstanding under the Old Plan would expire on January
13, 1997 if unexercised.
Between January 1 and January 13, 1997, options to purchase 56,700 common
shares under the Old Plan were exercised. The remaining 542,500 options that
were outstanding as of December 31, 1996 expired.
F-26
<PAGE>
INTERNATIONAL VERIFACT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(tabular amounts in thousands of Canadian dollars, except for per share amounts)
8. CAPITAL STOCK (CONTINUED)
All options outstanding on December 31, 1997 are fully vested, and expire on
January 13, 1999 if unexercised.
(C) WARRANTS
On December 30, 1997, all of the Company's outstanding warrants expired. The
warrants, which were originally issued as part of the Company's acquisition of
Soricon Corporation in December 1994, entitled the holder to purchase one common
share per warrant at a price of $15.00 Cdn.
During 1997, warrants to purchase 375 common shares (1996 -- 375 common
shares) were exercised.
9. ALLIANCES AND ACQUISITIONS
In September 1996, the Company acquired approximately 84% of the outstanding
shares of NTN which was satisfied by the issuance of 230,850 common shares from
treasury. The cost of the acquisition, which was accounted for as a purchase
transaction, was valued at $1.8 million comprising $2.6 million in total assets
(including cash of $1.0 million), less $1.6 million in liabilities and $200,000
in minority interest. The resulting $1.0 million in goodwill is being amortized
on a straight-line basis over 10 years.
In December 1996, the Company formed a global strategic alliance with
Ingenico S.A. ("Ingenico") of Paris, France to provide its customers with a full
range of products, including proven smart card technology. Under the terms of
the alliance, each company has cross-licensed its technologies to the other,
entered into a mutual marketing and distribution agreement for the other
company's products, and agreed to establish a business venture to become the
exclusive distributor of IVI and Ingenico products in Latin America.
As part of the alliance, Ingenico acquired 1,439,000 common shares from the
Company's treasury for a purchase price of $9.9 million less issuance costs of
$462,000 (see note 8).
Furthermore, as part of the alliance, in consideration for a payment of
US$1.0 million, the Company received an irrevocable, royalty-free, exclusive
license to use and incorporate the UNICAPT technology and related intellectual
property of Ingenico into the Company's products (see note 4).
10. RESTRUCTURING AND OTHER ONE-TIME CHARGES
In the first quarter of 1996, Management reviewed the recoverability of
unamortized goodwill which arose from the Soricon acquisition in December 1994.
The financial results of Soricon subsequent to the December 1994 acquisition
were below anticipated results upon which management based the Soricon purchase
price. Soricon did not meet sales targets for its check reader and costs were
much higher than anticipated. As a result, in accordance with the Company's
accounting policy, Management compared the unamortized goodwill against an
estimate of the undiscounted cash flows arising from the business to which the
goodwill related, over the remaining amortization period. On the basis of this,
management determined that there was a permanent impairment in the carrying
value of the goodwill, and wrote off in the first quarter of 1996 the entire
unamortized balance of $9.3 million which remained at December 31, 1995 as the
estimated net recoverable amount and fair value of this goodwill was nil. This
undiscounted
F-27
<PAGE>
INTERNATIONAL VERIFACT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(tabular amounts in thousands of Canadian dollars, except for per share amounts)
10. RESTRUCTURING AND OTHER ONE-TIME CHARGES (CONTINUED)
cash flows were only sufficient to recover the value of the fixed assets of
approximately $895,000 which approximated fair value.
The alliance agreement entered into with Ingenico in December 1996 required
the Company to incorporate the UNICAPT technology into its products. As a
result, certain inventory products and deferred development costs related to
these products became, in Management's opinion, either unmarketable or
unrecoverable. This resulted in a charge of $1.7 million or 23 cents per share
against 1996 earnings.
In 1996, the Company held approximately 20% of the outstanding common shares
of Internet Payment Processing, Inc. ("IPP"), and accounted for its investment
on an equity basis. The Company's investment included loans advanced to IPP and
receivables for services rendered. The Company's share of IPP's 1996 losses
would have been $535,000, but was however limited to a maximum of its investment
in IPP. As a result, after recording an equity loss of $201,000 in 1996, the
Company's carrying value of its investment in IPP as at December 31, 1996 was
$0. There have been no further charges or liabilities incurred by the Company in
1997, nor is any further investment anticipated or required going forward.
11. RELATED PARTY TRANSACTION
In a marketing and distribution agreement that the Company entered into in
December 1996 with Ingenico (see note 9), the Company became the exclusive
distributor of Ingenico's products in North America. Consequently, during 1997,
the Company purchased Elite smart card terminals and Scribe printers from
Ingenico totaling $2.4 million (1996 -- $0) to satisfy customer demands, of
which $1.3 million (1996 -- $0) was still payable as at December 31, 1997.
F-28
<PAGE>
INTERNATIONAL VERIFACT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(tabular amounts in thousands of Canadian dollars, except for per share amounts)
12. SEGMENTED INFORMATION
Operations and identifiable assets by geographic regions for the years
indicated are:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
REVENUE
Canada........................................................................ $ 41,570 $ 30,385 $ 42,239
United States................................................................. 29,343 16,358 15,863
International................................................................. 295 1,058 2,409
--------- ---------- ---------
71,208 47,801 60,511
--------- ---------- ---------
EARNINGS (LOSS) BEFORE CORPORATE COSTS
Canada........................................................................ 9,385 4,549 7,112
United States................................................................. 198 (1,300) 1,984
International................................................................. (559) (213) 621
--------- ---------- ---------
9,024 3,036 9,717
Corporate costs:
Research and development.................................................... (4,419) (3,187) (4,421)
Amortization................................................................ (913) (604) (1,871)
Share of losses of associated company....................................... -- (201) --
Writeoff of goodwill........................................................ -- (9,285) --
Ingenico alliance product writedown......................................... -- (1,660) --
--------- ---------- ---------
Net earnings (loss) for the year.............................................. $ 3,692 $ (11,901) $ 3,425
--------- ---------- ---------
--------- ---------- ---------
IDENTIFIABLE ASSETS
Canada........................................................................ $ 22,311 $ 26,791 $ 20,481
United States................................................................. 14,907 10,303 7,755
International................................................................. 406 33 209
--------- ---------- ---------
37,624 37,127 28,445
Corporate assets.............................................................. 12,789 7,163 12,609
--------- ---------- ---------
Total......................................................................... $ 50,413 $ 44,290 $ 41,054
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The Company's customer base includes large financial institutions and retail
customers in North America and Latin America. Two of the Company's customers,
who are major Canadian chartered banks, accounted for in aggregate 28%, 43% and
49% of consolidated revenues in the years ended December 31, 1997, 1996 and
1995, respectively.
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance
with Canadian GAAP. U.S. GAAP differs in the following material areas:
F-29
<PAGE>
INTERNATIONAL VERIFACT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(tabular amounts in thousands of Canadian dollars, except for per share amounts)
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(A) DEFERRED TAXES--Statement of Financial Accounting Standards No. 109
(SFAS 109) requires the recording of deferred taxes using current tax rates, and
with respect to assets, the probability of recovery. As a result, under U.S.
GAAP, the deferred tax asset would consist of:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Net operating loss carryforwards............................................................. $ 4,125 $ 3,315
Excess book depreciation over tax............................................................ 75 652
Capital loss carryforward.................................................................... 320 320
Unclaimed scientific research and development expenditures................................... 1,458 3,992
Investment tax credits....................................................................... 1,727 2,032
--------- ---------
7,705 10,311
Valuation allowance.......................................................................... 4,877 8,646
--------- ---------
Deferred tax asset........................................................................... $ 2,828 $ 1,665
--------- ---------
--------- ---------
</TABLE>
The valuation allowance consists primarily of the deferred tax benefit of
the Company's net operating loss carryforwards in the U.S., which has not been
recognized due to the uncertainty regarding the utilization of these loss
carryforwards in future years.
(B) NON-CASH ITEMS--U.S. GAAP requires that a Statement of Changes in
Financial Position excludes non-cash transactions. NTN was acquired in 1996 in a
share-for-share exchange. The effect of reporting this transaction in accordance
with U.S. GAAP would be to reduce cash provided by financing activities by $1.7
million, with an offsetting decrease in cash used in investing activities.
U.S. GAAP requires that marketable securities be separately disclosed from
cash. The Company's marketable securities at December 31, 1997 consist of an
investment in 260,000 shares of common stock of Checkmate Electronics, Inc. (see
note 14) acquired during 1997. The effect of reporting this transaction in
accordance with U.S. GAAP would be to increase cash used in investing activities
and reduce cash and marketable securities by $3.1 million. At December 31, 1997,
the book value of available-for-sale marketable securities was $3.1 million and
market value was approximately $2.6 million. Under U.S. GAAP, this decline of
$530,000 in value is recorded as a separate component of shareholders' equity
until realized. On February 12, 1998, the market value is approximately $3.4
million.
The effects of recording the deferred tax asset and the decline in value of
available-for-sale marketable securities on the consolidated financial
statements are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
Net earnings (loss) as reported................................................... $ 3,692 $ (11,901) $ 3,425
Deferred income taxes............................................................. 1,163 (5,747) (1,520)
--------- ---------- ---------
Net earnings (loss) -- U.S. GAAP.................................................. $ 4,855 $ (17,648) $ 1,905
--------- ---------- ---------
--------- ---------- ---------
Earnings (loss) per share......................................................... $ 0.55 $ (2.48) $ 0.28
</TABLE>
Under U.S. GAAP, the Company has adopted the new U.S. GAAP standard for
computing earnings per share, SFAS 128 "Earnings Per Share", for the year ended
December 31, 1997. The effect of applying
F-30
<PAGE>
INTERNATIONAL VERIFACT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(tabular amounts in thousands of Canadian dollars, except for per share amounts)
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
SFAS 128 to years prior to December 31, 1998 does not produce a materially
different earnings per share amount as computed under APB 15, the prior method
used for calculating earnings per share.
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Total assets as reported.................................................................... $ 50,413 $ 44,290
Deferred tax asset.......................................................................... 2,828 1,665
Available-for-sale marketable securities.................................................... (530) --
--------- ---------
Total assets -- U.S. GAAP................................................................... $ 52,711 $ 45,955
--------- ---------
--------- ---------
Shareholders' equity as reported............................................................ $ 38,101 $ 30,948
Deferred tax asset.......................................................................... 2,828 1,665
Available-for-sale marketable securities.................................................... (530) --
--------- ---------
Shareholders' equity -- U.S. GAAP........................................................... $ 40,399 $ 32,613
--------- ---------
--------- ---------
</TABLE>
(C) NON-CASH WORKING CAPITAL--U.S. GAAP requires disclosure of the
components of the changes in "non-cash working capital" in the consolidated
statements of changes in financial position, which is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Accounts receivable............................................................... $ (2,635) $ 5,487 $ (7,378)
Inventory......................................................................... 1,121 (5,056) 4,855
Other current assets.............................................................. (193) (233) 134
Accounts payable and accrued liabilities.......................................... (203) (235) (97)
Deferred revenue.................................................................. (802) 650 (128)
--------- --------- ---------
$ (2,712) $ 613 $ (2,614)
--------- --------- ---------
--------- --------- ---------
</TABLE>
(D) STOCK-BASED COMPENSATION--The Company continues to account for its
stock based compensation in accordance with APB 25, and provides the following
disclosure as required under SFAS 123.
The following table presents net earnings and earnings per share in
accordance with U.S. GAAP on a pro forma basis giving effect to the pro forma
compensation expense relating to stock options granted to employees, in
accordance with SFAS 123.
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
Net earnings (loss) -- U.S. GAAP................................................ $ 4,855 $ (17,648) $ 1,905
Pro forma compensation expense.................................................. 973 493 1,400
--------- ---------- ---------
Pro forma net earnings (loss)................................................... $ 3,882 $ (18,141) $ 505
--------- ---------- ---------
--------- ---------- ---------
Pro forma earnings (loss) per share............................................. $ 0.44 $ (2.55) $ 0.08
Pro forma shareholders' equity -- U.S. GAAP..................................... $ 37,533 $ 30,720
</TABLE>
All options outstanding at December 31, 1997 had a weighted average
remaining contractual life of approximately one year.
F-31
<PAGE>
INTERNATIONAL VERIFACT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(tabular amounts in thousands of Canadian dollars, except for per share amounts)
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
SFAS 123 requires that pro forma compensation expense be recognized over the
vesting period based on the fair value of options granted to employees. The pro
forma compensation expense presented above has been estimated using the
Black-Scholes option pricing model. Assumptions used in the pricing model
include: (i) risk-free interest rates equal to the Government of Canada bonds
issued for a period of approximately the same length which is estimated to be
4.5% (1996 -- 5.3%; 1995 -- 8.6%); (ii) expected volatility of 35% (1996 -- 60%;
1995 -- 60%); (iii) expected dividend yield of $0 (1996 -- $0; 1995 -- $0); and
(iv) an estimated average life of one year (1996 -- one year; 1995 -- one year).
14. SUBSEQUENT EVENT
On January 16, 1998, the Company announced that it has entered into a
definitive agreement (the "Combination Agreement") with Checkmate Electronics,
Inc. of Roswell, Georgia to combine the two organizations. A new company, IVI
Checkmate Corp., will be formed, and it is anticipated that its common stock
will be publicly traded on both Canadian and U.S. stock exchanges.
Under the terms of the Combination Agreement, IVI shareholders will receive,
for each IVI common share, either one share of common stock of IVI Checkmate
Corp. or one exchangeable share of IVI which can be exchanged for a share of IVI
Checkmate Corp. common stock any time in the future. Checkmate shareholders will
receive 1.2775 shares of IVI Checkmate Corp. common stock for each Checkmate
common stock.
The parties intend to account for the combination as a pooling-of-interests
under U.S. GAAP. Closing of the transaction is expected to occur in the second
quarter of 1998, subject to further due diligence, reviews, shareholder
approvals, approvals from the Ontario Court and the U.S. Securities and Exchange
Commission, and customary closing conditions.
F-32
<PAGE>
UNAUDITED 1998 QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
CHECKMATE ELECTRONICS, INC.
F-33
<PAGE>
CHECKMATE ELECTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF US DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
(UNAUDITED) (NOTE)
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 3,163 $ 269
Investments......................................................................... 3,560 3,572
Accounts receivable, net............................................................ 10,688 11,048
Inventories......................................................................... 11,213 11,271
Deferred tax asset and refundable income taxes...................................... 1,781 1,798
Prepaid expenses.................................................................... 717 136
----------- ------------
Total current assets.............................................................. 31,122 28,094
Property and equipment................................................................ 10,571 10,120
Accumulated depreciation and amortization............................................. (4,646) (4,201)
----------- ------------
5,925 5,919
Other assets.......................................................................... 3,611 3,238
----------- ------------
Total assets.......................................................................... $ 40,658 $ 37,251
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 3,828 $ 2,372
Accrued liabilities................................................................. 2,897 1,725
Deferred revenue.................................................................... 1,589 1,188
Current portion of long-term obligations............................................ 162 162
----------- ------------
Total current liabilities......................................................... 8,476 5,447
Long-term obligations, less current portion........................................... 2 41
Deferred income taxes................................................................. 1,924 1,924
Shareholders' equity:
Common stock, $.01 par value........................................................ 54 54
Additional paid-in capital.......................................................... 24,687 24,687
Retained earnings................................................................... 5,515 5,098
----------- ------------
Total shareholders' equity........................................................ 30,256 29,839
----------- ------------
Total liabilities and shareholders' equity............................................ $ 40,658 $ 37,251
----------- ------------
----------- ------------
</TABLE>
Note: The condensed balance sheet at December 31, 1997 has been derived from
the audited financial statements of the Company at that date but does not
include all of the information required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
F-34
<PAGE>
CHECKMATE ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Net revenues................................................................................... $ 9,641 $ 9,506
Cost of goods sold............................................................................. 5,584 5,513
--------- ---------
Gross profit................................................................................... 4,057 3,993
Operating expenses:
Selling, general and administrative.......................................................... 2,829 2,675
Research and development..................................................................... 355 234
Depreciation and amortization................................................................ 270 168
--------- ---------
3,454 3,077
--------- ---------
Operating income............................................................................... 603 916
Interest income, net........................................................................... 47 85
--------- ---------
Income before income taxes..................................................................... 650 1,001
Income taxes................................................................................... 234 340
--------- ---------
Net income..................................................................................... $ 416 $ 661
--------- ---------
--------- ---------
Basic earnings per share....................................................................... $ 0.08 $ 0.13
--------- ---------
--------- ---------
Weighted average basic shares outstanding...................................................... 5,417 5,258
--------- ---------
--------- ---------
Diluted earnings per share..................................................................... $ 0.08 $ 0.12
--------- ---------
--------- ---------
Weighted average diluted shares outstanding.................................................... 5,448 5,697
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
F-35
<PAGE>
CHECKMATE ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income..................................................................................... $ 416 $ 661
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:..............................................................
Depreciation and amortization.............................................................. 655 412
Accretion of marketable securities discount................................................ 2 (62)
Deferred income taxes......................................................................
Changes in operating assets and liabilities:
Accounts receivable...................................................................... 359 (2,337)
Inventories.............................................................................. 59 (1,523)
Prepaid expenses......................................................................... (581) 767
Refundable income taxes.................................................................. 17 --
Accounts payable and accrued liabilities................................................. 2,629 1,942
Deferred revenue......................................................................... 401 135
--------- ---------
Net cash provided by (used in) operating activities............................................ 3,957 (5)
INVESTING ACTIVITIES
Purchases of property and equipment............................................................ (452) (472)
Deferred development costs..................................................................... (581) (271)
Purchases of investments....................................................................... (3,545) --
Proceeds from sales of investments............................................................. 3,600 975
Other.......................................................................................... (46) (246)
--------- ---------
Net cash used in investing activities.......................................................... (1,024) (14)
FINANCING ACTIVITIES
Payments of debt and capital leases............................................................ (39) (43)
Proceeds from issuance of common stock......................................................... -- 694
--------- ---------
Net cash provided by (used in) financing activities............................................ (39) 651
--------- ---------
Net increase in cash and cash equivalents...................................................... 2,894 632
Cash and cash equivalents beginning of period.................................................. 269 2,204
--------- ---------
Cash and cash equivalents at end of period..................................................... $ 3,163 $ 2,836
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
F-36
<PAGE>
CHECKMATE ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. These statements should be read in conjunction with the Company's
audited financial statements included in the Company's 1997 Annual Report.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998 or any interim period.
2. INVENTORIES
Inventories are summarized by class as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -------------
<S> <C> <C>
Finished goods..................................................... $ 2,692 $ 3,267
Work in process.................................................... 1,081 829
Raw materials and supplies......................................... 7,440 7,175
----------- -------------
$ 11,213 $ 11,271
----------- -------------
----------- -------------
</TABLE>
3. NET INCOME PER SHARE
Net income per share on a basic and diluted basis as required by Statement
No. 128 is calculated as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Net income................................................................. $ 416 $ 661
--------- ---------
--------- ---------
Calculation of weighted average shares outstanding plus assumed
conversions:
Weighted average basic shares outstanding.............................. 5,417 5,258
Effect of dilutive employee stock options.............................. 31 439
--------- ---------
Weighted average diluted shares outstanding............................ 5,448 5,697
--------- ---------
--------- ---------
Basic net income per share................................................. $ 0.08 $ 0.13
--------- ---------
--------- ---------
Diluted net income per share............................................... $ 0.08 $ 0.12
--------- ---------
--------- ---------
</TABLE>
4. COMBINATION AGREEMENT WITH INTERNATIONAL VERIFACT INC.
On January 16, 1998, the Company entered into a definitive agreement (the
"Combination Agreement") to combine with International Verifact Inc. ("IVI"), a
company engaged in a business similar to that of Checkmate. The parties intend
for the combination to be accounted for on a pooling of interest basis. Under
the terms of the Combination Agreement, IVI shareholders will receive, for each
IVI common share, either one share of common stock of the newly formed combined
company, IVI Checkmate Corp., or one exchangeable share of IVI which can be
exchanged for a share of IVI Checkmate
F-37
<PAGE>
CHECKMATE ELECTRONICS, INC.
4. COMBINATION AGREEMENT WITH INTERNATIONAL VERIFACT INC. (CONTINUED)
Corp. common stock in the future. Checkmate shareholders will receive 1.2775
shares of IVI Checkmate Corp. common stock for each Checkmate common share.
Closing of the transaction is expected to occur in June 1998, subject to
shareholder approvals, Ontario Court approval and customary closing conditions.
F-38
<PAGE>
1997 FINANCIAL STATEMENTS OF CHECKMATE ELECTRONICS, INC.
F-39
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Checkmate Electronics, Inc.
We have audited the balance sheets of Checkmate Electronics, Inc. as of
December 31, 1997 and 1996, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Checkmate Electronics, Inc.
at December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
February 18, 1998
Atlanta, Georgia
F-40
<PAGE>
CHECKMATE ELECTRONICS, INC.
BALANCE SHEETS
(IN THOUSANDS OF US DOLLARS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents.................................................................... $ 269 $ 2,204
Investments.................................................................................. 3,572 6,970
Accounts receivable, less allowance of $162 and $187 at December 31, 1997
and 1996, respectively..................................................................... 11,048 8,453
Inventories:
Finished goods............................................................................. 3,267 1,365
Work in process............................................................................ 829 107
Raw materials and supplies................................................................. 7,175 6,398
--------- ---------
11,271 7,870
Deferred tax asset........................................................................... 989 636
Refundable income taxes...................................................................... 809 340
Prepaid expenses............................................................................. 136 961
--------- ---------
Total current assets........................................................................... 28,094 27,434
Property and equipment:
Equipment.................................................................................... 9,103 6,377
Furniture and fixtures....................................................................... 1,017 660
--------- ---------
10,120 7,037
Accumulated depreciation and amortization.................................................... (4,201) (2,787)
--------- ---------
5,919 4,250
Identifiable intangible assets, net of accumulated amortization of $899 and $783 at December
31, 1997 and 1996, respectively.............................................................. 292 400
Deferred development costs, net of accumulated amortization of $1,409 and $853 at December 31,
1997 and 1996, respectively.................................................................. 2,935 1,792
Other assets................................................................................... 11 16
--------- ---------
$ 37,251 $ 33,892
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................................. $ 2,372 $ 1,158
Accrued liabilities.......................................................................... 1,725 1,709
Deferred revenue............................................................................. 1,188 1,072
Current portion of capital lease obligations................................................. -- 14
Current portion of long-term debt due to related party....................................... 162 146
--------- ---------
Total current liabilities...................................................................... 5,447 4,099
Long-term debt due to related party, less current portion...................................... 41 203
Deferred income taxes.......................................................................... 1,924 1,285
Shareholders' equity:
Common stock, $.01 par value:
Authorized shares -- 40,000,000
Issued and outstanding shares -- 5,400,000 and 5,232,000
at December 31, 1997 and 1996, respectively.............................................. 54 52
Additional paid-in capital................................................................... 24,687 23,026
Retained earnings............................................................................ 5,098 5,227
--------- ---------
Total shareholders' equity..................................................................... 29,839 28,305
--------- ---------
$ 37,251 $ 33,892
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-41
<PAGE>
CHECKMATE ELECTRONICS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Net revenues..................................................................... $ 33,526 $ 35,104 $ 29,160
Cost of goods sold............................................................... 20,879 20,572 17,184
--------- --------- ---------
Gross profit..................................................................... 12,647 14,532 11,976
Operating expenses:
Selling, general and administrative............................................ 11,306 9,325 7,310
Research and development....................................................... 1,129 991 499
Depreciation and amortization.................................................. 722 579 496
--------- --------- ---------
13,157 10,895 8,305
--------- --------- ---------
Operating income (loss).......................................................... (510) 3,637 3,671
Interest expense................................................................. (46) (61) (84)
Interest income.................................................................. 358 432 513
--------- --------- ---------
Income (loss) before income taxes................................................ (198) 4,008 4,100
Provision for income tax expense (benefit)....................................... (69) 1,453 1,558
--------- --------- ---------
Net income (loss)................................................................ $ (129) $ 2,555 $ 2,542
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share:
Basic.......................................................................... $ (0.02) $ 0.50 $ 0.50
Diluted........................................................................ $ (0.02) $ 0.46 $ 0.47
Weighted average shares outstanding:
Basic.......................................................................... 5,352 5,154 5,046
Diluted........................................................................ 5,352 5,580 5,420
</TABLE>
SEE ACCOMPANYING NOTES.
F-42
<PAGE>
CHECKMATE ELECTRONICS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
$.01 PAR VALUE ADDITIONAL TOTAL
------------------------ PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995................................ 5,022 $ 50 $ 20,991 $ 130 $ 21,171
Exercise of stock options............................... 62 1 352 -- 353
Net income.............................................. -- -- -- 2,542 2,542
----- ----- ----------- ----------- -------------
Balance at December 31, 1995.............................. 5,084 51 21,343 2,672 24,066
Exercise of stock options............................... 148 1 1,291 -- 1,292
Tax benefit related to employee stock options........... -- -- 392 -- 392
Net income.............................................. -- -- -- 2,555 2,555
----- ----- ----------- ----------- -------------
Balance at December 31, 1996.............................. 5,232 52 23,026 5,227 28,305
Exercise of stock options............................... 168 2 1,445 -- 1,447
Tax benefit related to employee stock options........... -- -- 216 -- 216
Net loss -- -- -- (129) (129)
----- ----- ----------- ----------- -------------
Balance at December 31, 1997.............................. 5,400 $ 54 $ 24,687 $ 5,098 $ 29,839
----- ----- ----------- ----------- -------------
----- ----- ----------- ----------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-43
<PAGE>
CHECKMATE ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- ---------- ----------
OPERATING ACTIVITIES
Net income (loss).............................................................. $ (129) $ 2,555 $ 2,542
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization.............................................. 2,086 1,427 1,020
Accretion of marketable securities discount................................ 30 74 (53)
Deferred income taxes...................................................... 286 1 371
Changes in operating assets and liabilities:
Accounts receivable...................................................... (2,595) (1,125) (2,803)
Inventories.............................................................. (3,402) (382) (1,794)
Prepaid expenses......................................................... 831 (772) 28
Refundable income taxes.................................................. (469) 99 (439)
Accounts payable and accrued liabilities................................. 1,446 504 519
Deferred revenue......................................................... 116 500 264
--------- ---------- ----------
Net cash provided by (used in) operating activities............................ (1,800) 2,881 (345)
INVESTING ACTIVITIES
Purchases of property and equipment............................................ (3,083) (1,817) (1,925)
Deferred development costs..................................................... (1,699) (644) (741)
Purchases of investments....................................................... (9,514) (21,483) (11,101)
Proceeds from sale of investments.............................................. 12,882 21,293 14,112
Other.......................................................................... (8) (28) (37)
--------- ---------- ----------
Net cash provided by (used in) investing activities............................ (1,422) (2,679) 308
FINANCING ACTIVITIES
Payments of debt and capital leases............................................ (160) (168) (183)
Proceeds from issuance of common stock......................................... 1,447 1,292 352
--------- ---------- ----------
Net cash provided by financing activities...................................... 1,287 1,124 169
--------- ---------- ----------
Net increase (decrease) in cash and cash equivalents........................... (1,935) 1,326 132
Cash and cash equivalents at beginning of year................................. 2,204 878 746
--------- ---------- ----------
Cash and cash equivalents at end of year....................................... $ 269 $ 2,204 $ 878
--------- ---------- ----------
--------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest......................................................... $ 46 $ 61 $ 84
--------- ---------- ----------
--------- ---------- ----------
Cash paid for income taxes..................................................... $ 270 $ 1,026 $ 1,058
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-44
<PAGE>
CHECKMATE ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(TABULAR AMOUNTS IN THOUSANDS OF US DOLLARS,
EXCEPT FOR PERCENTAGES AND PER SHARE AMOUNTS)
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Checkmate Electronics, Inc. (the "Company") designs, manufactures and
markets point-of-sale payment systems including Magnetic Ink Character
Recognition (MICR) check readers, debit/credit card terminals, electronic
signature capture products, MICR analyzers and related products. The Company's
products allow data from checks, credit cards, debit cards and other payment
cards to be input into and processed by customers' point-of-sale or data
processing systems faster and more accurately than manual key entry systems.
The industry in which the Company operates is subject to rapid change due to
the development of new competing technologies and products.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results inevitably will differ from those estimates,
and such differences may be material to the financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, bank deposits and highly liquid
investments with maturities of three months or less when purchased and are
stated at cost plus accrued interest which approximates market value.
INVESTMENTS
Investments are stated at cost plus accrued interest which approximates
market value. Approximately $3.6 million and $6.9 million was invested in U.S.
Treasury bills at December 31, 1997 and 1996, respectively. These U.S. Treasury
bills had initial maturities of six months and are classified as held-to-
maturity.
INVENTORIES
Inventories are valued at the lower of cost or market using the first-in,
first-out method. Market is defined as net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed over the
estimated useful lives of the related assets (five years) using the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes. Depreciation expense approximated $1,414,000, $943,000
and $647,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
F-45
<PAGE>
CHECKMATE ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(TABULAR AMOUNTS IN THOUSANDS OF US DOLLARS,
EXCEPT FOR PERCENTAGES AND PER SHARE AMOUNTS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IDENTIFIABLE INTANGIBLE ASSETS
Identifiable intangible assets consists of amounts assigned to copyrights,
patents, trademarks, technology property rights and non-compete agreements. Such
assets are being amortized on a straight-line basis from five to eleven years,
with amortization expense of approximately $116,000, $129,000, and $101,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
DEFERRED DEVELOPMENT COSTS
Costs related to internally developed software for new products and
subsequent enhancements are capitalized only after the establishment of
technological feasibility. Software development costs incurred prior to
achieving technological feasibility are considered research and development
expenditures and are expensed as incurred. Capitalized costs are amortized over
the greater of the amount computed using (a) the ratio that current gross
revenues for a product bear to the total of current anticipated future gross
revenues for that product or (b) the straight-line method over the estimated
economic life of the related product (currently five years). Amortization
expense was approximately $556,000, $356,000, and $272,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
REVENUE RECOGNITION
Revenues are derived from sales of products and related service agreements.
Revenues from product sales are recognized at the time of shipment, and revenues
from maintenance agreements are deferred and recognized ratably over the life of
the related service agreements.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. Such amounts are measured using
enacted tax rates and laws that are expected to be in effect when the
differences reverse.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995 the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF ("Statement 121") which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. Statement 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company adopted Statement 121 as of January 1, 1996. The effect of such
adoption was not material to the accompanying financial statements.
EMPLOYEE STOCK OPTIONS
In October 1995 the FASB issued Statement No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION ("Statement 123"). Under Statement 123, the Company
could continue following previously existing
F-46
<PAGE>
CHECKMATE ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(TABULAR AMOUNTS IN THOUSANDS OF US DOLLARS,
EXCEPT FOR PERCENTAGES AND PER SHARE AMOUNTS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accounting rules or adopt a new fair value method of valuing stock-based awards
to employees. The Company elected to continue following the existing accounting
rules under Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES ("APB 25"), and related Interpretations in accounting for
its employee stock options. The pro forma effect on the accompanying statements
of operations of adopting Statement 123 is presented in Note 6.
NET EARNINGS (LOSS) PER SHARE OF COMMON STOCK
In February 1997 the FASB issued Statement No. 128, EARNINGS PER SHARE
("Statement 128") which establishes standards for computing and presenting
earnings per share for entities with publicly held common stock or potential
common stock. Statement 128 replaced the calculation of primary and fully
diluted earnings (loss) per share with basic and diluted earnings (loss) per
share. Unlike primary earnings (loss) per share, basic earnings (loss) per share
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings (loss) per share is very similar to the previously reported
fully diluted earnings (loss) per share. Potential common stock is not included
in the per share calculations where the effect of its inclusion would be
antidilutive. Statement 128 requires the presentation of basic and diluted
earnings (loss) per share on the face of the income statement for all entities
with complex capital structures. The Company adopted Statement 128 in 1997. All
earnings (loss) per share amounts for all periods have been presented and, where
appropriate, restated to conform to the provisions of Statement 128.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997 the FASB issued Statement No. 130, REPORTING COMPREHENSIVE
INCOME ("Statement 130") which establishes standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains,
and losses) in financial statements. Statement 130 is effective for fiscal years
beginning after December 15, 1997. The Company will adopt Statement 130 in 1998
and does not expect the effect of such adoption to be material to its financial
statements.
In June 1997 the FASB also issued Statement No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("Statement 131") which
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Operating segments are components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Statement 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. Statement 131 is effective for financial statements for
periods beginning after December 15, 1997. The Company will adopt Statement 131
in 1998 and does not expect the effect of adoption to be material to its
financial statements.
RECLASSIFICATIONS
Certain reclassifications were made in the 1996 and 1995 financial
statements to conform with the 1997 presentation.
F-47
<PAGE>
CHECKMATE ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(TABULAR AMOUNTS IN THOUSANDS OF US DOLLARS,
EXCEPT FOR PERCENTAGES AND PER SHARE AMOUNTS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
The Company had advertising costs of approximately $125,000, $103,000 and
$41,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
These costs were expensed in the period incurred.
2. FINANCIAL INSTRUMENTS AND CONCENTRATIONS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and trade accounts receivable.
The Company maintains cash and cash equivalents and certain other financial
instruments with various financial institutions. Company policy is designed to
limit exposure at any one institution. The Company performs periodic evaluations
of the relative credit standing of those financial institutions which are
considered in the Company's investment strategy.
Company net revenues are derived from a variety of customers including the
following major customers:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1997 1996 1995
----- ----- -----
Company A................................................................ 17% 15% --
Company B................................................................ 10% -- 22%
Company C................................................................ -- 13% --
-- -- --
27% 28% 22%
-- -- --
-- -- --
</TABLE>
The Company performs ongoing credit approvals of its customers. Trade
receivables are unsecured, and the Company is at risk to the extent such amounts
become uncollectible. The Company does not anticipate any non-performance by
customers in excess of the allowance for doubtful accounts. Accounts receivable
from three and two customers amounted to 49% and 25% of accounts receivable at
December 31, 1997 and 1996, respectively.
The carrying amounts reported in the balance sheet for cash and cash
equivalents, short-term investments, accounts receivable and accounts payable
approximate their estimated fair values. The fair value of the notes payable is
estimated using discounted cash flow analyses based on current market rates, and
at December 31, 1997 and 1996, these amounts were not materially different from
their carrying value.
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Note payable to a major shareholder and director.............................. $ 203 $ 349
Less current portion.......................................................... 162 146
--------- ---------
$ 41 $ 203
--------- ---------
--------- ---------
</TABLE>
F-48
<PAGE>
CHECKMATE ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(TABULAR AMOUNTS IN THOUSANDS OF US DOLLARS,
EXCEPT FOR PERCENTAGES AND PER SHARE AMOUNTS)
3. LONG-TERM DEBT (CONTINUED)
An unsecured note payable in the amount of $203,000 at December 31, 1997,
originated from an agreement executed between the Company and a major
shareholder and director in 1989. Under the terms of the agreement, the Company
perfected its rights to certain MICR technology, including all worldwide
copyrights, patent rights, trademarks, service marks, tradenames and other
proprietary rights, and obtained a noncompete agreement with the shareholder
(for a period of 11 years following his removal or resignation from the
Company's Board of Directors) in exchange for this note payable. The Company is
required to make minimum monthly principal and interest payments of $15,000 per
month (of which $10,000 is adjusted semi-annually for inflation) or at the
Company's option, 5% of monthly sales, if this amount exceeds the minimum
monthly payment through March 31, 1999. Payments under the terms of the
agreement are not to exceed $1,758,300 (plus adjustments for inflation). The
inflation adjustments are charged to expense as incurred and amounted to
approximately $36,000, $41,000, and $35,000, for the years ended December 31,
1997, 1996 and 1995, respectively.
As of the effective date of the agreement, the Company recorded the net
present value of the minimum monthly payments of $15,000, assuming an effective
interest rate of 12%, in identifiable intangible assets and long-term debt in
the amount of $1,036,000. During 1997, 1996 and 1995, the Company made total
payments of $216,000, $221,000, and $215,000, respectively, to the shareholder
under this agreement.
On March 31, 1997, the Company renewed its $1,000,000 revolving line of
credit with a bank. The line of credit bears interest at the prime rate (8.5% at
December 31, 1997) with the principal payable in a single installment on May 31,
1998 and interest payable monthly in arrears. The line is secured by certain
assets of the Company. The Company had no outstanding borrowings under the line
at December 31, 1997.
4. CAPITALIZED LEASE OBLIGATIONS
Property and equipment includes the following amounts for leases that have
been capitalized:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Equipment.................................................................... $ 262 $ 262
Furniture and fixtures....................................................... 45 45
--------- ---------
307 307
Less accumulated amortization................................................ (307) (284)
--------- ---------
$ -- $ 23
--------- ---------
--------- ---------
</TABLE>
All capitalized lease agreements expired during 1997, and there were no
future minimum lease payments due at December 31, 1997. Amortization of leased
assets is included in depreciation and amortization expense.
5. OPERATING LEASES
The Company leases certain property and equipment under certain
noncancellable lease agreements. Rental expense under operating leases was
approximately $601,000, $470,000, and $369,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
F-49
<PAGE>
CHECKMATE ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(TABULAR AMOUNTS IN THOUSANDS OF US DOLLARS,
EXCEPT FOR PERCENTAGES AND PER SHARE AMOUNTS)
5. OPERATING LEASES (CONTINUED)
Future minimum payments under noncancellable operating leases with terms of
one year or more consisted of the following at December 31, 1997:
<TABLE>
<S> <C>
1998............................................................ $ 534
1999............................................................ 440
2000............................................................ 151
2001............................................................ 156
2002............................................................ 26
---------
Total minimum lease payments.................................... $ 1,307
---------
---------
</TABLE>
6. EQUITY
SHAREHOLDER RIGHTS PLAN
On October 13, 1997, the Board of Directors of the Company adopted a
Shareholder Rights Plan and issued stock purchase rights in connection with this
plan. The Board declared a dividend of one stock purchase Right on each
outstanding share of common stock. The Right will be exercisable only if a
person or group acquires 15% or more of the Company's common stock. Each Right
entitles shareholders to buy one share of common stock at an exercise price of
$50. Prior to the time they become exercisable, the Rights are redeemable for
one cent per Right at the option of the Board.
STOCK OPTION PLANS
The Company has established two employee stock option plans, the 1988 Stock
Option Plan (the "1988 Plan") and the 1993 Stock Option Plan (the "1993 Plan"),
as well as a Directors' Stock Option Plan. Under the Plans, options to purchase
shares of the Company's common stock have been and may be granted to certain
directors, officers and key employees at prices not less than market value at
the date of the grant.
The 1988 Plan has been amended to cease granting new options. Options
outstanding under the 1988 Plan as of July 23, 1993 may be exercised according
to the terms of the option agreements pursuant to which they were granted. Under
the 1988 Plan and 1993 Plan, options vest as determined by the Board of
Directors on the date of grant, generally over three years. As of December 31,
1997, 1,570,000 shares of common stock are reserved for future issuance under
the stock option plans.
On July 6, 1997, the Board of Directors of the Company offered the holders
of options under the 1993 Stock Option Plan who are not executive officers or
directors of the Company the opportunity to exchange their options for options
having an exercise price equal to the average closing price of the Company's
common stock during the week ended July 25, 1997. As a result, options to
purchase 339,000 shares of common stock were repriced through the cancellation
of existing options and granting of new options at $8.70 per share.
F-50
<PAGE>
CHECKMATE ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(TABULAR AMOUNTS IN THOUSANDS OF US DOLLARS
EXCEPT FOR PERCENTAGES AND PER SHARE AMOUNTS)
6. EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
Option activity under the above-described Company's stock option plans is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
----------- -----------
<S> <C> <C>
Outstanding at January 1, 1995............................................................. 1,066 $ 8.12
Granted.................................................................................. 498 11.06
Exercised................................................................................ (63) 5.09
Canceled................................................................................. (45) 8.54
-----
Outstanding at December 31, 1995........................................................... 1,456 9.26
Granted.................................................................................. 220 14.05
Exercised................................................................................ (148) 8.77
Canceled................................................................................. (3) 13.75
-----
Outstanding at December 31, 1996........................................................... 1,525 9.99
Granted.................................................................................. 727 8.99
Exercised................................................................................ (168) 8.63
Canceled................................................................................. (743) 11.23
-----
Outstanding at December 31, 1997........................................................... 1,341 8.94
-----
-----
Options exercisable:
At December 31, 1995..................................................................... 646 $ 8.40
At December 31, 1996..................................................................... 821 8.94
At December 31, 1997..................................................................... 623 8.92
</TABLE>
The following table summarizes information concerning options outstanding
and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------------- ------------- --------------- ----------- --------------- -----------
$5.00-$8.50.... 425 6.38 $ 7.99 381 $ 7.96
$8.70.......... 636 8.67 8.70 60 8.70
$8.75-$14.75... 280 7.75 10.92 182 11.02
----- ---
1,341 7.75 8.94 623 8.92
----- ---
----- ---
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No.
F-51
<PAGE>
CHECKMATE ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(TABULAR AMOUNTS IN THOUSANDS OF US DOLLARS
EXCEPT FOR PERCENTAGES AND PER SHARE AMOUNTS)
6. EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
123, ACCOUNTING FOR STOCK-BASED COMPENSATION requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, when the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income (loss) and earnings (loss) per
share is required by Statement No. 123, which also requires that the information
be determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995: risk-free interest rates of approximately
6.0%; no dividend yields; volatility factor of the expected market price of the
Company's common stock of .58; and a weighted-average expected life of the
options of 4 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information, assuming Statement 123 had been adopted, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Pro forma net income (loss)......................................................... $ (1,252) $ 1,299 $ 1,856
Pro forma net income (loss) per share:
Basic............................................................................. (0.23) 0.25 0.37
Diluted........................................................................... (0.23) 0.23 0.34
Weighted average fair value of options granted...................................... 3.46 6.38 5.12
</TABLE>
Since Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1998.
F-52
<PAGE>
CHECKMATE ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(TABULAR AMOUNTS IN THOUSANDS OF US DOLLARS
EXCEPT FOR PERCENTAGES AND PER SHARE AMOUNTS)
7. INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------ ------------ ------------
Current income tax expense (benefit):
Federal............................................................... $ (304) $ 1,301 $ 1,073
State................................................................. (51) 151 114
------------ ------------ ------------
Total current tax expense (benefit)..................................... (355) 1,452 1,187
Deferred income tax expense:
Federal............................................................... 243 1 312
State................................................................. 43 -- 59
------------ ------------ ------------
Total deferred tax expense.............................................. 286 1 371
------------ ------------ ------------
Provision for income tax expense (benefit).............................. $ (69) $ 1,453 $ 1,558
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
A reconciliation of the provision for income taxes to the Federal statutory
rate of 34% is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
<S> <C> <C> <C>
1997 1996 1995
----------- ------------ ------------
Tax expense (benefit) at statutory rate.................................. $ (67) $ 1,363 $ 1,394
State taxes, net of Federal tax expense (benefit)........................ (34) 100 114
Research and development costs........................................... -- (51) --
Other.................................................................... 32 41 50
----------- ------------ ------------
Provision for income tax expense (benefit)............................... $ (69) $ 1,453 $ 1,558
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
F-53
<PAGE>
CHECKMATE ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(TABULAR AMOUNTS IN THOUSANDS OF US DOLLARS
EXCEPT FOR PERCENTAGES AND PER SHARE AMOUNTS)
7. INCOME TAXES (CONTINUED)
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets (liabilities) consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
Deferred tax assets:
Asset valuation allowances.................................... $ 267 $ 186
Deferred revenue.............................................. 452 406
Other......................................................... 290 63
------------- -------------
Total deferred tax assets....................................... 1,009 655
Deferred tax liabilities:
Depreciation.................................................. (808) (625)
Amortization.................................................. (1,116) (660)
Other......................................................... (20) (19)
------------- -------------
Total deferred tax liabilities.................................. (1,944) (1,304)
------------- -------------
Net deferred tax liabilities.................................... $ (935) $ (649)
------------- -------------
------------- -------------
</TABLE>
8. DEFINED CONTRIBUTION BENEFIT PLAN
Effective January 1, 1992, the Company adopted the Checkmate Electronics,
Inc. 401(k) Plan (the "Plan"), a defined contribution benefit plan which
qualifies under Section 401(k) of the Internal Revenue Code. All employees of
the Company are eligible to participate in the Plan. Participants may contribute
up to 15% of their annual compensation to the Plan and receive a 50% matching
employer contribution on up to 5% of their annual compensation. Contributions
charged to expense were approximately $157,000, $112,000, and $82,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
F-54
<PAGE>
CHECKMATE ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(TABULAR AMOUNTS IN THOUSANDS OF US DOLLARS
EXCEPT FOR PERCENTAGES AND PER SHARE AMOUNTS)
9. NET INCOME (LOSS) PER SHARE
Net income (loss) per share on a basic and diluted basis as required by
Statement No. 128 is calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Net income (loss).................................................................... $ (129) $ 2,555 $ 2,542
--------- --------- ---------
--------- --------- ---------
Calculation of weighted average shares outstanding plus assumed conversions:
Weighted average basic shares outstanding.......................................... 5,352 5,154 5,046
Effect of dilutive employee stock options.......................................... -- 426 374
--------- --------- ---------
Weighted average diluted shares outstanding........................................ 5,352 5,580 5,420
--------- --------- ---------
--------- --------- ---------
Basic net income (loss) per share.................................................... $ (0.02) $ 0.50 $ 0.50
--------- --------- ---------
--------- --------- ---------
Diluted net income (loss) per share.................................................. $ (0.02) $ 0.46 $ 0.47
--------- --------- ---------
--------- --------- ---------
</TABLE>
During the year ended December 31, 1997, options to purchase approximately
191,000 shares were outstanding but were not included in the computation because
they were antidilutive.
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
1997:
Net revenues............................................................ $ 9,506 $ 5,074 $ 8,831 $ 10,115
Gross profit............................................................ 3,993 1,832 3,193 3,629
Net income (loss)....................................................... 661 (1,139) 151 198
Basic net income (loss) per share....................................... .13 (.21) .03 .04
Diluted net income (loss) per share..................................... .12 (.21) .03 .04
</TABLE>
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
1996:
Net revenues............................................................ $ 7,920 $ 10,669 $ 7,021 $ 9,494
Gross profit............................................................ 3,158 4,459 2,901 4,014
Net income.............................................................. 530 1,190 168 667
Basic net income per share.............................................. .10 .23 .03 .13
Diluted net income per share............................................ .10 .21 .03 .12
</TABLE>
F-55
<PAGE>
CHECKMATE ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(TABULAR AMOUNTS IN THOUSANDS OF US DOLLARS
EXCEPT FOR PERCENTAGES AND PER SHARE AMOUNTS)
11. SUBSEQUENT EVENTS
On December 9, 1997, the Company entered into an agreement for the purchase
of Total Retail Solutions, Inc., a software development and consulting
organization specializing in electronic payments and transaction handling
solutions for supermarkets and retail businesses. The acquisition was completed
in January 1998 for approximately $160,000 in Checkmate Electronics, Inc. common
stock and $75,000 in cash.
On January 16, 1998, the Company entered into a definitive agreement (the
"Combination Agreement") to combine with International Verifact, Inc. ("IVI"), a
company engaged in a business similar to that of Checkmate. The parties intend
for the combination to be accounted for on a pooling of interest basis. Under
the terms of the Combination Agreement, IVI shareholders will receive, for each
IVI common share, either one share of common stock of the newly formed combined
company, IVI Checkmate Corp., or one exchangeable share of IVI which can be
exchanged for a share of IVI Checkmate Corp. common stock in the future.
Checkmate shareholders will receive 1.2775 shares of IVI Checkmate Corp. common
stock for each Checkmate common share. Closing of the transaction is expected to
occur in the second quarter of 1998, subject to shareholder approvals, Ontario
Court approval and customary closing conditions.
Effective January 1, 1998, the Company entered into employment agreements
with the CEO and CFO. The terms of the agreements provide for a base salary and
bonus, which will continue in the event of a change in control of the Company.
The agreements provide for specified salary and bonus increases each year. The
term of each agreement is for the later of the third anniversary of the
agreement or the third anniversary of the combination with IVI, with certain
automatic renewal provisions. If termination of employment occurs within two
years after a change in control, the executives' stock options vest immediately
and the minimum severance benefit is two times the annual base salary and annual
bonus.
The Company and the Chairman have also entered into a five year consulting
agreement to become effective on the date of the combination with IVI and the
Company. The terms of the agreement provide for annual total specified payments
adjusted annually for inflation. In addition, the agreement provides that in the
event the Company terminates the agreement other than for the Chairman's death
or disability, or the Chairman terminates his consulting agreement for good
reason, then the Chairman is to receive a consulting fee of $150,000 per annum
for the length of the remainder of the agreement.
F-56
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS OF IVI CHECKMATE CORP.
The following unaudited pro forma condensed combined consolidated balance
sheet and condensed combined consolidated statements of operations
(collectively, the "Pro Forma Financial Statements") have been prepared to
illustrate the estimated effects of the proposed Combination of IVI and
Checkmate, to be accounted for as a pooling-of-interests under U.S. GAAP.
Accordingly, such statements were prepared as if IVI and Checkmate were combined
as of the beginning of each of the periods presented. All amounts in the Pro
Forma Condensed Combined Consolidated Financial Statements are stated in U.S.
dollars unless otherwise stated. For all years presented in the condensed
combined consolidated statements of operations, pro forma shares used in
computing earnings per share give effect to the Checkmate Exchange Ratio of
1.2775 shares of IVI Checkmate Corp. common stock in exchange for each
outstanding share of Checkmate common stock.
The following unaudited pro forma condensed combined consolidated balance
sheet as of March 31, 1998 and the related condensed combined consolidated
statements of operations for the quarters ending March 31, 1998 and March 31,
1997 and each of the three years in the period ended December 31, 1997 are based
on the audited consolidated financial statements of IVI and the audited
financial statements of Checkmate and include, in the opinion of management of
both companies, all adjustments necessary to present fairly the results as of
and for such periods. The Pro Forma Condensed Combined Consolidated Financial
Statements have been derived from, and should be read in conjunction with, the
audited Consolidated Financial Statements of IVI and the audited Financial
Statements of Checkmate and the related notes thereto. The Consolidated
Financial Statements of IVI have been prepared in accordance with Canadian GAAP,
and have been adjusted to conform with U.S. GAAP and translated into U.S.
dollars.
The Pro Forma Condensed Combined Consolidated Financial Statements are
presented for illustrative purposes only and are not necessarily indicative of
actual results of operations or financial position that would have been achieved
had the Combination been consummated at the beginning of the periods presented,
nor are they necessarily indicative of future results.
F-57
<PAGE>
IVI CHECKMATE CORP.
PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
IVI(1) CHECKMATE COMBINED ADJUSTMENTS
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS OF US DOLLARS, EXCEPT SHARE
AMOUNTS)
ASSETS
Current assets
Cash, cash equivalents and marketable securities..................... $ 7,111 $ 6,723 $ 13,834 $
Accounts receivable, net............................................. 13,248 10,688 23,936
Inventory, net....................................................... 6,434 11,213 17,647
Deferred tax asset and refundable income taxes....................... 1,992 1,781 3,773 125(2)
Prepaid expenses..................................................... 763 717 1,480 (1,088)(2)
--------- ----------- ----------- -----------
Total current assets................................................. 29,548 31,122 60,670 (963)
Capital assets......................................................... 2,200 5,925 8,125
Investment in joint venture............................................ 176 -- 176
Other assets........................................................... 6,605 3,611 10,216
Goodwill............................................................... 627 -- 627
--------- ----------- ----------- -----------
Total assets........................................................... $ 39,156 $ 40,658 $ 79,814 $ (963)
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities............................. $ 8,760 $ 6,725 $ 15,485 $ 1,912(2)
Deferred revenue..................................................... 395 1,589 1,984
Current portion of lease obligations................................. 8 -- 8
Current portion of related party debt................................ -- 162 162
--------- ----------- ----------- -----------
Total current liabilities............................................ 9,163 8,476 17,639 1,912
Long-term lease obligations............................................ -- -- --
Long-term debt to related party........................................ -- 2 2
Deferred tax liability................................................. -- 1,924 1,924 (500)(2)
Minority interest...................................................... 11 -- 11
--------- ----------- ----------- -----------
Total liabilities...................................................... 9,174 10,402 19,576 1,412
--------- ----------- ----------- -----------
Stockholders' equity
Common stock......................................................... 42,452 54 42,506 (42,344)(3)
Additional paid-in capital........................................... 803 24,687 25,490 42,439(3)(4)
Cumulative translation amounts....................................... 504 -- 504
Retained earnings (deficit).......................................... (13,777) 5,515 (8,262) (2,470)(2)(4)
--------- ----------- ----------- -----------
Total stockholders' equity........................................... 29,982 30,256 60,238 (2,375)
--------- ----------- ----------- -----------
Total liabilities and stockholders' equity............................. $ 39,156 $ 40,658 $ 79,814 $ (963)
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
Shares outstanding (000's)............................................. 9,251 5,420 1,504
<CAPTION>
PRO
FORMA
COMBINED
-----------
<S> <C>
ASSETS
Current assets
Cash, cash equivalents and marketable securities..................... $ 13,834
Accounts receivable, net............................................. 23,936
Inventory, net....................................................... 17,647
Deferred tax asset and refundable income taxes....................... 3,898
Prepaid expenses..................................................... 392
-----------
Total current assets................................................. 59,707
Capital assets......................................................... 8,125
Investment in joint venture............................................ 176
Other assets........................................................... 10,216
Goodwill............................................................... 627
-----------
Total assets........................................................... $ 78,851
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities............................. $ 17,397
Deferred revenue..................................................... 1,984
Current portion of lease obligations................................. 8
Current portion of related party debt................................ 162
-----------
Total current liabilities............................................ 19,551
Long-term lease obligations............................................ --
Long-term debt to related party........................................ 2
Deferred tax liability................................................. 1,424
Minority interest...................................................... 11
-----------
Total liabilities...................................................... 20,988
-----------
Stockholders' equity
Common stock......................................................... 162
Additional paid-in capital........................................... 67,929
Cumulative translation amounts....................................... 504
Retained earnings (deficit).......................................... (10,732)
-----------
Total stockholders' equity........................................... 57,863
-----------
Total liabilities and stockholders' equity............................. $ 78,851
-----------
-----------
Shares outstanding (000's)............................................. 16,175
</TABLE>
See accompanying notes to pro forma condensed combined consolidated financial
statements.
F-58
<PAGE>
IVI CHECKMATE CORP.
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
IVI(1) CHECKMATE COMBINED ADJUSTMENTS
--------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
Revenue................................................................. $ 13,229 $ 9,641 $ 22,870 $
Cost of sales........................................................... 8,763 5,584 14,347 (195)(5)
--------- ------ ----------- -----
Gross margin............................................................ 4,466 4,057 8,523 195
--------- ------ ----------- -----
Expenses
Selling, general and administrative................................... 2,379 2,829 5,208
Research and development.............................................. 951 355 1,306
Depreciation and amortization......................................... 566 270 836 195(5)
--------- ------ ----------- -----
3,896 3,454 7,350 195
--------- ------ ----------- -----
Earnings (loss) before interest, minority interest, unusual items and
taxes................................................................. 570 603 1,173 --
Interest income--net.................................................... 51 47 98
Minority interest....................................................... 20 -- 20
Gain on sale of marketable securities................................... 95 -- 95 (95)(4)
Share of losses in joint venture........................................ (60) -- (60)
--------- ------ ----------- -----
Earnings (loss) before taxes............................................ 676 650 1,326 (95)
Income taxes............................................................ -- (234) (234) --
--------- ------ ----------- -----
Net earnings (loss) $ 676 $ 416 $ 1,092 (95)
--------- ------ ----------- -----
--------- ------ ----------- -----
Basic earnings per share................................................ $ 0.07 $ 0.08
Diluted earnings per share.............................................. $ 0.07 $ 0.08
Weighted average basic number of shares outstanding (000's)............. 9,199 5,417
Weighted average diluted number of shares outstanding (000's)........... 9,338 5,448
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C>
Revenue................................................................. $ 22,870
Cost of sales........................................................... 14,152
-----------
Gross margin............................................................ 8,718
-----------
Expenses
Selling, general and administrative................................... 5,208
Research and development.............................................. 1,306
Depreciation and amortization......................................... 1,031
-----------
7,545
-----------
Earnings (loss) before interest, minority interest, unusual items and
taxes................................................................. 1,173
Interest income--net.................................................... 98
Minority interest....................................................... 20
Gain on sale of marketable securities................................... --
Share of losses in joint venture........................................ (60)
-----------
Earnings (loss) before taxes............................................ 1,231
Income taxes............................................................ (234)
-----------
Net earnings (loss) $ 997
-----------
-----------
Basic earnings per share................................................ $ 0.06
Diluted earnings per share.............................................. $ 0.06
Weighted average basic number of shares outstanding (000's)............. 15,853
Weighted average diluted number of shares outstanding (000's)........... 16,032
</TABLE>
See accompanying notes to pro forma condensed combined consolidated financial
statements
F-59
<PAGE>
IVI CHECKMATE CORP.
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
PRO FORMA FORMA
IVI(1) CHECKMATE COMBINED ADJUSTMENTS COMBINED
--------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
Revenue..................................................... $ 11,179 $ 9,506 $ 20,685 $ $ 20,685
Cost of sales............................................... 7,327 5,513 12,840 (59)(5) 12,781
--------- ------ ----------- ----------- -----------
Gross margin................................................ 3,852 3,993 7,845 59 7,904
--------- ------ ----------- ----------- -----------
Expenses:
Selling, general and administrative....................... 2,396 2,675 5,071 5,071
Research and development.................................. 946 234 1,180 1,180
Depreciation and amortization............................. 362 168 530 59(5) 589
--------- ------ ----------- ----------- -----------
3,704 3,077 6,781 59 6,840
--------- ------ ----------- ----------- -----------
Earnings before interest, minority interest and taxes....... 148 916 1,064 -- 1,064
Interest income--net........................................ 69 85 154 -- 154
Minority interest........................................... 76 -- 76 76
--------- ------ ----------- ----------- -----------
Earnings before taxes....................................... 293 1,001 1,294 -- 1,294
Income taxes................................................ -- (340) (340) -- (340)
--------- ------ ----------- ----------- -----------
Net earnings................................................ $ 293 $ 661 $ 954 $ -- $ 954
--------- ------ ----------- ----------- -----------
Basic earnings per share.................................... $ 0.03 $ 0.13 $ 0.06
Diluted earnings per share.................................. $ 0.03 $ 0.12 $ 0.06
Weighted average basic number of shares outstanding
(000's)................................................... 8,679 5,258 15,396
Weighted average diluted number of shares outstanding
(000's)................................................... 8,679 5,697 15,597
</TABLE>
See accompanying notes to pro forma condensed combined consolidated financial
statements
F-60
<PAGE>
IVI CHECKMATE CORP.
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
IVI(1) CHECKMATE COMBINED ADJUSTMENTS
--------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE
AMOUNTS)
Revenue................................................................... $ 51,419 $ 33,526 $ 84,945 $
Cost of sales............................................................. 34,078 20,879 54,957 (556)(5)
--------- ----------- ----------- -------------
Gross margin.............................................................. 17,341 12,647 29,988 556
--------- ----------- ----------- -------------
Expenses
Selling, general and administrative..................................... 10,525 11,306 21,831
Research and development................................................ 3,330 1,129 4,459
Depreciation and amortization........................................... 1,458 722 2,180 556(5)
--------- ----------- ----------- -------------
15,313 13,157 28,470 556
--------- ----------- ----------- -------------
Earnings (loss) before interest, minority interest,and taxes.............. 2,028 (510) 1,518
Interest income--net...................................................... 191 312 503
Minority interest......................................................... 448 -- 448
--------- ----------- ----------- -------------
Earnings (loss) before taxes.............................................. 2,667 (198) 2,469
Income taxes.............................................................. 840 69 909
--------- ----------- ----------- -------------
Net earnings (loss)....................................................... $ 3,507 $ (129) $ 3,378 $
--------- ----------- ----------- -------------
--------- ----------- ----------- -------------
Basic earnings (loss) per share........................................... $ 0.40 $ (0.02)
Diluted earnings (loss) per share......................................... $ 0.40 $ (0.02)
Weighted average basic number of shares outstanding (000's)............... 8,803 5,352
Weighted average diluted number of shares outstanding (000's)............. 8,869 5,352
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C>
Revenue................................................................... $ 84,945
Cost of sales............................................................. 54,401
-----------
Gross margin.............................................................. 30,544
-----------
Expenses
Selling, general and administrative..................................... 21,831
Research and development................................................ 4,459
Depreciation and amortization........................................... 2,736
-----------
29,026
-----------
Earnings (loss) before interest, minority interest,and taxes.............. 1,518
Interest income--net...................................................... 503
Minority interest......................................................... 448
-----------
Earnings (loss) before taxes.............................................. 2,469
Income taxes.............................................................. 909
-----------
Net earnings (loss)....................................................... $ 3,378
-----------
-----------
Basic earnings (loss) per share........................................... $ 0.22
Diluted earnings (loss) per share......................................... $ 0.22
Weighted average basic number of shares outstanding (000's)............... 15,499
Weighted average diluted number of shares outstanding (000's)............. 15,810
</TABLE>
See accompanying notes to pro forma condensed combined consolidated financial
statements.
F-61
<PAGE>
IVI CHECKMATE CORP.
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
IVI(1) CHECKMATE COMBINED ADJUSTMENTS
--------- ----------- ----------- ---------------
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Revenue.................................................................. $ 35,057 $ 35,104 $ 70,161 $
Cost of sales............................................................ 23,753 20,572 44,325 (356)(5)
--------- ----------- ----------- -----
Gross margin............................................................. 11,304 14,532 25,836 356
--------- ----------- ----------- -----
Expenses
Selling, general and administrative.................................... 8,452 9,325 17,777
Research and development............................................... 2,382 991 3,373
Depreciation and amortization.......................................... 1,193 579 1,772 356(5)
--------- ----------- ----------- -----
12,027 10,895 22,922 356
--------- ----------- ----------- -----
Earnings (loss) before interest, minority interest, unusual items and
taxes.................................................................. (723) 3,637 2,914
Interest income--net..................................................... 149 371 520
Minority interest........................................................ 20 -- 20
Write-off of goodwill.................................................... (6,810) -- (6,810)
Product writedown from Ingenico alliance................................. (1,217) -- (1,217)
Share of losses of associated company.................................... (147) -- (147)
--------- ----------- ----------- -----
Earnings (loss) before taxes............................................. (8,728) 4,008 (4,720)
Income taxes............................................................. (4,215) (1,453) (5,668)
--------- ----------- ----------- -----
Net earnings (loss)...................................................... $ (12,943) $ 2,555 $ (10,388) $
--------- ----------- ----------- -----
--------- ----------- ----------- -----
Basic earnings (loss) per share.......................................... $ (1.82) $ 0.50
Diluted earnings (loss) per share........................................ $ (1.82) $ 0.46
Weighted average basic number of shares outstanding (000's).............. 7,120 5,154
Weighted average diluted number of shares outstanding (000's)............ 7,120 5,580
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C>
Revenue.................................................................. $ 70,161
Cost of sales............................................................ 43,969
-----------
Gross margin............................................................. 26,192
-----------
Expenses
Selling, general and administrative.................................... 17,777
Research and development............................................... 3,373
Depreciation and amortization.......................................... 2,128
-----------
23,278
-----------
Earnings (loss) before interest, minority interest, unusual items and
taxes.................................................................. 2,914
Interest income--net..................................................... 520
Minority interest........................................................ 20
Write-off of goodwill.................................................... (6,810)
Product writedown from Ingenico alliance................................. (1,217)
Share of losses of associated company.................................... (147)
-----------
Earnings (loss) before taxes............................................. (4,720)
Income taxes............................................................. (5,668)
-----------
Net earnings (loss)...................................................... $ (10,388)
-----------
-----------
Basic earnings (loss) per share.......................................... $ (0.76)
Diluted earnings (loss) per share........................................ $ (0.76)
Weighted average basic number of shares outstanding (000's).............. 13,704
Weighted average diluted number of shares outstanding (000's)............ 13,704
</TABLE>
See accompanying notes to pro forma condensed combined consolidated financial
statements.
F-62
<PAGE>
IVI CHECKMATE CORP.
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
IVI(1) CHECKMATE COMBINED ADJUSTMENTS
--------- ----------- ----------- ---------------
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Revenue................................................................... $ 44,167 $ 29,160 $ 73,327 $
Cost of sales............................................................. 29,613 17,184 46,797 (272)(5)
--------- ----------- ----------- -----
Gross margin.............................................................. 14,554 11,976 26,530 272
--------- ----------- ----------- -----
Expenses
Selling, general and administrative..................................... 6,948 7,310 14,258
Research and development................................................ 3,227 499 3,726
Depreciation and amortization........................................... 1,992 496 2,488 272(5)
--------- ----------- ----------- -----
12,167 8,305 20,472 272
--------- ----------- ----------- -----
Earnings before interest and taxes........................................ 2,387 3,671 6,058
Interest income--net...................................................... 112 429 541
--------- ----------- ----------- -----
Earnings before taxes..................................................... 2,499 4,100 6,599
Income taxes.............................................................. (1,109) (1,558) (2,667)
--------- ----------- ----------- -----
Net earnings.............................................................. $ 1,390 $ 2,542 $ 3,932 $
--------- ----------- ----------- -----
--------- ----------- ----------- -----
Basic earnings per share.................................................. $ 0.21 $ 0.50
Diluted earnings per share................................................ $ 0.21 $ 0.47
Weighted average basic number of shares outstanding (000's)............... 6,591 5,046
Weighted average diluted number of shares outstanding (000's)............. 6,741 5,420
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C>
Revenue................................................................... $ 73,327
Cost of sales............................................................. 46,525
-----------
Gross margin.............................................................. 26,802
-----------
Expenses
Selling, general and administrative..................................... 14,258
Research and development................................................ 3,726
Depreciation and amortization........................................... 2,760
-----------
20,744
-----------
Earnings before interest and taxes........................................ 6,058
Interest income--net...................................................... 541
-----------
Earnings before taxes..................................................... 6,599
Income taxes.............................................................. (2,667)
-----------
Net earnings.............................................................. $ 3,932
-----------
-----------
Basic earnings per share.................................................. $ 0.30
Diluted earnings per share................................................ $ 0.30
Weighted average basic number of shares outstanding (000's)............... 13,037
Weighted average diluted number of shares outstanding (000's)............. 13,187
</TABLE>
See accompanying notes to pro forma condensed combined consolidated financial
statements.
F-63
<PAGE>
IVI CHECKMATE CORP.
NOTES TO PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
1. The IVI historical U.S. GAAP statements of operations have been
converted to U.S. dollars using the weighted average exchange rate for the
period. The IVI historical U.S. GAAP balance sheet has been converted to
U.S. dollars using the period end exchange rate for assets and liabilities
and the actual exchange rate for capital transactions with the difference
accumulated in the cumulative translation amount as a separate component of
stockholders' equity.
2. To record the estimated costs of the business combination of
approximately $3.0 million, representing one-time professional, advisory and
other fees directly related to the transaction, less the related tax
effects. These non-recurring costs, of which approximately one-third has
been incurred to date, are not reflected in the pro forma condensed combined
consolidated statements of operations. As a result of the combination, the
Company anticipates additional one-time costs of approximately $3.0 million
related to severance, consolidation and other integration costs to
rationalize the product lines. These non-recurring costs are not reflected
in either the pro forma condensed combined consolidated statements of
operations or balance sheet, and the future cost savings associated with
such one-time costs have not been reflected in the pro forma condensed
combined consolidated statements of operations.
3. To restate common stock to par value of $0.01.
4. At December 31, 1997, IVI held as available-for-sale marketable
securities 260,000 shares of common stock of Checkmate. On March 13, 1997,
IVI sold its investment for a net gain of $95,000. For purposes of the pro
forma condensed combined consolidated financial statements, the gain that
resulted was reversed from the pro forma condensed combined consolidated
statements of operations and reclassified as part of additional paid-in
capital.
5. To reclassify amortization of Checkmate deferred development costs from
"Cost of Sales" to "Depreciation and Amortization".
F-64
<PAGE>
ANNEX A
COMBINATION AGREEMENT
<PAGE>
EXECUTION COPY
COMBINATION AGREEMENT
BY AND AMONG:
IVI CHECKMATE CORP.,
INTERNATIONAL VERIFACT INC.,
CHECKMATE ELECTRONICS, INC.
AND
FUTURE MERGER CORPORATION
DATED AS OF JANUARY 16, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE 1.00--PRELIMINARY STEPS................................................................... 2
1.1 INCORPORATION AND ORGANIZATION OF NEWCO..................................... 2
1.2 INCORPORATION OF MERGER SUB................................................. 3
ARTICLE 2.00--THE ARRANGEMENT..................................................................... 3
2.1 THE ARRANGEMENT............................................................. 3
2.2 THE VOTING AND EXCHANGE TRUST AGREEMENT..................................... 4
2.3 SUPPORT AGREEMENT........................................................... 4
2.4 DISSENTING SHARES........................................................... 4
ARTICLE 3.00--THE MERGER.......................................................................... 4
3.1 MERGER OF MERGER SUB WITH AND INTO CHECKMATE................................ 4
3.2 EFFECT OF THE MERGER........................................................ 5
3.3 SURVIVING CORPORATION ARTICLES OF INCORPORATION AND BY-LAWS; DIRECTORS...... 5
3.4 CONVERSION OF CHECKMATE COMMON SHARES....................................... 5
3.5 CLOSING OF CHECKMATE TRANSFER BOOKS......................................... 6
3.6 EXCHANGE AGENT.............................................................. 6
3.7 NO FRACTIONAL SHARES........................................................ 6
3.8 DISSENTING SHARES........................................................... 6
3.9 LOST CERTIFICATES........................................................... 7
ARTICLE 4.00--POST-CLOSING CORPORATE STRUCTURE.................................................... 7
4.1 POST-CLOSING CORPORATE STRUCTURE............................................ 7
ARTICLE 5.00--ADDITIONAL AGREEMENTS............................................................... 7
5.1 CLOSING..................................................................... 7
5.2 CONTEMPORANEOUS TRANSACTIONS................................................ 8
5.3 ACCOUNTING CONSEQUENCES..................................................... 8
5.4 MATERIAL ADVERSE EFFECT..................................................... 8
5.5 ADJUSTMENTS TO EXCHANGE RATIOS.............................................. 8
5.6 DISSENTERS' RIGHTS.......................................................... 8
5.7 SHAREHOLDER MEETINGS; PROXY MATERIALS; FORM S-4............................. 9
5.8 ACCESS TO INFORMATION; CONFIDENTIALITY...................................... 10
5.9 CONSENTS; APPROVALS......................................................... 11
5.10 STOCK OPTIONS............................................................... 11
5.11 AGREEMENTS OF AFFILIATES.................................................... 12
5.12 INDEMNIFICATION AND INSURANCE............................................... 12
5.13 NOTIFICATION OF CERTAIN MATTERS............................................. 13
5.14 FURTHER ACTION.............................................................. 13
5.15 PUBLIC ANNOUNCEMENTS........................................................ 14
5.16 LISTING OF NEWCO COMMON STOCK AND EXCHANGEABLE SHARES....................... 14
5.17 CONVEYANCE TAXES............................................................ 14
5.19 DIRECTORS AND OFFICERS...................................................... 14
5.20 STRATEGIC ALLIANCE WITH INGENICO............................................ 15
5.21 FAIR PRICE AND BUSINESS COMBINATIONS REQUIREMENTS........................... 15
5.22 SHAREHOLDER PROTECTION RIGHTS REDEMPTION.................................... 15
5.23 EMPLOYMENT AGREEMENTS....................................................... 16
5.24 REORGANIZATION TREATMENT.................................................... 16
5.25 COMBINED FINANCIAL RESULTS.................................................. 16
ARTICLE 6.00--REPRESENTATIONS AND WARRANTIES OF IVI............................................... 16
6.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES................................ 16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
6.2 ARTICLES OF CONTINUATION AND BY-LAWS; MINUTES............................... 17
6.3 CAPITALIZATION.............................................................. 17
6.4 AUTHORITY RELATIVE TO THIS AGREEMENT........................................ 18
6.5 MATERIAL CONTRACTS; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.............. 18
6.6 COMPLIANCE; PERMITS......................................................... 19
6.7 SECURITIES REGULATORY AUTHORITY REPORTS AND FINANCIAL STATEMENTS............ 20
6.8 ABSENCE OF CERTAIN CHANGES OR EVENTS........................................ 20
6.9 NO UNDISCLOSED LIABILITIES.................................................. 21
6.10 ABSENCE OF LITIGATION....................................................... 21
6.11 EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS............................... 21
6.12 LABOUR MATTERS.............................................................. 23
6.13 REGISTRATION STATEMENT; PROXY STATEMENT..................................... 23
6.14 RESTRICTIONS ON BUSINESS ACTIVITIES......................................... 24
6.15 TITLE TO PROPERTY........................................................... 24
6.16 TAXES....................................................................... 25
6.17 ENVIRONMENTAL MATTERS....................................................... 27
6.18 BROKERS..................................................................... 28
6.19 FULL DISCLOSURE............................................................. 28
6.20 INTELLECTUAL PROPERTY....................................................... 28
6.21 INTERESTED PARTY TRANSACTIONS............................................... 30
6.22 INSURANCE................................................................... 30
6.23 OPTION PLANS................................................................ 30
6.24 POOLING MATTERS............................................................. 30
6.25 AFFILIATES.................................................................. 30
6.26 OPINION OF FINANCIAL ADVISOR................................................ 31
ARTICLE 7.00-REPRESENTATIONS AND WARRANTIES OF CHECKMATE.......................................... 31
7.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES................................ 31
7.2 ARTICLES OF INCORPORATION AND BY-LAWS; MINUTES.............................. 31
7.3 CAPITALIZATION.............................................................. 32
7.4 AUTHORITY RELATIVE TO THIS AGREEMENT........................................ 32
7.5 MATERIAL CONTRACTS; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.............. 32
7.6 COMPLIANCE; PERMITS......................................................... 33
7.7 SECURITIES REGULATORY AUTHORITY REPORTS AND FINANCIAL STATEMENTS............ 34
7.8 ABSENCE OF CERTAIN CHANGES OR EVENTS........................................ 35
7.9 NO UNDISCLOSED LIABILITIES.................................................. 35
7.10 ABSENCE OF LITIGATION....................................................... 35
7.11 EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS............................... 35
7.12 LABOUR MATTERS.............................................................. 38
7.13 REGISTRATION STATEMENT; PROXY STATEMENT..................................... 38
7.14 RESTRICTIONS ON BUSINESS ACTIVITIES......................................... 39
7.15 TITLE TO PROPERTY........................................................... 39
7.16 TAXES....................................................................... 39
7.17 ENVIRONMENTAL MATTERS....................................................... 41
7.18 BROKERS..................................................................... 42
7.19 FULL DISCLOSURE............................................................. 42
7.20 INTELLECTUAL PROPERTY....................................................... 42
7.21 INTERESTED PARTY TRANSACTIONS............................................... 44
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C> <C>
7.22 INSURANCE................................................................... 44
7.23 OPTION PLANS................................................................ 44
7.24 POOLING MATTERS............................................................. 44
7.25 AFFILIATES.................................................................. 45
7.26 OPINION OF FINANCIAL ADVISOR................................................ 45
ARTICLE 8.00--REPRESENTATIONS AND WARRANTIES OF NEWCO............................................. 45
8.1 ORGANIZATION AND QUALIFICATION.............................................. 45
8.2 ARTICLES OF INCORPORATION AND BY-LAWS; MINUTES.............................. 45
8.3 CAPITALIZATION.............................................................. 45
8.4 AUTHORITY RELATIVE TO THIS AGREEMENT........................................ 45
ARTICLE 9.00--REPRESENTATIONS AND WARRANTIES OF MERGER SUB........................................ 46
9.1 ORGANIZATION AND QUALIFICATION.............................................. 46
9.2 ARTICLES OF INCORPORATION AND BY-LAWS; MINUTES.............................. 46
9.3 CAPITALIZATION.............................................................. 46
9.4 AUTHORITY RELATIVE TO THIS AGREEMENT........................................ 46
ARTICLE 10.00--CONDUCT OF BUSINESS PENDING THE ARRANGEMENT........................................ 46
10.1 CONDUCT OF BUSINESS BY IVI PENDING THE TRANSACTIONS......................... 46
10.2 NO SOLICITATION............................................................. 48
10.3 NO SOLICITATION............................................................. 50
ARTICLE 11.00--CONDITIONS TO THE TRANSACTIONS..................................................... 52
11.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE TRANSACTIONS........... 52
11.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF IVI................................. 53
OPINION OF CHECKMATE COUNSEL................................................ 54
TAX OPINION................................................................. 54
11.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF CHECKMATE........................... 54
ARTICLE 12.00--TERMINATION........................................................................ 56
12.1 TERMINATION................................................................. 56
12.2 EFFECT OF TERMINATION....................................................... 57
12.3 FEES AND EXPENSES........................................................... 57
ARTICLE 13.00--GENERAL PROVISIONS................................................................. 57
13.1 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS................. 57
13.2 NOTICES..................................................................... 57
13.3 AMENDMENT................................................................... 59
13.4 WAIVER...................................................................... 59
13.5 HEADINGS.................................................................... 59
13.6 SEVERABILITY................................................................ 59
13.7 ENTIRE AGREEMENT............................................................ 59
13.8 ASSIGNMENT.................................................................. 59
13.9 PARTIES IN INTEREST......................................................... 59
13.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE....................... 60
13.11 GOVERNING LAW............................................................... 60
13.12 COUNSEL FEE................................................................. 60
13.13 COUNTERPARTS................................................................ 60
13.14 WAIVER OF JURY TRIAL........................................................ 60
13.15 U.S. CURRENCY............................................................... 60
13.16 ARBITRATION................................................................. 60
SCHEDULE A........................................................................................ 1
</TABLE>
iii
<PAGE>
COMBINATION AGREEMENT
This COMBINATION AGREEMENT is entered into as of January 16, 1998 (this
"Agreement"),
BY AND AMONG:
IVI CHECKMATE CORP., a Delaware corporation ("Newco"),
INTERNATIONAL VERIFACT INC., a Canadian corporation ("IVI"),
CHECKMATE ELECTRONICS, INC., a Georgia corporation ("Checkmate") and
FUTURE MERGER CORPORATION, a Georgia corporation ("Merger Sub").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of IVI and Checkmate have each determined
that it is advisable and in the best interests of their respective shareholders
to carry out the transactions contemplated herein upon the terms and subject to
the conditions set forth herein;
WHEREAS, in furtherance of such transactions, the Board of Directors of IVI
has approved the execution and delivery of this Agreement in order to provide
for the reorganization of the capital of IVI whereby each of the issued and
outstanding common shares in the capital of IVI (the "IVI Common Shares") will
be exchanged, at the holder's election, for either one (the "IVI Exchange
Ratio") share of common stock, no par value of Newco (the "Newco Common Stock")
or one Exchangeable Share (as defined below) of IVI and certain ancillary
agreements will be entered into including the Voting Trust Agreement and the
Support Agreement (as defined below) (such reorganization referred to herein as
the "Arrangement");
WHEREAS, the Exchangeable Shares are exchangeable by the holders thereof for
shares of Newco Common Stock on a one-for-one basis at any time subject to the
terms of this Agreement and the exhibits hereto;
WHEREAS, the Arrangement shall be effected under Section 192 of the CBCA
pursuant to the terms hereof and a plan of arrangement (the "Plan of
Arrangement"), substantially in the form of Exhibit A hereto together with such
other terms and conditions as may be agreed to by the parties hereto acting
reasonably;
WHEREAS, the holders of IVI Common Shares that elect to receive Exchangeable
Shares from IVI (i) will grant and transfer to Newco certain rights to acquire
the Exchangeable Shares ("Call Rights") and (ii) will receive from Newco certain
voting rights in respect of Newco ("Voting Rights") and certain rights to
transfer the Exchangeable Shares directly to Newco ("Exchange Rights");
WHEREAS, the Boards of Directors of Newco, Checkmate and Merger Sub each
have approved the execution and delivery of this Agreement in order to provide
for the merger (the "Merger") of Merger Sub with and into Checkmate in
accordance with the applicable provisions of the Georgia Law, and upon the terms
and subject to the conditions set forth herein;
WHEREAS, pursuant to the Merger, each outstanding share (a "Checkmate
Share") of Checkmate's common stock, $.01 par value (the "Checkmate Common
Shares"), shall be converted into the right to receive the "Merger
Consideration" (as defined in Section 3.4(c)), upon the terms and subject to the
conditions set forth herein;
WHEREAS, Newco, Merger Sub and Checkmate intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
within the meaning of Section 368(a) of the Code, and the Treasury regulations
thereunder, and further intend that the Merger be treated as a tax-free
reorganization under Section 368(a) of the Code;
WHEREAS, the parties intend that (i) the transfer of IVI Common Shares to
Newco in exchange for Newco Common Stock by those shareholders of IVI that elect
to receive Newco Common Stock, (ii) the transfer of Call Rights to Newco in
exchange for Voting Rights and Exchange Rights by those shareholders of IVI that
elect to receive Exchangeable Shares, and (iii) the transfer of Checkmate Common
Shares to Newco by the shareholders of Checkmate pursuant to the Merger,
collectively, be treated as a single integrated tax-free transaction under
Section 351(a) of the Code;
<PAGE>
WHEREAS, concurrently with the execution of this Agreement, and as an
inducement to IVI, Checkmate and Merger Sub to enter into this Agreement, IVI,
Merger Sub, certain principal shareholders of Checkmate and a certain principal
shareholder of IVI have entered into stockholders agreements (the "Shareholders
Agreements"), pursuant to which such persons have agreed, among other things, to
vote their Checkmate Common Shares or IVI Common Shares, as the case may be, in
favour of any shareholders' resolutions relating to the Transactions proposed by
management at a meeting of shareholders of Checkmate or IVI, as the case may be;
WHEREAS, upon completion of the Transactions the shareholders of IVI,
through their holdings of Newco Common Stock (and options therefor) and the
Exchangeable Shares and related rights, shall be effectively entitled to
approximately 57% of the equity of Newco, and the shareholders of Checkmate,
through their holdings of Newco Common Stock (and options therefor), shall be
effectively entitled to approximately 43% of the equity of Newco, based on a
fully diluted treasury stock method calculation;
WHEREAS, the parties intend as soon as practicable after the execution of
this Agreement, to file with the SEC preliminary proxy materials as a joint
proxy statement to solicit proxies of shareholders with respect to the
shareholders' meetings to be held to approve the Arrangement, in the case of
IVI, and the Merger, in the case of Checkmate, and to cause Newco thereafter to
file with the SEC a registration statement on Form S-4 for the Newco Common
Stock to be issued in connection with the Merger and the Arrangement;
WHEREAS, if required, the parties intend, as soon as practicable after the
execution of this Agreement, to cause Newco to file with the OSC and certain
other securities regulatory authorities in Canada a preliminary "non-offering"
prospectus under subsection 53(2) of the OSA and the equivalent provisions in
such other jurisdictions, or take any other steps necessary, to make Newco a
"reporting issuer" under the OSA and the securities laws of such other
jurisdictions;
WHEREAS, for accounting purposes, it is intended that the Transactions shall
be accounted for as a pooling of interests under United States generally
accepted accounting principles ("GAAP");
WHEREAS, this Agreement uses certain terms as defined terms, the definitions
for which appear in Schedule A hereto;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE 1.00--PRELIMINARY STEPS
1.1 INCORPORATION AND ORGANIZATION OF NEWCO
(a) Checkmate has caused the incorporation of Newco under the Delaware
General Corporation Law ("Delaware Law") with a Certificate of Incorporation
in the form set forth in Exhibit B hereto and which Certificate of
Incorporation does:
(i) authorize the Newco Common Stock to be issued in the Arrangement
and the Merger and a sufficient number of shares of Newco Common Stock so
that the Call Rights, Exchange Rights and retraction and redemption
rights attached to the Exchangeable Shares and the rights of holders of
options issued pursuant to IVI Option Plan and Checkmate Stock Option
Plans may be honoured; and
(ii) create Newco Preferred Stock.
(b) Newco has adopted By-laws in the form set forth in Exhibit D hereto;
(c) The initial directors of Newco are J. Stanford Spence, George
Whitton, L. Barry Thomson and Gregory A. Lewis;
(d) Prior to the Closing, Newco will file a certificate of designation
under Section 151(g) of the Delaware Law in connection with the Newco
Special Voting Stock substantially in the form of Exhibit C hereto.
2
<PAGE>
1.2 INCORPORATION OF MERGER SUB
Newco has caused Merger Sub to be incorporated under the Georgia Law as a
wholly-owned subsidiary of Newco.
ARTICLE 2.00--THE ARRANGEMENT
2.1 THE ARRANGEMENT
As promptly as practicable after the execution of this Agreement, IVI will
apply to the Ontario Court of Justice (General Division) (the "Court") pursuant
to Section 192 of the CBCA for an interim order in form and substance
satisfactory to Checkmate (such approval not to be unreasonably withheld or
delayed) (the "Interim Order") providing for, among other things, the calling
and holding of a special meeting of its shareholders for the purpose of
considering and, if deemed advisable, approving the Arrangement under Section
192 of the CBCA and pursuant to the Plan of Arrangement. Upon approval of the
Arrangement by IVI shareholders, as promptly as practicable thereafter, IVI will
take the necessary steps to submit the Arrangement to the Court and apply for a
final order of the Court approving the Arrangement in such fashion as the Court
may direct (the "Final Order"). At the time specified in the Articles of
Arrangement (the "Effective Time") on the date (the "Effective Date") shown on
the Certificate of Arrangement issued by the Director under the CBCA giving
effect to the Arrangement, the following reorganization of capital shall occur
and shall be deemed to occur in the following order without any further act or
formality:
(a) The Articles of Continuation of IVI shall be amended to authorize a
class of exchangeable shares (the "Exchangeable Shares") and one Series A
Preferred Share of IVI (the "Series A Preferred Share").
(b) IVI shall issue to Newco one Series A Preferred Share in
consideration of the issuance by Newco to IVI of one share of the preferred
stock, $.01 par value, of Newco (the "Newco Preferred Stock"). The stated
capital of the Series A Preferred Share shall be equal to the fair market
value, as determined by the board of directors of IVI, of a share of Newco
Preferred Stock. No certificate shall be issued in respect of the Series A
Preferred Share.
(c) Each of the outstanding IVI Common Shares (other than IVI Common
Shares held by holders who have exercised their rights of dissent in
accordance with the Plan of Arrangement and who are ultimately entitled to
be paid fair value for such shares) will be exchanged either (i) with IVI,
for a number of Exchangeable Shares at the IVI Exchange Ratio or (ii) with
Newco, for a number of shares of Newco Common Stock at the IVI Exchange
Ratio, at the holder's election and Newco shall issue such number of shares
of Newco Common Stock. Each holder of IVI Common Shares (other than IVI
Common Shares held by holders who have exercised their rights of dissent in
accordance with the Plan of Arrangement and who are ultimately entitled to
be paid fair value for such shares) will receive that whole number of
Exchangeable Shares or shares of Newco Common Stock, as the case may be,
resulting from the exchange of such holder's IVI Common Shares. No
fractional shares of Newco Common Stock or fractional Exchangeable Shares
will be issued and no certificate therefor will be issued. Any holder of IVI
Common Shares who would otherwise be entitled to receive a fraction of an
Exchangeable Share or share of Newco Common Stock, as the case may be,
shall, upon surrender of his certificate or certificates representing IVI
Common Shares, receive a share certificate adjusted to the next lower whole
number of Newco Common Stock or Exchangeable Shares, as the case may be.
(d) Upon the exchange referred to in paragraph (c) above, each holder of
an IVI Common Share shall cease to be such a holder, shall have his name
removed from the register of holders of IVI Common Shares and shall become a
holder of either (i) the number of fully paid Exchangeable Shares to which
he is entitled as a result of the exchange referred to in paragraph (c) or
(ii) the number of fully paid shares of Newco Common Stock to which he is
entitled as a result of the exchange referred to in paragraph (c) and such
holder's name shall be added to the register of holders of Exchangeable
Shares or shares of Newco Common Stock, as the case may be.
3
<PAGE>
(e) The stated capital of the Exchangeable Shares will be equal to the
stated capital of the IVI Common Shares actually exchanged for Exchangeable
Shares immediately prior to the Arrangement.
(f) Pursuant to the Arrangement and the Voting Trust Agreement, the
holders of IVI Common Shares that elect to receive Exchangeable Shares (i)
will grant and transfer directly to Newco the Call Rights and (ii) will
receive directly from Newco the Voting Rights and the Exchange Rights.
(g) The one outstanding Series A Preferred Share held by Newco will be
exchanged for one IVI Common Share and Newco shall cease to be a holder of
the Series A Preferred Share, shall have its name removed from the register
of holders of Series A Preferred Shares, and Newco's name shall be added to
the register of holders of IVI Common Shares accordingly, and the one Series
A Preferred Share shall be cancelled by IVI.
(h) The stated capital of the one IVI Common Share referred to in
Section 2.1(g) shall be equal to the stated capital of the one Series A
Preferred Share prior to the Arrangement.
(i) The Newco Preferred Stock shall be purchased from IVI by Newco for
the fair market value determined by the board of directors of IVI in
accordance with Section 2.1(b) and immediately thereafter shall be cancelled
by Newco.
2.2 THE VOTING AND EXCHANGE TRUST AGREEMENT
Prior to the Effective Time, Newco, IVI and a Canadian trust company
reasonably acceptable to all the parties (the "Trustee"), shall execute and
deliver a Voting and Exchange Trust Agreement in substantially the form set
forth as Exhibit E hereto, and such changes and additions thereto as may be
reasonably requested by the Trustee together with such other terms and
conditions as may be agreed to by the parties hereto acting reasonably (as so
executed the "Voting Trust Agreement"). Newco shall issue and deposit with the
Trustee, for the benefit of the holders of the Exchangeable Shares, the one
share of Newco Special Voting Stock to be held in accordance with the Voting
Trust Agreement.
2.3 SUPPORT AGREEMENT
Prior to the Effective Time, Newco and IVI shall execute and deliver the
Support Agreement (the "Support Agreement") containing the terms and conditions
set forth in Exhibit F hereto, together with such other terms and conditions as
may be agreed to by the parties hereto acting reasonably.
2.4 DISSENTING SHARES
Notwithstanding anything in this Agreement to the contrary, IVI Common
Shares that are issued and outstanding immediately prior to the Effective Time
and that are held by shareholders who have not voted such shares in favour of
the Arrangement and who have delivered a written demand for appraisal of such
shares in the manner provided in Section 190 of the CBCA ("IVI Dissenting
Shares") shall not be exchanged for Exchangeable Shares or Newco Common Stock as
described in Section 2.1 and shall from and after the Effective Time represent
only the right to receive such consideration as shall be determined to be due to
such shareholder pursuant to Section 190 of the CBCA; provided, however, that
IVI Common Shares outstanding immediately prior to the Effective Time and held
by a person who shall, with the written approval of IVI if required by Section
190 of the CBCA, withdraw his demand for the value of his shares or lose his
right to demand to receive the value of his shares, in either case pursuant to
Section 190 of the CBCA, shall be deemed to be and become and have substituted
therefor, as of the Effective Time, the appropriate number of Exchangeable
Shares of IVI as specified in Section 2.1 without interest.
ARTICLE 3.00--THE MERGER
3.1 MERGER OF MERGER SUB WITH AND INTO CHECKMATE
(a) Subject to the terms and conditions of this Agreement, at the
Effective Time, Merger Sub shall be merged with and into Checkmate and the
separate existence of Merger Sub shall cease. Checkmate shall be the
surviving corporation in the Merger (the "Surviving Corporation").
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(b) As provided in Section 5.1, Checkmate and Merger Sub will file a
certificate of merger with the Secretary of State of the State of Georgia
(the "Georgia Certificate of Merger") and make all other filings or
recordings required by the Georgia Law in connection with the Merger. The
Merger will become effective on the Effective Date at the Effective Time as
specified in the Georgia Certificate of Merger duly filed with the Secretary
of State of Georgia.
3.2 EFFECT OF THE MERGER
The Merger shall have the effects set forth in the Georgia Law. Without
limiting the generality of the foregoing, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises, of a public as well
as a private nature, and be subject to all the restrictions, disabilities and
duties, of each of Merger Sub and Checkmate (collectively, the "Constituent
Corporations"). The Surviving Corporation shall be vested with the rights,
privileges, powers and franchises, all property (real, personal, and mixed) and
all debts due on whatever account and all other things in action or belonging
to, and all and every other interest of, each of the Constituent Corporations.
All debts, liabilities and duties of each of the Constituent Corporations shall
attach to the Surviving Corporation and may be enforced against it to the same
extent as if such debts, liabilities and duties had been incurred or contracted
by it.
3.3 SURVIVING CORPORATION ARTICLES OF INCORPORATION AND BY-LAWS; DIRECTORS
The Articles of Incorporation of Merger Sub shall be the Articles of
Incorporation of the Surviving Corporation immediately after the Effective Time,
until amended in accordance with applicable law, except that the name of the
Surviving Corporation shall be "IVI Checkmate Inc." The By-laws of Merger Sub
shall be the By-laws of the Surviving Corporation immediately after the
Effective Time. The directors of the Surviving Corporation immediately after the
Effective Time shall be J. Stanford Spence, George Whitton, L. Barry Thomson and
Gregory A. Lewis.
3.4 CONVERSION OF CHECKMATE COMMON SHARES
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holder of any shares of Checkmate Common Shares or
Merger Sub:
(i) Each share of common stock, par value $.01 per share, of Merger
Sub outstanding immediately prior to the Effective Time shall be
converted into and become one share of common stock of the Surviving
Corporation and shall constitute the only outstanding shares of capital
stock of the Surviving Corporation.
(ii) Each Checkmate Common Share and the associated share purchase
right of Checkmate (a "Share") outstanding immediately prior to the
Effective Time shall, except as provided in Section 3.8 with respect to
Shares as to which appraisal rights have been exercised, and subject to
Section 3.7, be converted into the right to receive 1.2775 shares of
Newco Common Stock; provided, however, that the number of shares of Newco
Common Stock so to be received is subject to adjustment as provided in
Section 5.5. The ratio of 1.2775 shares of Newco Common Stock to one
Checkmate Common Share, as such ratio may be adjusted pursuant to Section
5.5 below, is hereinafter referred to as the "Checkmate Exchange Ratio".
(b) From and after the Effective Time, all Shares converted in
accordance with Section 3.4(a)(ii) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such Shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration and any dividends or distributions with a record date after
the Effective Time theretofore paid or payable with respect to Newco Common
Stock ("Subsequent Dividends"). From and after the Effective Time, all
certificates representing the common stock of Merger Sub shall be deemed for
all purposes to represent the number of shares of Common Stock of the
Surviving Corporation into which they were converted in accordance with
Section 3.4(a)(i).
(c) The Newco Common Stock to be received in consideration pursuant to
the Merger by each holder of Shares is referred to herein as the "Merger
Consideration".
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3.5 CLOSING OF CHECKMATE TRANSFER BOOKS
At and after the Effective Time, holders of certificates representing Shares
shall cease to have any rights as shareholders of Checkmate and the stock
transfer books of Checkmate shall be closed with respect to Checkmate Common
Shares issued and outstanding immediately prior to the Effective Time and no
further transfer of such shares shall thereafter be made on such stock transfer
books. If, after the Effective Time, valid certificates previously representing
such shares are presented to the Surviving Corporation or the Exchange Agent
(duly endorsed as the Exchange Agent may require) they shall be exchanged as
provided in Section 3.6.
3.6 EXCHANGE AGENT
(a) Prior to the Effective Time, Newco shall appoint an agent (the
"Exchange Agent") for the purpose of exchanging certificates representing
Shares for the Merger Consideration. The Exchange Agent shall be a bank or
trust company to be agreed by IVI and Checkmate prior to the Effective Time.
For purposes of determining the Merger Consideration to be made available,
Newco shall assume that no shareholder of Checkmate will perfect his right
to appraisal of his Shares. Promptly following the Effective Time, Newco
will send, or will cause the Exchange Agent to send, to each holder of
Shares at the Effective Time a letter of transmittal for use in such
exchange.
(b) Each holder of Shares that have been converted into a right to
receive the Merger Consideration and Subsequent Dividends, upon surrender to
the Exchange Agent of a certificate or certificates representing Shares,
will be entitled to receive the Merger Consideration and Subsequent
Dividends payable in respect of such Shares. Until so surrendered, each such
certificate shall, after the Effective Time, represent for all purposes only
the right to receive the Merger Consideration and the Subsequent Dividends.
(c) If any portion of the Merger Consideration in respect of any Share
is to be issued to a person other than the registered holder of the Shares
represented by the certificate or certificates surrendered, it shall be a
condition to such issuance that the certificate or certificates so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such payment shall pay to the
Exchange Agent any transfer or other taxes required as a result of such
payment to a person other than the registered holder of such Shares or
establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not payable.
(d) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to paragraph (a) of this Section 3.6 in respect of
Shares for which appraisal rights have been perfected shall be returned to
Newco upon demand.
3.7 NO FRACTIONAL SHARES
No fractional shares of Newco Common Stock will be issued in connection with
the Merger and no certificate therefor will be issued. Any holder of Shares who
would otherwise receive a fractional share of Newco Common Stock shall, upon
surrender of his certificate or certificates representing Shares, receive a
share certificate adjusted to the next lower whole number of shares of Newco
Common Stock.
3.8 DISSENTING SHARES
Notwithstanding anything in this Agreement to the contrary, Shares that are
issued and outstanding immediately prior to the Effective Time and held by a
holder who has delivered written notice to Checkmate before the vote has been
taken demanding payment for his Shares if the Merger is consummated and has not
voted in favour of the Merger and who has otherwise perfected his dissenters'
rights in the manner provided in the Georgia Law ("Checkmate Dissenting Shares")
shall not be canceled and converted into a right to receive the Merger
Consideration in accordance with the Checkmate Exchange
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Ratio as described in Section 3.4 and shall from and after the Effective Time
represent only the right to receive such consideration as shall be determined to
be due to such shareholder pursuant to the Georgia Law, unless such holder fails
to perfect or withdraws or otherwise loses his right to dissent. If after the
Effective Time such holder fails to perfect or waives, rescinds, withdraws or
otherwise loses his right to dissent, such Shares shall be treated as if they
had been converted as of the Effective Time into a right to receive the Merger
Consideration payable in respect of such Shares pursuant to Section 3.4 without
interest.
3.9 LOST CERTIFICATES
If any certificate which immediately prior to the Effective Time represented
outstanding Checkmate Common Shares that were exchanged pursuant to Section 3.6
has been lost, stolen or destroyed, upon the making of an affidavit of that fact
by the person claiming such certificate to be lost, stolen or destroyed, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
certificate, certificates representing shares of Newco Common Stock (and any
dividends or distributions with respect thereto) deliverable in respect thereof
as determined in accordance with Section 3.6. When authorizing such payment in
exchange for any lost, stolen or destroyed certificate, the person to whom
certificates represented shares of Newco Common Stock are to be issued shall, as
a condition precedent to the issuance thereof, give a bond satisfactory to the
Surviving Corporation and the Exchange Agent, as the case may be, in such sum as
the Surviving Corporation may direct or otherwise indemnify the Surviving
Corporation and the Exchange Agent in a manner satisfactory to the Surviving
Corporation and the Exchange Agent against any claim that may be made against
the Surviving Corporation or the Exchange Agent with respect to the certificate
alleged to have been lost, stolen or destroyed.
ARTICLE 4.00--POST-CLOSING CORPORATE STRUCTURE
4.1 POST-CLOSING CORPORATE STRUCTURE
It is the parties' intention, on or immediately after the Effective Date, to
restructure the corporate holdings of Newco, IVI and the Surviving Corporation,
in a tax-efficient manner which does not adversely affect the pooling treatment
of the Transactions, such that
(i) the Surviving Corporation acquires (by merger or otherwise) the
assets and liabilities of, or the stock of, IVI International Inc., a
Delaware corporation and International Verifact Inc. ("U.S."), a Delaware
corporation, and
(ii) the shareholdings of IVI in NTN and IVI Ingenico Inc. are
transferred to Newco. For greater certainty, 1245344 Ontario Limited
shall remain a subsidiary of IVI.
It is also the parties' intention, on or immediately after the Effective
Date, to take the steps necessary to have the Surviving Corporation, as a
"statutory close corporation", eliminate its board of directors, in accordance
with the Georgia Law.
ARTICLE 5.00--ADDITIONAL AGREEMENTS
5.1 CLOSING
Unless this Agreement shall have been terminated pursuant to Section 12.1
hereof, and subject to the satisfaction or waiver of the conditions set forth in
Article 11 hereof, the consummation of the Transactions (the "Closing") will
take place two business days after satisfaction or waiver of the conditions set
forth in Article 11 hereof, at the offices of Meighen Demers, Merrill Lynch
Canada Tower, 200 King Street West, Suite 1100, Toronto, Ontario, M5H 3T4,
unless another date, time or place is agreed to in writing by the parties
hereto. At the Closing, the parties hereto shall deliver the documents
contemplated hereby
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together with such other customary documents as may be reasonably requested by
the parties. Concurrently with the Closing, the Articles of Arrangement shall be
filed with the Director and the Georgia Certificate of Merger shall be filed
with the Secretary of State of the State of Georgia.
5.2 CONTEMPORANEOUS TRANSACTIONS
The parties hereto agree that each of the Transactions that is in fact
consummated will, to the extent permitted by applicable law, be consummated
substantially contemporaneously with any other Transaction that is in fact
consummated.
5.3 ACCOUNTING CONSEQUENCES
It is intended by the parties hereto that the Transactions shall qualify for
accounting treatment as a pooling of interests under GAAP.
5.4 MATERIAL ADVERSE EFFECT
When used in connection with IVI or any of its subsidiaries, or Checkmate or
any of its subsidiaries, as the case may be, any reference to any event, change
or effect being "material" means any material event, change or effect related to
the condition (financial or otherwise), properties, Liabilities, businesses,
operations, results of operations or prospects of such entity or group of
entities. When used in connection with IVI or any of its subsidiaries, or
Checkmate or any of its subsidiaries, as the case may be, the term "Material
Adverse Effect" means any change or effect that, individually or when taken
together with any other occurrences, events, changes or effects that have
occurred prior to the date of determination of the occurrence of the Material
Adverse Effect, is or is reasonably likely to be materially adverse to
(i) the business, properties, financial condition, results of
operations or prospects of IVI and its subsidiaries or Checkmate and its
subsidiaries, as the case may be, in each case taken as a whole or
(ii) the ability of IVI or Checkmate, as the case may be, to perform
its obligations under this Agreement or to consummate the Transactions
contemplated by this Agreement; provided that "Material Adverse Effect"
shall not be deemed to include the impact of the Transactions and
compliance with the provisions of this Agreement on the operating
performance of the parties.
5.5 ADJUSTMENTS TO EXCHANGE RATIOS
The IVI Exchange Ratio and the Checkmate Exchange Ratio shall be
proportionally adjusted to reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend or distribution of securities
convertible into IVI Common Shares or Checkmate Common Shares), reorganization,
recapitalization or other like change with respect to IVI Common Shares or
Checkmate Common Shares which has a record date or (if no record date is
required or established, by operation of law or otherwise) effective date on or
after the date hereof and prior to the Effective Date.
5.6 DISSENTERS' RIGHTS
Each of IVI and Checkmate shall give the other
(i) prompt notice of any written demand of a right of dissent,
withdrawals of such demands, and any other instruments served pursuant to
the CBCA or the Georgia Law and received by IVI or Checkmate, as the case
may be, and
(ii) the opportunity to participate in all negotiations and
proceedings with respect to such demands. Neither IVI nor Checkmate
shall, except with the prior written consent of the other, make any
payment with respect to, or offer to settle or settle, any such demands.
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5.7 SHAREHOLDER MEETINGS; PROXY MATERIALS; FORM S-4
(a) Unless the Board of Directors of Checkmate shall take any action
permitted by the third sentence of this Section 5.7(a) or the Board of
Directors of IVI shall take any action permitted by the third sentence of
Section 5.7(b), Checkmate shall cause a meeting of its shareholders (the
"Checkmate Shareholders' Meeting") to be duly called and held as soon as
reasonably practicable after the date of this Agreement for the purpose of
voting on the approval and adoption of this Agreement and the Merger (the
"Checkmate Shareholder Approval"). Except as provided in the next sentence,
the Board of Directors of Checkmate shall recommend approval and adoption of
this Agreement and the Merger by the shareholders of Checkmate. The Board of
Directors of Checkmate shall be permitted to
(i) not recommend to Checkmate's shareholders that they give the
Checkmate Shareholder Approval,
(ii) withdraw or modify in a manner adverse to IVI its recommendation
to Checkmate's shareholders that they give the Checkmate Shareholder
Approval, or
(iii) cancel the Checkmate Shareholders' Meeting, but in each of
cases (i), (ii) and (iii) only if and to the extent that Checkmate has
complied with Section 10.2(a) and a Superior Proposal with respect to
Checkmate is pending at the time Checkmate's Board of Directors
determines to take any such action or inaction. In connection with the
Checkmate Shareholders' Meeting, Checkmate
(iv) will promptly prepare and file with the SEC, will use its
reasonable best efforts to have cleared by the SEC and will thereafter
mail to its shareholders as promptly as practicable a proxy statement and
all other materials for such meeting (the "Checkmate Proxy Statement"),
(v) will use its reasonable best efforts, subject to the immediately
preceding sentence, to obtain the Checkmate Shareholder Approval, and
(vi) will otherwise comply with all legal requirements applicable to
such meeting.
(b) Unless the Board of Directors of IVI shall take any action permitted
by the third sentence of this Section 5.7(b) or the Board of Directors of
Checkmate shall have taken any action permitted by the third sentence of
Section 5.7(a), IVI shall cause a meeting of its shareholders (the "IVI
Shareholders' Meeting") to be duly called and held as soon as reasonably
practicable after the date of this Agreement for the purpose of voting on
the approval and adoption of this Agreement and the Arrangement (the "IVI
Shareholder Approval"). Except as provided in the next sentence, the Board
of Directors of IVI shall recommend approval and adoption of this Agreement
and the Arrangement by IVI's shareholders. The Board of Directors of IVI
shall be permitted to
(i) not recommend to IVI's shareholders that they give the IVI
Shareholder Approval,
(ii) withdraw or modify in a manner adverse to Checkmate its
recommendation to IVI's shareholders that they give the IVI Shareholder
Approval, or
(iii) cancel the IVI Shareholders' Meeting, but in each of cases (i),
(ii) and (iii) only if and to the extent that IVI has complied with
Section 10.2(a) and a Superior Proposal with respect to IVI is pending at
the time IVI's Board of Directors determines to take any such action or
inaction. In connection with the IVI Shareholders' Meeting, IVI
(x) will promptly prepare and file with the OSC, the TSE and the SEC,
will use its reasonable best efforts to have cleared by the OSC, the TSE
and the SEC and will thereafter mail to its shareholders as promptly as
practicable the proxy statement and management information circular and
all other materials for such meeting (the "IVI Proxy Statement", and
collectively with the Checkmate Proxy Statement, the "Proxy Statements"),
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(y) will use its reasonable best efforts, subject to the immediately
preceding sentence, to obtain the IVI Shareholder Approval, and
(z) will otherwise comply with all legal requirements applicable to
such meeting.
(c) Newco shall, and IVI and Checkmate shall cause Newco, promptly to
prepare and file with the SEC a registration statement (the "Registration
Statement") on Form S-4 under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Newco Common Stock issuable
at the Effective Time in connection with the Arrangement and the Merger and
take any action required to be taken under applicable SEC, state and
provincial securities Laws, the regulations of the TSE and the regulations
of NASD for the Nasdaq National Market in connection with the issuance of
such Newco Common Stock. Subject to the terms and conditions of this
Agreement and unless the Board of Directors of Checkmate or IVI, as the case
may be, shall take any action permitted by the third sentence of paragraph
(a) or (b) of Section 5.7 above, as the case may be, IVI and Checkmate shall
cause Newco to use its reasonable best efforts to have the Registration
Statement declared effective under the Securities Act as promptly as
practicable after the Registration Statement is filed.
(d) Newco shall, and IVI and Checkmate shall cause Newco, to prepare and
file as soon as practicable after the Effective Date with the SEC a
registration statement on Form S-3 (the "Form S-3") under the Securities
Act, with respect to the shares of Newco Common Stock issuable in connection
with the exchange of the Exchangeable Shares and take any action required to
be taken under applicable SEC, state and provincial securities Laws, the
regulations of the TSE and the regulations of NASD for the Nasdaq National
Market in connection with the issuance of such shares of Newco Common Stock.
Subject to the terms and conditions of this Agreement and unless it is
determined by counsel to Newco that Newco is not eligible to use the Form
S-3, IVI and Checkmate shall cause Newco to use its reasonable best efforts
to have such registration statement on Form S-3 declared effective under the
Securities Act as promptly as practicable after such registration statement
is filed.
(e) Newco shall, and IVI and Checkmate shall cause Newco, if required,
promptly to prepare and file with the OSC and certain other securities
regulatory authorities in Canada a preliminary "non-offering" prospectus
(together with the (final) prospectus, the "Prospectus") under subsection
53(2) of the OSA and the equivalent provisions in the securities Laws of
such other jurisdictions, or file such other documents and take such other
steps as may be required so that Newco will become a "reporting issuer"
under the OSA and the securities Laws of such other jurisdictions, and take
any action required to be taken under applicable provincial securities Laws
and the regulations of the TSE in connection therewith. Subject to the terms
and conditions of this Agreement and unless the Board of Directors of
Checkmate or IVI, as the case may be, shall take any action permitted by the
third sentence of paragraph (a) or (b) of Section 5.7 above, as the case may
be, IVI and Checkmate shall cause Newco to use its reasonable best efforts
to obtain a receipt for the (final) "non-offering" prospectus or such other
document on or before the Effective Date.
5.8 ACCESS TO INFORMATION; CONFIDENTIALITY
Upon reasonable notice and subject to restrictions contained in
confidentiality agreements to which such party is subject, IVI and Checkmate
shall each (and shall cause each of their subsidiaries to) afford to the
officers, employees, accountants, counsel and other representatives of the
other, reasonable access during the period prior to the Effective Date, to all
its properties, books, contracts, commitments and records and, during such
period, IVI and Checkmate each shall (and shall cause each of their subsidiaries
to) furnish promptly to the other all information concerning its business,
properties and personnel as such other party may reasonably request, and each
shall make available to the other the appropriate individuals (including
attorneys, accountants and other professionals) for discussion of the other's
business, properties
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and personnel as either party may reasonably request. Each party shall keep such
information confidential in accordance with the terms of the existing
confidentiality and standstill agreement (the "Confidentiality/ Standstill
Agreement") between IVI and Checkmate, notwithstanding the expiration thereof on
March 31, 1998.
5.9 CONSENTS; APPROVALS
IVI, Checkmate and Newco shall each use all reasonable efforts to obtain all
Approvals and IVI, Checkmate and Newco shall make all filings (including,
without limitation, all filings with United States, Canadian federal and
provincial and foreign governmental entities) required in connection with the
authorization, execution and delivery of this Agreement by IVI, Newco, Merger
Sub and Checkmate and the consummation by them of the transactions contemplated
hereby. IVI and Checkmate (with respect to themselves and their respective
subsidiaries), upon the reasonable request of any party hereto, shall furnish
all information required to be included in the Registration Statement, Proxy
Statements, Form S-3, Prospectus or for any Approval or other filing to be made
pursuant to all Laws in connection with the transactions contemplated by this
Agreement.
5.10 STOCK OPTIONS
(a) On the Effective Date, IVI's obligations with respect to each
outstanding option to purchase IVI Common Shares (each an "IVI Option")
under IVI's 1997 Stock Option Plan ("IVI Option Plan"), and Checkmate's
obligations with respect to each outstanding option to purchase Checkmate
Common Shares (each a "Checkmate Option") under Checkmate's 1988 Employee
Incentive Stock Option Plan, 1993 Stock Option Plan and 1994 Directors'
Stock Option Plan (individually, a "Checkmate Stock Option Plan," and,
collectively, the "Checkmate Stock Option Plans") (the IVI Option Plan and
the Checkmate Stock Option Plans are collectively referred to herein as the
"Stock Option Plans"), whether vested or unvested, will be assumed by Newco
and, on such assumption, the rights to acquire IVI Common Shares under the
IVI Option Plan and the rights to acquire Checkmate Common Shares under the
Checkmate Stock Option Plans shall be exchanged for rights to acquire Newco
Common Stock under such plans. Each IVI Option and Checkmate Option so
assumed by Newco under this Agreement shall continue to have, and be subject
to, the same terms and conditions set forth in the IVI Option Plan or the
Checkmate Stock Option Plans, as the case may be, and the agreement pursuant
to which such IVI Option or Checkmate Option, as the case may be, was issued
as in effect immediately prior to the Effective Date, except that
(i) such IVI Option or Checkmate Option, as the case may be, will be
deemed to constitute an option to purchase that number of shares of Newco
Common Stock that the holder of such option would have been entitled to
receive pursuant to the Arrangement or the Merger, as the case may be,
had such holder exercised such option immediately prior to the Effective
Date (not taking into account whether such option was in fact
exercisable), rounded down to the nearest whole number of shares of Newco
Common Stock, and
(ii) the per share exercise price for the shares of Newco Common
Stock issuable upon exercise of such assumed IVI Option or Checkmate
Option, as the case may be, will be equal to the quotient determined by
dividing the exercise price per share of IVI Common Shares or Checkmate
Common Shares at which such IVI Option or Checkmate Option, as the case
may be, was exercisable immediately prior to the Effective Date by the
IVI Exchange Ratio or the Checkmate Exchange Ratio, as the case may be,
and rounding the resulting exercise price up to the nearest whole cent.
(b) It is the intention of the parties that the IVI Options and
Checkmate Options assumed by Newco qualify following the Effective Date as
incentive stock options as defined in the Code
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("ISOs"), to the extent the IVI Options or Checkmate Options, as the case
may be, qualified as ISOs prior to the Effective Date.
(c) IVI and Checkmate shall obtain any required consents of holders of
such options to such assumptions prior to the Effective Date.
(d) As soon as practicable after the Effective Date, Newco shall deliver
to each holder of an outstanding IVI Option or Checkmate Option, an
appropriate notice setting forth such holder's rights pursuant thereto and
such IVI Option or Checkmate Option shall continue in effect on the same
terms and conditions (including further anti-dilution provisions, and
subject to the adjustments required by this Section 5.10 after giving effect
to the Transactions). Newco shall comply with the terms of all such IVI
Options and Checkmate Options. Newco shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of Newco
Common Stock for delivery pursuant to the terms set forth in this Section
5.10.
(e) Newco shall file and cause to become effective not later than the
Effective Date a registration statement on Form S-8 under the Securities Act
with respect to the issuance of shares of Newco Common Stock upon exercise
of those IVI Options and Checkmate Options referred to in this Section 5.10
and shall keep such registration statement effective throughout the term of
such options.
5.11 AGREEMENTS OF AFFILIATES
Each of IVI and Checkmate shall deliver to Newco and to the other, prior to
the date the Registration Statement becomes effective under the Securities Act,
a letter (each, an "Affiliate Letter") identifying all persons who are, or may
be deemed to be, at the Effective Time, affiliates of IVI or Checkmate, as the
case may be, for purposes of Rule 145 under the Securities Act. Each of IVI and
Checkmate shall use its reasonable best efforts to cause each person who is
identified as an "affiliate" in the Affiliate Letter to deliver to Newco and to
the other, prior to the Effective Date, a written agreement (an "Affiliate
Agreement") substantially in the form of Exhibit G-1 or G-2, respectively. Newco
shall be entitled to place restrictive legends upon certificates for shares of
Newco Common Stock issued to affiliates of Checkmate or IVI in connection with
the Transactions to enforce applicable provisions of Law.
5.12 INDEMNIFICATION AND INSURANCE
The provisions of this Section 5.12 are intended for the benefit of the
parties indemnified herein, and shall be enforceable by such parties.
(a) The By-Laws of IVI and the By-Laws of the Surviving Corporation
shall not be amended, repealed or otherwise modified, for a period of six
years from the Effective Date in any manner that would adversely affect the
rights thereunder of individuals who immediately prior to the Effective Date
were directors, officers, employees or agents of IVI or Checkmate, as the
case may be, unless such modification is required by Law.
(b) Newco shall, to the fullest extent permitted under applicable Law,
indemnify and hold harmless, each present and former director, officer,
employee, fiduciary and agent of each of IVI and Checkmate or any of their
subsidiaries (collectively, the "Indemnified Parties") against any costs or
expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, Liabilities and amounts paid in settlement in connection with any
Litigation, claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or pertaining to
any action or omission occurring at or prior to the Effective Date
(including, without limitation, the transactions contemplated by this
Agreement) for a period of six years after the Effective Date; PROVIDED,
HOWEVER, that in the event that any claim or claims for indemnification are
asserted or made within such six-year period, all rights to indemnification
in respect of any such claim or claims shall continue until the disposition
of any and all such claims. The Indemnified Parties as a group may
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retain only one law firm to represent them with respect to any single action
unless there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties. Any counsel retained by the Indemnified Parties shall
be reasonably satisfactory to Newco and Newco shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld).
(c) If Newco or any successors or assigns of Newco shall consolidate
with or merge into any other person and shall not be the continuing or
surviving person of such consolation or merger or shall transfer all or
substantially all of its properties to any person, then and in each case,
proper provision shall be made, so that such successors and assigns shall
assume the obligations of Section 5.12(b).
(d) Newco shall obtain directors' and officers' insurance for the
directors and officers of Newco, Checkmate and IVI, including, without
limitation, policy limits at least as high as, and risks protected against
at least as expansive as, Checkmate's just prior to the date hereof.
5.13 NOTIFICATION OF CERTAIN MATTERS
Each party hereto shall give prompt notice to all other parties 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 of such party contained in this Agreement to be incomplete,
untrue or inaccurate; and
(ii) any failure of such party materially 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
5.13 shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice; and
PROVIDED, FURTHER, that failure to give such notice shall not be treated as
a breach of covenant for the purposes of Sections 11.2(b) or 11.3(b) unless the
failure to give such notice results in material prejudice to IVI or Checkmate,
as the case may be.
5.14 FURTHER ACTION
Upon the terms and subject to the conditions hereof, each of the parties
hereto shall use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, to obtain in a timely manner all
necessary waivers, consents and Approvals and to effect all necessary
registrations and filings, and to otherwise satisfy or cause to be satisfied all
conditions precedent to its obligations under this Agreement. In addition, IVI
and Checkmate shall provide each other with such cooperation and information as
either of them reasonably may request of the other in filing any Tax Return,
amended Tax Return or claim for refund, determining a Liability for Taxes or a
right to a refund of Taxes, participating in or conducting any audit or other
proceeding in respect of Taxes or making representations to or furnishing
information to parties subsequently desiring to purchase any of the Newco Common
Stock. Such cooperation and information shall include providing copies of
relevant Tax Returns or portions thereof, together with accompanying schedules,
related work papers and documents relating to rulings or other determinations by
Tax authorities.
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5.15 PUBLIC ANNOUNCEMENTS
IVI and Checkmate shall consult with each other before issuing any press
release or otherwise making any public statements with respect to the
Transactions or this Agreement and shall not issue any such press release or
make any such public statement without the prior consent of such other party,
which shall not be unreasonably withheld; PROVIDED, HOWEVER, that IVI or
Checkmate may, without the prior consent of such other party, issue such press
release or make such public statement as may upon the advice of counsel be
required by Law, the SEC, NASD, TSE, OSC or any other governmental entity to
which such party is subject if it has used all reasonable efforts to consult
with such other party as to the timing and content of such release or statement.
5.16 LISTING OF NEWCO COMMON STOCK AND EXCHANGEABLE SHARES
Newco shall use its reasonable best efforts to cause the shares of Newco
Common Stock to be issued in the Transactions (including shares of Newco Common
Stock to be issued as a result of rights attaching to the Exchangeable Shares)
to be approved for quotation on the Nasdaq National Market and listing on the
TSE. Newco and IVI shall use their reasonable best efforts to cause the
Exchangeable Shares to be approved for listing on the TSE.
5.17 CONVEYANCE TAXES
IVI and Checkmate shall cooperate in the preparation, execution and filing
of all returns, questionnaires, applications or other documents regarding any
real property transfer or gains, sales, use, transfer, value added, stock
transfer and stamp taxes, any transfer, recording, registration and other fees,
and any similar taxes which become payable in connection with the Transactions
that are required or permitted to be filed on or before the Effective Date.
5.18 POOLING ACCOUNTING TREATMENT
Each of IVI and Checkmate agree not to knowingly take any action that would
adversely affect the ability of Newco to treat the Transactions as a pooling of
interests under GAAP.
5.19 DIRECTORS AND OFFICERS
Effective as of the Effective Time:
(a) the Newco Board of Directors shall increase the number of Directors
from four to nine and the Board of Directors shall be constituted in the
following manner:
(i) three nominees of IVI (the "IVI Directors"), including George
Whitton and L. Barry Thomson;
(ii) three nominees of Checkmate (the "Checkmate Directors"),
including J. Stanford Spence and Gregory A. Lewis; and
(iii) three Directors mutually agreed upon by IVI and Checkmate (the
"Outside Directors"), which shall include Gerard Compain and a second
nominee of Ingenico;
(b) the Board of Directors of the Surviving Corporation shall be
comprised of four members, being J. Stanford Spence, George Whitton, L.
Barry Thomson and Gregory A. Lewis;
(c) IVI shall cause all of its Directors but L. Barry Thomson to resign,
the number of Directors who shall constitute the whole Board shall be
reduced to three and the Directors shall elect J. Stanford Spence and the
senior operating officer of IVI as new Directors for the balance of the term
and until their successors shall have been elected and qualified;
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(d) the Newco Board of Directors shall cause the officers of Newco to
include J. Stanford Spence as Chairman, George Whitton as Vice-Chairman and
L. Barry Thomson as President and Chief Executive Officer; provided that in
the event that the Chairman becomes inactive (as defined in his employment
agreement) for any reason, the Vice-Chairman shall assume the position of
Chairman;
(e) the Board of Directors of the Surviving Corporation shall cause the
Officers of the Surviving Corporation to include L. Barry Thomson as Chief
Executive Officer, Gregory A. Lewis as President and Chief Operating
Officer, William McKiever as Executive Vice-President, Sales and Marketing,
John C. Neubert as Executive Vice-President and Chief Financial Officer and
Alan Roberts as Vice-President, Development; and
(f) the Newco Board of Directors shall appoint and constitute four
Committees of the Board of Directors, being the Audit Committee, the
Nomination/Governance Committee, the Compensation Committee and the
Executive Committee. The Executive Committee shall be comprised of J.
Stanford Spence, L. Barry Thomson and Gerard Compain. The Executive
Committee's mandate will include the review of key operational and strategic
initiatives of management and will be regularly consulted by management.
Each of the other committees will be comprised of three members, being a
nominee of the IVI Directors, a nominee of the Checkmate Directors and a
nominee of the Outside Directors, except for the Nomination/Governance
Committee which shall be comprised of four members. In the case of the
Nomination/Governance Committee, it shall be comprised of J. Stanford
Spence, George Whitton, Gerard Compain and one Outside Director, who is not
associated with Ingenico, who shall be chairman of such committee.
5.20 STRATEGIC ALLIANCE WITH INGENICO
IVI shall assign to Newco, in a tax-efficient manner, as of the Effective
Time, all of its right, title, interest and obligations in, to and under certain
agreements between IVI and Ingenico, being the Master Alliance Agreement dated
December 5, 1996, the Investment Agreement dated December 5, 1996, as amended,
the Marketing and Distribution Agreement dated December 17, 1996, the Joint
Development and Procurement Agreement dated December 17, 1996, the Technology
License Agreement dated December 17, 1996 and the Latin America Unanimous
Shareholders' Agreement dated December 17, 1996.
5.21 FAIR PRICE AND BUSINESS COMBINATIONS REQUIREMENTS
Checkmate shall take all steps necessary to ensure that the provisions of
Article 11, Part 2 and Part 3, Sections 14-2-1110 through 1113 and 14-2-1131
through 1133 (and any successor provisions thereto) and any other applicable
State Take-Over Laws of the Georgia Law are satisfied and do not in any way
inhibit, affect or prohibit the Transactions.
5.22 SHAREHOLDER PROTECTION RIGHTS REDEMPTION
Checkmate shall take all necessary action (including, if required, redeeming
all of the outstanding rights or amending or terminating the Shareholder
Protection Rights Agreement between Checkmate and First Union National Bank
dated October 13, 1997 (the "Shareholder Protection Rights Agreement")) so that
the entering into of this Agreement and consummation of the transactions
contemplated hereby do not and will not result in the grant of any rights to any
person under the Shareholder Protection Rights Agreement or enable or require
such rights to be exercised, distributed or triggered. Checkmate shall not,
except in accordance with the acceptance of a Superior Proposal, waive,
terminate or otherwise render the Shareholder Protection Rights Agreement
inoperative with respect to any other Acquisition Proposal.
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5.23 EMPLOYMENT AGREEMENTS
On or before the Effective Date Newco or one of its subsidiaries shall enter
into or assume responsibility for Employment Agreements with J. Stanford Spence,
George Whitton, L. Barry Thomson, Gregory A. Lewis and John C. Neubert,
substantially on the terms set forth in Exhibit H to take effect at the
Effective Time.
5.24 REORGANIZATION TREATMENT
Each of IVI and Checkmate agree not to knowingly take any action that will
adversely affect the ability of IVI, Checkmate, Newco and Merger Sub to treat
(i) the Merger as a reorganization under Sections 368 (a)(1)(A) and
368(a)(2)(E) of the Code,
(ii) the Arrangement as a reorganization of capital under Section 86
of the ITA, and
(iii) the transfers of IVI Common Shares, Call Rights and Checkmate
Common Shares to Newco as a tax-free transaction under Section 351 of the
Code.
5.25 COMBINED FINANCIAL RESULTS
Each of Surviving Corporation, IVI and Newco covenant and agree for the
benefit of the persons specified in Schedules 6.25 and 7.25 that, as promptly as
practicable following the Effective Time and in any event no later than 45 days
after the end of the calendar month in which the Effective Time occurs it will
publicly release the combined financial results of IVI and the Surviving
Corporation for the 30 or 31-day period ending on a calendar month end following
the Effective Date.
ARTICLE 6.00--REPRESENTATIONS AND WARRANTIES OF IVI
Except as set forth in the IVI Disclosure Schedule, IVI hereby represents
and warrants to Checkmate that:
6.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES
IVI and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has the requisite corporate power and
authority and is in possession of or has duly made all federal, state,
provincial, local and foreign governmental franchises, grants, authorizations,
licences, permits, easements, consents, certificates, rights, filings,
registration declarations, approvals and orders ("Approvals") necessary to own,
lease and operate the properties it purports to own, operate or lease and to
carry on its business as it is now being conducted, except where the failure to
have such power, authority and Approvals would not have a Material Adverse
Effect. Each of IVI and each of its subsidiaries is duly qualified or licensed
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not have a Material Adverse Effect. A true and complete
list of all of IVI's subsidiaries, together with the jurisdiction of
incorporation or organization of each subsidiary is set forth in Section 6.1 of
the written disclosure schedule previously delivered by IVI to Checkmate (the
"IVI Disclosure Schedule"). Except as set forth in Section 6.1 of the IVI
Disclosure Schedule, IVI or one of its subsidiaries owns all of the issued and
outstanding equity or similar securities of each IVI subsidiary. No equity or
similar securities of any IVI subsidiary are or may become required to be issued
by reasons of any Rights, and there are no Contracts by which IVI or any IVI
subsidiary is bound to issue additional equity or similar securities or Rights
or by which IVI or any IVI subsidiary is or may be bound to transfer any equity
or similar securities of any IVI subsidiary. There are no Contracts relating to
the rights of IVI or any IVI subsidiary to vote or to dispose of any equity or
similar
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securities of any IVI subsidiary. All of the equity or similar securities of
each IVI subsidiary held by IVI or another IVI subsidiary are fully paid and
nonassessable under the applicable corporation Law of the jurisdiction in which
such subsidiary is incorporated or organized and are owned by IVI or an IVI
subsidiary free and clear of any Lien. Except as set forth in Section 6.1 of the
IVI Disclosure Schedule, neither IVI nor any IVI subsidiary directly or
indirectly owns any equity or similar interest in, or any Rights in, any
corporation, partnership, joint venture or other business association or entity.
6.2 ARTICLES OF CONTINUATION AND BY-LAWS; MINUTES
IVI has heretofore furnished to Checkmate a complete and correct copy of its
Articles of Continuation and By-Laws, as amended to date, and equivalent
organizational documents of each of its subsidiaries. Such Articles of
Continuation, By-Laws and equivalent organizational documents of each of its
subsidiaries are in full force and effect. Neither IVI nor any of its
subsidiaries is in violation of any of the provisions of its Articles of
Continuation or By-Laws or equivalent organizational documents. The minute books
of IVI and its subsidiaries have been made available to Checkmate for review.
Except as disclosed in Section 6.2 of the IVI Disclosure Schedule, the minute
books of IVI and its subsidiaries provided to Checkmate pursuant to this Section
6.2 are true and complete in all material respects as of the date of this
Agreement and accurately reflect in all material respects all proceedings of the
Board of Directors and equity securities holders thereof.
6.3 CAPITALIZATION
The authorized capital stock of IVI consists of an unlimited number of IVI
Common Shares and an unlimited number of preference shares, issuable in series
(the "IVI Preference Shares"). As of January 8, 1998:
(i) 9,163,135 IVI Common Shares were issued and outstanding, all of
which are validly issued, fully paid and nonassessable under the CBCA.
None of the outstanding shares of capital stock of IVI has been issued in
violation of any preemptive rights of any current or past holder of IVI
share capital;
(ii) no IVI Common Shares were held by subsidiaries of IVI;
(iii) IVI has outstanding IVI Options to purchase 477,100 IVI Common
Shares pursuant to the IVI Option Plan. Section 6.3 of the IVI Disclosure
Schedule accurately sets forth the name of each optionee, the number of
IVI Common Shares subject to each such IVI Option, the date of grant,
exercise price and termination date of each such IVI Option, and a
vesting schedule for each such IVI Option. Section 6.3 of the IVI
Disclosure Schedule sets forth a true and correct copy of the IVI Option
Plan;
(iv) except as is provided by the Investment Agreement between IVI
and Ingenico dated December 5, 1996, as amended (the "Participation
Right") or as set forth in this Section 6.3 or in Section 6.3 or Section
6.11 of the IVI Disclosure Schedule, there are not any shares of capital
stock or other ownership interests of IVI authorized, reserved for
issuance, issued or outstanding or any outstanding Rights relating to the
share capital or other ownership interests of IVI;
(v) no IVI Preference Shares were issued or outstanding.
No change in such capitalization has occurred between January 8, 1997 and
the date hereof, except for the issuance of IVI Common Shares under the exercise
of options or other Rights outstanding prior to January 8, 1998.
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6.4 AUTHORITY RELATIVE TO THIS AGREEMENT
IVI has all necessary corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by IVI and the consummation by IVI of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of IVI are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than the
approval and adoption of the Arrangement by the holders of at least two-thirds
of the outstanding shares of IVI Common Shares who are permitted to, and who,
vote in accordance with and subject to the CBCA, the OSA, IVI's Articles of
Continuation and By-Laws and the approval of the Court in accordance with the
CBCA). The Board of Directors of IVI has determined that it is advisable and in
the best interest of IVI's shareholders for IVI to enter into a business
combination with Checkmate, Newco and Merger Sub upon the terms and subject to
the conditions of this Agreement. This Agreement has been duly and validly
executed and delivered by IVI and, assuming the due authorization, execution and
delivery by Checkmate, Newco and Merger Sub, as applicable, and subject to
approval by the holders of IVI Common Shares and approval of the Court,
constitutes a legal, valid and binding obligation of IVI.
6.5 MATERIAL CONTRACTS; NO CONFLICT; REQUIRED FILINGS AND CONSENTS
(a) Section 6.5(a) of the IVI Disclosure Schedule includes a list of:
(i) all material Contracts of IVI and its subsidiaries including,
without limitation,
A. any Contract which restricts or prohibits IVI or any
subsidiary of IVI from engaging in any business activity in any
geographic area, line of business or otherwise in competition with
any person, and
B. any Contracts with Ingenico; and
(ii) all agreements which, as of the date hereof, would be required
to be filed as an exhibit to Form 10-K filed by IVI pursuant to the
requirements of the Exchange Act and the SEC's rules thereunder ((i) and
(ii) being, collectively, the "IVI Material Contracts").
(b) The execution and delivery of this Agreement by IVI does not, and
the performance of this Agreement by IVI will not,
(i) conflict with or result in a default or violation of the Articles
of Continuation or By-Laws or equivalent organizational documents of IVI
or any of its subsidiaries,
(ii) conflict with or violate any Law or Order applicable to IVI or
any of its subsidiaries or by which its or any of their respective
businesses or properties is bound or affected, or
(iii) result in any default or violation, or impair IVI's or any of
its subsidiaries' rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any IVI Material Contract, or result in
the creation of a Lien on any of the properties of IVI or any of its
subsidiaries pursuant to any Contract or Approval to which IVI or any of
its subsidiaries is a party or by which IVI or any of its subsidiaries or
its or any of their respective properties is bound or affected.
(c) No Approval of or with any court, administrative agency or
commission or other governmental authority or instrumentality, federal,
state, provincial, local, or foreign (each a "governmental entity"), is
required to be obtained by IVI or any of its subsidiaries in connection with
the execution and delivery of this Agreement or the Plan of Arrangement or
the consummation of the Transactions, except for:
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(i) the filing with the OSC, the SEC, the Director and the Court and
the mailing to shareholders of IVI of the IVI Proxy Statement;
(ii) the furnishing to the SEC of such reports and information under
the Exchange Act and the rules and regulations promulgated by the SEC
thereunder, as may be required in connection with this Agreement and the
Transactions (the "IVI SEC Filings");
(iii) approval by the Court of the Arrangement and the filings of the
Articles of Arrangement and any other required amalgamation, arrangement,
notice or other documents as required by the CBCA;
(iv) such Approvals as may be required under state "control share
acquisition," "anti-takeover", "fair price", "business combinations" or
other similar statutes and regulations (collectively, "State Takeover
Laws");
(v) such Approvals as may be required under the OSA and other
relevant Canadian securities Laws, any other applicable federal,
provincial or state securities Laws and the rules of the NASD or the TSE;
(vi) such filings and notifications as may be necessary under the HSR
Act;
(vii) required notices and filings under the INVESTMENT CANADA ACT
and under the COMPETITION ACT (Canada); and
(vii) where the failure to obtain such Approval, would not prevent or
delay the consummation of the Arrangement or otherwise would not have a
Material Adverse Effect on IVI.
6.6 COMPLIANCE; PERMITS
(a) Neither IVI nor any of its subsidiaries is in conflict with, or in
default or violation of,
(i) any Law or Order applicable to IVI or any of its subsidiaries or
by which its or any of their respective properties or businesses is bound
or affected, or
(ii) any Contract to which IVI or any of its subsidiaries is a party
or by which IVI or any of its subsidiaries or its or any of their
respective properties is bound or affected, except for any such
conflicts, defaults or violations which would not have a Material Adverse
Effect. All of the indebtedness of IVI or any subsidiary of IVI (and all
indebtedness guaranteed by any such person) for money borrowed is
prepayable at any time by such person without penalty or premium.
(b) IVI and its subsidiaries hold all Approvals from governmental
entities that are material to the operation of the business of IVI and its
subsidiaries (collectively, the "IVI Permits"). IVI and its subsidiaries are
in compliance with, and not in default or violation of, the terms of IVI
Permits, except where the failure to so comply, or such default or
violation, would not have a Material Adverse Effect.
(i) Except as disclosed in Section 6.6 of the IVI Disclosure
Schedule, neither IVI nor any IVI subsidiary has, since January 1, 1995,
received any notification or communication from any governmental entity
(a) asserting that IVI or any IVI subsidiary is not in compliance in any
material respect with any Law or Order, (b) threatening to revoke any IVI
Permits, or (c) requiring IVI or any IVI subsidiary to (1) enter into or
consent to the issuance of a cease and desist order (or other similar
Order) or a formal agreement, directive, commitment or memorandum of
understanding (or other similar Contract), or (2) to adopt any board or
shareholder resolution or similar undertaking.
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6.7 SECURITIES REGULATORY AUTHORITY REPORTS AND FINANCIAL STATEMENTS
(a) CANADIAN COMPLIANCE
Since January 1, 1995, IVI has filed all forms, reports and documents
with the OSC required to be filed by it pursuant to the OSA and the
regulations promulgated thereunder and the applicable policies and rules of
the OSC (collectively, the "IVI OSC Reports"), all of which have complied in
all material respects with all applicable requirements of such statute,
regulations, policies and rules. None of the IVI OSC Reports, at the time
filed or as subsequently amended, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. IVI has
delivered to Checkmate's counsel correct and complete copies of each IVI OSC
Report.
(b) SEC REPORTS
IVI has delivered to Checkmate's counsel correct and complete copies of
each report, schedule, registration statement and definitive proxy or
information statement (if any) filed by IVI with the SEC on or after January
1, 1995 (the "IVI SEC Documents"), which are all the documents that IVI was
required to file with the SEC on or after such date and all of which were
timely filed in accordance with the rules and regulations of the SEC. As of
their respective dates or, in the case of registration statements, their
effective dates (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing), none of the IVI SEC
Documents (including all exhibits and schedules thereto and documents
incorporated by reference therein) contained any untrue statement of a
material fact or omitted to state a 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, and the IVI
SEC Documents complied when filed in all material respects with the then
applicable requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations promulgated by the SEC
thereunder. IVI has filed all material documents and agreements which were
required to be filed as exhibits to the IVI SEC Documents.
(c) FINANCIAL STATEMENTS
The consolidated balance sheets and the consolidated statements of
operations, retained earnings and cash flows (including the related notes
thereto) of IVI contained in the IVI OSC Reports are in accordance with the
books and records of IVI and its subsidiaries, and present fairly the
consolidated financial position and the consolidated results of operations
and cash flows of IVI and its consolidated subsidiaries as of the dates or
for the periods presented therein in conformity with Canadian generally
accepted accounting principles and have been reconciled to GAAP as set out
in the notes to such financial statements, applied on a consistent basis
during the periods involved, except as otherwise noted therein and subject
in the case of quarterly financial statements to normal and recurring year-
end audit adjustments, none of which were or are reasonably expected to be
material as to kind or amount, individually or in the aggregate.
6.8 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except as set forth in Section 6.8 of the IVI Disclosure Schedule and the
IVI OSC Reports and IVI SEC Reports, since September 30, 1997, IVI and its
subsidiaries have conducted their business in the ordinary course and there has
not occurred:
(i) any Material Adverse Effect;
(ii) any amendments or changes in the Articles of Continuation or
By-laws of IVI or organizational documents of IVI's subsidiaries;
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(iii) any damage to, destruction or loss of any properties of IVI and
its subsidiaries (whether or not covered by insurance) that have a
Material Adverse Effect;
(iv) any revaluation by IVI of any of its and its subsidiaries'
properties, including, without limitation, writing down the value of
capitalized software or inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
(v) any other action or event that would have required the consent of
Checkmate pursuant to Section 10.1 hereof had such action or event
occurred after the date of this Agreement; or
(vi) any sale of a material amount of the properties of IVI and its
subsidiaries, except for the sale of inventory in the ordinary course of
business.
6.9 NO UNDISCLOSED LIABILITIES
Except as is disclosed in Section 6.9 of the IVI Disclosure Schedule,
neither IVI nor any of its subsidiaries has any Liabilities which are,
individually or in the aggregate, material to the business, operations or
financial condition of IVI and its subsidiaries on a consolidated basis, except
Liabilities
(a) accrued or reserved against in IVI's balance sheet (including any
related notes thereto) for the period ended September 30, 1997 included in
the IVI OSC Reports (the "IVI Balance Sheet"),
(b) incurred since September 30, 1997 in the ordinary course of business
consistent with past practices
(c) disclosed in the IVI OSC Reports, or
(d) incurred in connection with this Agreement.
6.10 ABSENCE OF LITIGATION
Except as set forth in Section 6.10 of the IVI Disclosure Schedule, there
are no claims, actions, suits, proceedings (arbitration, litigation or
otherwise) or investigations (collectively, "Litigation") pending or, to the
knowledge of IVI, threatened (or unasserted but considered by IVI probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against IVI or any of its subsidiaries, or any
properties or rights of IVI or any of its subsidiaries, before any governmental
entity that have a Material Adverse Effect, nor are there any Orders outstanding
against IVI or any IVI subsidiary that have a Material Adverse Effect. Section
6.10 of the IVI Disclosure Schedule contains a summary of all Litigation as of
the date of this Agreement to which IVI or an IVI subsidiary is a party, or for
which IVI or a subsidiary of IVI has any potential Liability.
6.11 EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS
(a) Section 6.11(a) of the IVI Disclosure Schedule lists all employee
benefit plans (as defined in Section 3(3) of ERISA), regardless of whether
ERISA is applicable thereto, all other bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance or
termination pay, or medical, life or other insurance, supplemental
unemployment benefits, profit-sharing, pension or retirement plans,
agreements or arrangements and other similar fringe or employee benefit
plans, programs or arrangements (including those sponsored by the federal or
any provincial government of Canada, collectively "Government Sponsored or
Mandated Plans") and any current or former (solely to the extent obligations
thereunder are still enforceable) employment or executive compensation or
severance Contracts, for the benefit of, or relating to, any employee of
IVI, any trade or business (whether or not incorporated) which is a member
of a controlled group including IVI or which is under common control with
IVI (an "IVI ERISA Affiliate") within the meaning of Section 414 of the
Code, or any subsidiary of IVI, as well as each plan with respect to
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which IVI or an IVI ERISA Affiliate could incur Liability if such plan has
been or were terminated (together, along with all amendments thereto, the
"IVI Employee Plans"), and a complete and correct copy of each such written
IVI Employee Plan has been made available to Checkmate.
(b) Except as set forth in Section 6.11(b) of the IVI Disclosure
Schedule,
(i) none of the IVI Employee Plans promises or provides retiree
medical, post termination medical or other retiree or post termination
welfare benefits to any person and none of the IVI Employee Plans is a
"multiemployer plan" as such term is defined in Section 3(37) of ERISA;
(ii) there has been no transaction or failure to act with respect to
any IVI Employee Plan by any person, which could result in any material
Liability of IVI or any of its subsidiaries;
(iii) all IVI Employee Plans are in compliance in all material
respects with the requirements prescribed by any and all Laws and Orders
currently in effect with respect thereto, and IVI and each of its
subsidiaries have performed all material obligations required to be
performed by them under, are not in any material respect in default or
violation of, and have no knowledge of any default or violation by any
other party to, any of the IVI Employee Plans;
(iv) each IVI Employee Plan intended to qualify under Section 401(a)
of the Code and each trust intended to qualify under Section 501(a) of
the Code is the subject of a favorable determination letter from the IRS,
and to the knowledge of IVI nothing has occurred which may reasonably be
expected to impair such determination;
(v) all contributions required to be made to any IVI Employee Plan,
under the terms of the IVI Employee Plan or any collective bargaining
agreement, have been made on or before their due dates and a reasonable
amount has been accrued for contributions to each IVI Employee Plan for
the current plan years;
(vi) with respect to each IVI Employee Plan subject to Title IV of
ERISA, no "reportable event" within the meaning of Section 4043 of ERISA
(excluding any such event for which the thirty (30) day notice
requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has
occurred;
(vii) neither IVI nor any IVI ERISA Affiliate has incurred, nor
reasonably expects to incur, any Liability under Title IV of ERISA (other
than liability for premium payments to the Pension Benefit Guaranty
Corporation arising in the ordinary course);
(viii) no material oral or written representation or communication
with respect to any aspect of the IVI Employee Plans has been made to
employees of IVI or any IVI subsidiary prior to the date hereof that is
not in accordance with the written or otherwise preexisting terms and
provisions of such plans; and
(ix) no IVI Employee Plan is an employee pension benefit plan as
defined in ERISA Section 3(2).
(c) Each IVI Employee Plan that is required or intended to be qualified
under applicable Law or registered or approved by a governmental entity has
been so qualified, registered or approved by the appropriate governmental
entity, and nothing has occurred since the date of the last qualification,
registration or approval to adversely affect, or cause, the appropriate
governmental entity to revoke such qualification, registration or approval.
(d) All contributions (including premiums) required by any Law or
Contract to have been made or approved by IVI and its subsidiaries under or
with respect to the IVI Employee Plans have been paid or accrued by IVI.
Without limiting the foregoing, there are no material unfunded Liabilities
under any IVI Employee Plan.
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(e) There is no pending or to the knowledge of IVI, threatened
Litigation against IVI or any of its subsidiaries with respect to any of the
IVI Employee Plans.
(f) There is no pending or, to the knowledge of IVI, threatened
Litigation by former or present employees of IVI and its subsidiaries (or
their beneficiaries) with respect to the IVI Employee Plans or the assets or
fiduciaries thereof (other than routine claims for benefits).
(g) Neither IVI nor any of its subsidiaries maintains any 401(k) or
other type of pension plan subject to Section 401(a) of the Code in the
United States.
(h) No condition or event has occurred with respect to the IVI Employee
Plans which has a Material Adverse Effect.
(i) IVI has made available to Checkmate:
(ii) copies of all employment Contracts with officers of IVI or a
subsidiary of IVI;
(iii) copies of all Contracts with consultants or employees who are
individuals obligating IVI and its subsidiaries (collectively) to make
annual cash payments in an amount exceeding $100,000;
(iv) a schedule listing all officers of IVI and its subsidiaries who
have executed a non-competition agreement with IVI or a subsidiary of
IVI;
(v) copies of all severance Contracts, programs and policies of IVI
and its subsidiaries with or relating to their employees;
(vi) copies of all plans, programs, Contracts and other arrangements
of IVI and its subsidiaries with or relating to their employees which
contain change in control provisions.
6.12 LABOUR MATTERS
(i) There is no Litigation pending or, to the knowledge of IVI,
threatened, between IVI or any of its subsidiaries and any of their
respective current or former employees, which have or may have a Material
Adverse Effect, or asserting that IVI or any subsidiary has committed an
unfair labor practice (within the meaning of the National Labor Relations
Act of the United States or any other comparable Law), or seeking to
compel IVI or one of its subsidiaries to bargain with any labor union or
other collective bargaining unit.
(ii) Neither IVI nor any of its subsidiaries is a party to any
collective bargaining agreement or other labour union contract applicable
to persons employed by IVI or any of its subsidiaries nor does IVI know
of any activities or proceedings of any labour union or other collective
bargaining unit to organize any such employees.
(iii) There are no strikes, slowdowns, work stops, lockouts, or other
labor disputes pending, or, to the knowledge of IVI, threatened, by or
with respect to any employees of IVI or any of its subsidiaries.
6.13 REGISTRATION STATEMENT; PROXY STATEMENT
None of the information supplied or to be supplied by IVI in writing for
inclusion or incorporation by reference in
(i) the Registration Statement,
(ii) the Proxy Statements and the prospectus contained in the
Registration Statement (the "Proxy Statement/Prospectus"),
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(iii) the Prospectus, and
(iv) any other document to be filed with the SEC, OSC or any
regulatory agency by Newco, Merger Sub or IVI in connection with the
transactions contemplated by this Agreement (the "IVI Other Filings")
will, at the respective times filed with the SEC, OSC or other regulatory
agency and, in addition,
A. in the case of the Proxy Statement/Prospectus, at the date it
or any amendments or supplements thereto are mailed to shareholders,
B. in the case of the Registration Statement, when it becomes
effective under the Securities Act, and
C. in the case of the Prospectus, at the date of the receipt from
the OSC for the Prospectus,
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 light of the circumstances under which they
are made, not misleading. The IVI Proxy Statement will comply as to form
in all material respects with the applicable provisions of the OSC and
the Exchange Act and the rules and regulations thereunder. If at any time
prior to the Effective Date any event relating to IVI or any of its
respective affiliates, officers or directors should be discovered by IVI
which should be set forth in an amendment to the Registration Statement
or Prospectus, or a supplement to the IVI Proxy Statement, IVI shall
promptly inform Newco and Checkmate.
Notwithstanding the foregoing, IVI makes no representation or warranty with
respect to any information supplied by Checkmate or Newco which is contained in
any of the foregoing documents.
6.14 RESTRICTIONS ON BUSINESS ACTIVITIES
Except for this Agreement and as set forth in Section 6.14 of the IVI
Disclosure Schedule, there is no material Contract or Order binding upon IVI or
any of its subsidiaries which has or could reasonably be expected to have the
effect of prohibiting or impairing any material business practice of IVI or any
of its subsidiaries, the acquisition of property by IVI or any of its
subsidiaries or the conduct of business by IVI or any of its subsidiaries as
currently conducted or as proposed to be conducted by IVI.
6.15 TITLE TO PROPERTY
IVI owns no real property. Section 6.15 of the IVI Disclosure Schedule sets
forth a true and complete list of all real property leased by IVI or any of its
subsidiaries requiring annual lease payments of more than $50,000, and the
aggregate monthly rental or other fee payable under such lease. IVI and each of
its subsidiaries have good and marketable title to all of their properties, free
and clear of all Liens, except for any Lien:
(i) identified in Section 6.15 of the IVI Disclosure Schedule or
disclosed or reserved against in the IVI Balance Sheet;
(ii) created, arising or existing under or in connection with any
agreement or other matter referred to in the IVI Disclosure Schedule,
provided that such Lien (and a description of its material terms) is
identified with such Agreement or matter in the IVI Disclosure Schedule;
(iii) relating to any Tax or other governmental charge or levy that
is not yet due and payable;
(iv) relating to, or created arising or existing in connection with,
any Litigation that is being contested in good faith, provided that any
such Lien (and a description of its material terms) is identified with
such Litigation in the IVI Disclosure Schedule; or
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(v) which, individually or in the aggregate, would not result in a
Material Adverse Effect to IVI;
and all leases pursuant to which IVI or any of its subsidiaries lease from
others material items or amounts of real or personal property, are in good
standing, valid, effective and enforceable in accordance with their respective
terms, and there is not, under any of such leases, any existing material default
or violation except where the lack of such good standing, validity,
effectiveness or enforceability or the existence of such default or violation
would not have a Material Adverse Effect. All the facilities of IVI and its
subsidiaries, except such as may be under construction, are in good operating
condition and repair, reasonable wear and tear excepted, and are usable in the
ordinary course of business consistent with past practice except where the
failure of such plants, structures and equipment to be in such good operating
condition and repair or so usable would not have a Material Adverse Effect. The
properties of IVI and its subsidiaries include, in the aggregate, all of the
properties required to operate the business of IVI and its subsidiaries as
presently conducted. All items of inventory of IVI and its subsidiaries
reflected in the IVI Balance Sheet consisted of items of a quality and quantity
usable and saleable in the ordinary course of business and conform to generally
accepted standards in the industry in which IVI and its subsidiaries are a part.
6.16 TAXES
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean all
taxes, fees, levies, duties, tariffs, imposts, premiums and governmental
impositions or charges of any kind, payable to any federal, state,
provincial, local or foreign taxing authority, including (without
limitation):
(i) income, capital, business, franchise, profits, corporate,
alternative minimum, gross receipts, ad valorem, goods and services,
customs, net worth, value added, sales, use, service, real or personal
property, special assessments, capital stock, licence, payroll,
withholding, employment, social security, workers' compensation,
employment insurance or compensation, utility, severance, production,
excise, stamp, occupation, premiums, windfall profits, transfer and gains
taxes, surtaxes, fees, levies, duties, tariffs, imposts, premiums and
governmental impositions, whether disputed or not; and
(ii) interest, penalties, additional taxes and additions to tax
imposed with respect thereto;
and "Tax Returns" shall mean returns, reports and information statements of
any kind with respect to Taxes required to be filed with Revenue Canada, the
IRS or any other taxing authority, domestic or foreign, including, without
limitation, consolidated, combined and unitary tax returns.
(b) IVI and its subsidiaries have filed all Canadian and United States
federal income Tax Returns and all other Tax Returns required to be filed by
them on or prior to the date hereof, or requests for extensions have been
timely filed, granted and have not expired; all Tax Returns filed by IVI and
its subsidiaries are complete and accurate; and IVI and its subsidiaries
have paid and discharged all Taxes when due, whether or not shown on any Tax
Return, except such as are being contested in good faith by appropriate
proceedings (in each case, as disclosed in Section 6.16(b) of the IVI
Disclosure Schedule) and with respect to which IVI is maintaining reserves
to the extent currently required for their payment; except to the extent
that the failure so to file, to be complete and correct, to reserve or so to
pay, individually or in the aggregate with all other such failures, would
not have a Material Adverse Effect. Neither Revenue Canada, the IRS nor any
other taxing authority is now asserting or, to the knowledge of IVI,
threatening to assert against IVI or any of its subsidiaries any deficiency
or claim for additional Taxes other than additional Taxes (except, in each
case, as disclosed in Section 6.16(b) of the IVI Disclosure Schedule) with
respect to which IVI is maintaining reserves in all material respects
adequate for their payment. Except as disclosed in Section 6.16(b) of the
IVI Disclosure Schedule, neither IVI nor any of its subsidiaries is
currently being audited by any taxing authority nor has notice been given by
any taxing authority that it will commence such an audit or
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examination. There are no Tax Liens on any properties of IVI or any
subsidiary thereof and neither IVI nor any of its subsidiaries has granted
any waiver of any statute of limitations with respect to, or any extension
of a period for the assessment of, any Tax. Neither IVI nor any of its
subsidiaries has received any notice of seizure from any taxation authority.
The accruals and reserves for Taxes reflected in the IVI Balance Sheet are
in all material respects sufficient to cover all Taxes accruable through the
date thereof (including Taxes being contested and any deferred Taxes) in
accordance with Canadian generally accepted accounting principles and, as of
the Effective Date, such accruals and reserves, as adjusted for the passage
of time through the Effective Date, will be sufficient for the then unpaid
Taxes of IVI and its subsidiaries. Except as disclosed in Section 6.16(b) of
IVI Disclosure Schedule, neither IVI nor any of its subsidiaries (whether as
a result of the Transactions or otherwise) is required to include in income:
(i) items in respect of any change in accounting principles or
deferred intercompany transactions; or
(ii) any installment sale gain,
in each case where the inclusion in income would result in a tax
Liability materially in excess of the reserves therefor.
(c) IVI, on behalf of itself and all its subsidiaries, hereby represents
that, other than as disclosed on Section 6.16(c) of the IVI Disclosure
Schedule, and other than with respect to items the inaccuracy of which would
not have a Material Adverse Effect:
(i) neither IVI nor any of its subsidiaries has made any payment or
is a party to any agreement, contract or arrangement that may result,
separately or in the aggregate, in the payment of any "excess parachute
payment" within the meaning of Section 280G of the Code, determined
without regard to Section 280G(b)(4) of the Code;
(ii) neither IVI nor any of its subsidiaries has been subject to any
accumulated earnings tax or personal holding company tax;
(iii) neither IVI nor any of its subsidiaries owns stock in a passive
foreign investment company within the meaning of Section 1296 of the
Code;
(iv) neither IVI nor any of its subsidiaries is obligated under any
agreement with respect to industrial development bonds or other
obligations the tax exempt character of which for United States federal
or state income tax purposes could be affected by the transactions
contemplated hereunder; and
(v) neither IVI nor any of its subsidiaries has, prior to the date
hereof, acquired or had the use of any material property from a person
with whom it was not dealing at arm's length, or disposed of any material
property to a person with whom it was not dealing at arm's length for
proceeds less than the fair market value thereof.
(d) No power of attorney has been granted by IVI or any of its
subsidiaries with respect to any matter relating to Taxes which is currently
in force.
(e) Neither IVI nor any of its subsidiaries
(i) is a party to any agreement or arrangement (written or oral)
providing for the allocation or sharing of Taxes, or
(ii) has any Liability for Taxes of any person (other than IVI and
its subsidiaries) under Treasury Regulation Section 1.1502-6 (or similar
provision of Law) as a transferee or successor or by Contract or
otherwise.
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(f) IVI and each of its subsidiaries has withheld all material amounts
from each payment made to any of its respective past or present employees,
officers or directors, suppliers, customers or other third parties the
amount of all Taxes and other material deductions required to be withheld
therefrom and have paid the same to the proper taxation authority or other
receiving officers within the time required under applicable Law.
(g) IVI has remitted to the appropriate tax authority when required by
law to do so all amounts collected by it on account of all GST, retail sales
and similar Taxes.
(h) IVI has withheld from each payment made to any non-resident of
Canada the amount of all material Taxes and other deductions required to be
withheld therefrom and has paid the same to the proper taxation authority or
other receiving officers within the time required under applicable Law.
(i) IVI has not deducted any material amounts in computing its income in
a taxation year which will be included in a subsequent taxation year under
section 78 of the ITA.
(j) IVI and all of the subsidiaries of IVI have taxation years ending on
December 31 of each year.
(k) Neither IVI nor any of its subsidiaries has (except as disclosed in
section 6.16(k) of the IVI Disclosure Schedule), prior to the date hereof,
(i) made or filed any election under Section 85 of the ITA with
respect to the acquisition or disposition of any property; or
(ii) made or filed any election under Section 83 of the ITA with
respect to the payment out of the capital dividend account of IVI or any
of its subsidiaries.
6.17 ENVIRONMENTAL MATTERS
(a) Except in all cases as do not have a Material Adverse Effect, IVI
and each of its subsidiaries;
(i) have obtained all applicable Approvals which are required under
foreign, federal, state, provincial or local laws relating to pollution
or protection of human health or the environment, including Laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants or hazardous substances or wastes into ambient air, surface
water, ground water or land or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous substances or wastes
("Environmental Laws"); and
(ii) are in compliance with all terms and conditions of such
Approvals and also are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in Environmental Laws or
contained in any Law or Order issued, entered, promulgated or approved
thereunder.
(b) There is no Litigation pending or, to the knowledge of IVI,
threatened before any governmental entity in which IVI or any IVI subsidiary
or any of the properties owned, leased, managed or operated by IVI or one of
its subsidiaries has been or, with respect to threatened Litigation, may be
named as a defendant for alleged noncompliance (including by any
predecessor) with any Environmental Law, whether or not occurring at, on,
under, or involving a property owned, leased, managed, or operated (in whole
or in part) by IVI or any subsidiary of IVI or any of their properties. To
the knowledge of IVI, there is no reasonable basis for any Litigation of a
type described in the immediately foregoing sentence.
(c) During the period of IVI's or any of its subsidiaries'
(i) ownership or operation of any of their respective current
properties,
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(ii) participation in the management of any properties of any other
person, or
(iii) holding of a security interest in any properties of any other
person, there have been no releases of "hazardous substances" in, on,
under, or affecting such properties. Prior to the period of IVI's or any
of its subsidiaries'
A. ownership or operation of any of their respective current
properties,
B. IVI's or any of its subsidiaries' participation in the
management of any properties of any other person, or
C. holding of a security interest in any properties of any other
person, there were no releases of "hazardous substances" in, on,
under, or affecting any such properties.
(d) For purposes of this Section 6.17 and Section 7.17, "hazardous
substances" shall mean
(i) any hazardous substance, hazardous material, hazardous waste,
regulated substance or toxic substance (as those terms are defined by any
applicable Environmental Laws) and
(ii) any chemicals, pollutants, contaminants, petroleum, petroleum
products, or oil (and specifically shall include asbestos requiring
abatement, removal or encapsulation pursuant to the requirements of
governmental authorities and any polychlorinated biphenyls).
6.18 BROKERS
No broker, finder or investment banker (other than BancAmerica Robertson
Stephens) 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 or on behalf of IVI. A complete and correct copy of all
agreements between IVI and BancAmerica Robertson Stephens pursuant to which such
firm would be entitled to any payment relating to the transactions contemplated
hereunder are set forth in Section 6.18 of the IVI Disclosure Schedule.
6.19 FULL DISCLOSURE
No statement contained in this Agreement or any certificate or schedule
furnished or to be furnished by IVI or any of its subsidiaries to Checkmate in,
or pursuant to the provisions of, this Agreement contains or shall contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary, in the light of the circumstances under which it was made, in
order to make the statements herein or therein not misleading.
6.20 INTELLECTUAL PROPERTY
(a) Except in such instances that do not have a Material Adverse Effect,
IVI or an IVI Subsidiary owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights and any applications therefor, technology, know-how,
computer software programs or applications (in both source code and object
code form), tangible or intangible proprietary information or material and
other intellectual property rights that are used or proposed to be used in
the business of IVI and its subsidiaries as currently conducted. Section
6.20 (a) of the IVI Disclosure Schedule lists all current and past (lapsed,
expired, abandoned or canceled) patents, registered and material
unregistered trademarks and service marks, registered and material
unregistered copyrights, trade name, other intellectual property and any
applications therefor owned by IVI and its subsidiaries (the "IVI
Intellectual Property Rights"), and specifies the jurisdictions in which
each such IVI Intellectual Property Right has been issued or registered (if
any) or in which an application for such issuance and registration has been
filed (if any), including the respective registration or application numbers
and the names of all registered owners, together with a list of all
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of IVI's and its subsidiaries' currently marketed software products and an
indication as to which, if any, of such software products have been
registered for copyright protection with the United States or Canadian
Copyright Office and any other foreign offices and by whom such items have
been registered. Section 6.20 (a) of the IVI Disclosure Schedule includes
and specifically identifies all third-party patents, trademarks or
copyrights (including software), and other intellectual property (the "IVI
Third Party Intellectual Property Rights") to the knowledge of IVI which are
incorporated in, are, or form a part of, any product of IVI or are otherwise
used in (or proposed to be used in) or necessary for the conduct of IVI's
business as currently conducted. Section 6.20 (a) of the IVI Disclosure
Schedule lists:
(i) any requests IVI has received to make any such registration,
including the identity of the requestor and the item requested to be so
registered, and the jurisdiction for which such request has been made;
(ii) except for object code licence agreements for IVI's and its
subsidiaries' products executed in the ordinary course of business and in
accordance with IVI's and its subsidiaries' past practices, all material
licences, sublicences and other Contracts as to which IVI or any
subsidiary of IVI is a party and pursuant to which any person is
authorized to use any IVI Intellectual Property Right, including any
trade secret material to IVI or any subsidiary of IVI; and
(iii) all material licences, sublicences and other Contracts as to
which IVI is a party and pursuant to which IVI is authorized to use any
IVI Third Party Intellectual Property Rights, including any trade secret
of a third party, and includes the identity of all parties thereto, a
description of the nature and subject matter thereof, the applicable
royalty and the term thereof.
(b) IVI and its subsidiaries are not, nor will they be as a result of
the execution and delivery of this Agreement by IVI or the performance of
its obligations hereunder, in violation in any material respect of any
licence, sublicence or Contract described in Section 6.20(a) of the IVI
Disclosure Schedule. No Litigation with respect to the IVI Intellectual
Property Rights, including any trade secret material to IVI, or IVI Third
Party Intellectual Property Rights is currently pending or, to the knowledge
of IVI, is threatened by any person, nor does IVI know of any valid grounds
for any bona fide Litigation:
(i) to the effect that the manufacture, sale, licensing or use of any
product as now used, sold or licensed or proposed for use, sale or
license by IVI or any of its subsidiaries infringes on any copyright,
patent, trademark, service mark or trade secret;
(ii) against the use by IVI or any of its subsidiaries of any
trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in IVI's or
any of its subsidiaries, business as currently conducted or as proposed
to be conducted by IVI or any of its subsidiaries;
(iii) challenging the ownership, validity or effectiveness of any of
the IVI Intellectual Property Rights, including trade secrets, material
to IVI or any of its subsidiaries; or
(iv) challenging IVI's or any of its subsidiaries' license or legally
enforceable right to use of the IVI Third Party Intellectual Property
Rights. To IVI's knowledge, all patents, registered trademarks, maskworks
and copyrights held by IVI or any of its subsidiaries are valid and
subsisting. Except as set forth in Section 6.20 (b) of the IVI Disclosure
Schedule, to IVI's knowledge, there is no material unauthorized use,
infringement or misappropriation of any of the IVI Intellectual Property
by any third party, including any employee or former employee of IVI or
any of its subsidiaries.
Except as set forth in Section 6.20 (b) of the IVI Disclosure Schedule,
neither IVI nor any of its subsidiaries
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(i) has been sued or charged in writing as a defendant in any
Litigation, claim, suit, action or proceeding which involves a claim or
infringement of trade secrets, any patents, trademarks, service marks,
maskworks or copyrights and which has not been finally terminated prior
to the date hereof, or been informed or notified by any third party that
IVI or any of its subsidiaries may be engaged in such infringement, or
(ii) has knowledge of any infringement Liability with respect to, or
infringement by, IVI or any of its subsidiaries of any trade secret,
patent, trademark, service mark, maskwork, copyright or other
intellectual property of another.
(c) Except as noted in Section 6.20 (c) of the IVI Disclosure Schedule,
all software that is IVI Intellectual Property Rights and IVI's and its
subsidiaries' business systems (including hardware and software) and
products, are Year 2000 Compliant.
6.21 INTERESTED PARTY TRANSACTIONS
Except as set forth in Section 6.21 of the IVI Disclosure Schedule, since
December 31, 1996, no event has occurred that would be required to be reported
as a Certain Relationship or Related Transaction, pursuant to Item 404 of
Regulation S-K promulgated by the SEC or that is a related party transaction for
the purposes of OSC Policy 9.1.
6.22 INSURANCE
Section 6.22 of the IVI Disclosure Schedule lists all material insurance
policies and fidelity bonds covering the business, properties, operations,
employees, officers and directors of IVI and its subsidiaries. Except as is set
forth in Section 6.22 of the IVI Disclosure Schedule, there is no claim by IVI
or any of its subsidiaries pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums payable under all such policies and bonds
have been paid and IVI and its subsidiaries are otherwise in compliance in all
material respects with the terms of such policies and bonds (or other policies
and bonds providing substantially similar insurance coverage). Such policies of
insurance and bonds are of the type and in amounts customarily carried by
persons conducting businesses similar to those of IVI and its subsidiaries. IVI
and its subsidiaries have not received notice of and do not know of any
threatened termination of, or material premium increase with respect to, any of
such policies.
6.23 OPTION PLANS
Except as set forth in Section 6.23 of the IVI Disclosure Schedule, the
Board of Directors of IVI has taken all necessary action (or refrained from
taking action, where appropriate) under the IVI Option Plan so that none of the
IVI Stock Options (or any portion thereof) will be entitled to receive cash or
other property as a result of the consummation of the transactions contemplated
hereby, but instead shall be assumed as provided in Section 5.10 hereof.
6.24 POOLING MATTERS
Neither IVI nor to IVI's knowledge any of its affiliates has taken or agreed
to take any action that (without giving effect to any action taken or agreed to
be taken by Checkmate or any of its affiliates or Newco) would affect the
ability of Newco to account for the business combination to be effected by the
Transactions as a pooling of interests.
6.25 AFFILIATES
Section 6.25 of the IVI Disclosure Schedule sets forth each person who, as
of the date hereof, is an affiliate of IVI.
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6.26 OPINION OF FINANCIAL ADVISOR
IVI has been advised by its financial advisor, BancAmerica Robertson
Stephens, that, in its opinion, as of the date hereof, the terms of the
Arrangement are fair to IVI from a financial point of view, and has delivered a
written copy of such opinion to IVI.
ARTICLE 7.00--REPRESENTATIONS AND WARRANTIES OF CHECKMATE
Except as set forth in the Checkmate Disclosure Schedule, Checkmate hereby
represents and warrants to IVI that:
7.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES
Checkmate and each of its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has the requisite corporate power and
authority and is in possession of or has duly made all Approvals necessary to
own, lease and operate the properties it purports to own, operate or lease and
to carry on its business as it is now being conducted, except where the failure
to have such power, authority and Approvals would not have a Material Adverse
Effect. Each of Checkmate and each of its subsidiaries is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not have a Material Adverse Effect. A
true and complete list of all of Checkmate's subsidiaries, together with the
jurisdiction of incorporation or organization of each subsidiary is set forth in
Section 7.1 of the written disclosure schedule previously delivered by Checkmate
to IVI (the "Checkmate Disclosure Schedule"). Except as set forth in Section 7.1
of the Checkmate Disclosure Schedule, Checkmate or one of its subsidiaries owns
all of the issued and outstanding equity or similar securities of each Checkmate
subsidiary. No equity or similar securities of any Checkmate subsidiary are or
may become required to be issued by reason of any Rights, and there are no
Contracts by which Checkmate or any Checkmate subsidiary is bound to issue
additional equity or similar securities or Rights or by which Checkmate or any
Checkmate subsidiary is or may be bound to transfer any equity or similar
securities of any Checkmate subsidiary. There are no Contracts relating to the
rights of Checkmate or any Checkmate subsidiary to vote or to dispose of any
equity or similar securities of any Checkmate subsidiary. All of the equity or
similar securities of each Checkmate subsidiary held by Checkmate or another
Checkmate subsidiary are fully paid and nonassessable under the applicable
corporation Law of the jurisdiction in which such subsidiary is incorporated or
organized and are owned by Checkmate or a Checkmate subsidiary free and clear of
any Lien. Except as set forth in Section 7.1 of the Checkmate Disclosure
Schedule, neither Checkmate nor any Checkmate subsidiary directly or indirectly
owns any equity or similar interest in, or any Rights in, any corporation,
partnership, joint venture or other business association or entity.
7.2 ARTICLES OF INCORPORATION AND BY-LAWS; MINUTES
Checkmate has heretofore furnished to IVI a complete and correct copy of its
Articles of Incorporation and By-Laws, as amended to date, and equivalent
organizational documents of each of its subsidiaries. Such Articles of
Incorporation, By-Laws and equivalent organizational documents of each of its
subsidiaries are in full force and effect. Neither Checkmate nor any of its
subsidiaries is in violation of any of the provisions of its Certificate of
Incorporation or By-Laws or equivalent organizational documents. The minute
books of Checkmate and its subsidiaries have been made available to IVI for
review. Except as disclosed in Section 7.2 of the Checkmate Disclosure Schedule,
the minute books of Checkmate and its subsidiaries provided to IVI pursuant to
this Section 7.2 are true and complete in all material respects as of the date
of this Agreement and accurately reflect in all material respects all
proceedings of the Board of Directors and equity securities holders thereof.
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7.3 CAPITALIZATION
The authorized capital stock of Checkmate consists of 40,000,000 shares of
Checkmate Common Stock. As of January 12, 1998:
(i) 5,420,188 Checkmate Common Shares were issued and outstanding,
all of which are validly issued, fully paid and nonassessable under the
Georgia Law. None of the outstanding shares of capital stock of Checkmate
has been issued in violation of any preemptive rights of any current or
past holder of Checkmate capital stock;
(ii) no Checkmate Common Shares were held by subsidiaries of
Checkmate;
(iii) Checkmate has outstanding Checkmate Options to purchase
1,337,175 Checkmate Common Shares pursuant to Checkmate Stock Option
Plans. Section 7.3 of the Checkmate Disclosure Schedule accurately sets
forth the name of each optionee, the number of Checkmate Common Shares
subject to each such Checkmate Option, the date of grant, exercise price
and termination date of each such Checkmate Option, and a vesting
schedule for each such Checkmate Option. Section 7.3 of the Checkmate
Disclosure Schedule sets forth a true and correct copy of the Checkmate
Stock Option Plans;
(iv) except in connection with the Shareholder Protection Rights
Agreement, as set forth in this Section 7.3, or as disclosed in Section
7.3 or Section 7.11 of the Checkmate Disclosure Schedule, there are not
any shares of capital stock or other ownership interests of Checkmate
authorized, reserved for issuance, issued or outstanding or any
outstanding Rights relating to the capital stock or other ownership
interests of Checkmate.
No change in such capitalization has occurred between January 12, 1998 and
the date hereof, except for the issuance of shares under the exercise of options
or other Rights outstanding prior to January 12, 1998.
7.4 AUTHORITY RELATIVE TO THIS AGREEMENT
Checkmate has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Checkmate and the consummation by Checkmate of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Checkmate are necessary to authorize this Agreement or to consummate the
transactions so contemplated (other than the approval and adoption of the Merger
by the holders of at least a majority of the outstanding Checkmate Common Shares
who are permitted to vote in accordance with the Georgia Law and Checkmate's
Articles of Incorporation). The Board of Directors of Checkmate has determined
that it is advisable and in the best interest of Checkmate's shareholders for
Checkmate to enter into a business combination with IVI, Newco and Merger Sub
upon the terms and subject to the conditions of this Agreement. This Agreement
has been duly and validly executed and delivered by Checkmate and, assuming the
due authorization, execution and delivery by IVI, Newco and Merger Sub, as
applicable, and subject to approval by the holders of Checkmate Common Shares,
constitutes a legal, valid and binding obligation of Checkmate.
7.5 MATERIAL CONTRACTS; NO CONFLICT; REQUIRED FILINGS AND CONSENTS
(a) Section 7.5(a) of the Checkmate Disclosure Schedule includes a list
of:
(i) all material Contracts of Checkmate and its subsidiaries
including, without limitation, any Contract which restricts or prohibits
Checkmate or any subsidiary of Checkmate from engaging in any business
activity in any geographic area, line of business or otherwise in
competition with any person; and
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(ii) all Contracts which, as of the date hereof, would be required to
be filed as an exhibit to a Form 10-K filed by Checkmate pursuant to the
requirements of the Exchange Act, and the SEC's rules thereunder ((i) and
(ii) being, collectively, the "Checkmate Material Contracts").
(b) The execution and delivery of this Agreement by Checkmate does not,
and the performance of this Agreement by Checkmate will not,
(i) conflict with or result in a default or violation of the Articles
of Incorporation or By-Laws or equivalent organizational documents of
Checkmate or any of its subsidiaries,
(ii) conflict with or violate any Law or Order applicable to
Checkmate or any of its subsidiaries or by which its or any of their
respective businesses or properties is bound or affected, or
(iii) result in any default or violation or impair Checkmate's or any
of its subsidiaries' rights or alter the rights or obligations of any
third party under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any Checkmate Material
Contract, or result in the creation of a Lien on any of the properties of
Checkmate or any of its subsidiaries pursuant to any Contract or Approval
to which Checkmate or any of its subsidiaries is a party or by which
Checkmate or any of its subsidiaries or its or any of their respective
properties is bound or affected.
(c) No Approval of or with any governmental entity is required to be
obtained by Checkmate or any of its subsidiaries in connection with the
execution and delivery of this Agreement or the Merger or the consummation
of the Transactions, except for:
(i) the filing with SEC and the mailing to shareholders of Checkmate
of the Checkmate Proxy Statement;
(ii) the filing of the Registration Statement or the furnishing to
the SEC of such reports and information under the Exchange Act and the
rules and regulations promulgated by the SEC thereunder, as may be
required in connection with this Agreement and the Transactions (the
"Checkmate SEC Filings");
(iii) Approvals as may be required under State Takeover Laws;
(iv) such Approvals as may be required under applicable federal,
provincial or state securities Laws and the rules of NASD;
(v) such Approvals as may be necessary under the HSR Act; and
(vi) where the failure to obtain such Approval would not prevent or
delay the consummation of the Transactions or otherwise would not have a
Material Adverse Effect on Checkmate.
7.6 COMPLIANCE; PERMITS
(a) Neither Checkmate nor any of its subsidiaries is in conflict with,
or in default or violation of,
(i) any Law or Order applicable to Checkmate or any of its
subsidiaries or by which its or any of their respective properties or
businesses is bound or affected, or
(ii) any Contract to which Checkmate or any of its subsidiaries is a
party or by which Checkmate or any of its subsidiaries or its or any of
their respective properties is bound or affected, except for any such
conflicts, defaults or violations which would not have a Material Adverse
Effect. All of the indebtedness of Checkmate or any subsidiary of
Checkmate (and all indebtedness guaranteed by any such person) for money
borrowed is prepayable at any time by such person without penalty or
premium.
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(b) Checkmate and its subsidiaries hold all Approvals from governmental
entities that are material to the operation of the business of Checkmate and
its subsidiaries (collectively, the "Checkmate Permits"). Checkmate and its
subsidiaries are in compliance with, and not in default or violation of the
terms of Checkmate Permits, except where the failure to so comply, or such
default or violation would not have a Material Adverse Effect.
(i) Except as disclosed in Section 7.6 of the Checkmate Disclosure
Schedule, neither Checkmate nor any Checkmate subsidiary has, since
January 1, 1995, received any notification or communication from any
governmental entity
A. asserting that Checkmate or any Checkmate subsidiary is not in
compliance in any material respect with any Law or Order,
B. threatening to revoke any Checkmate Permits, or
C. requiring Checkmate or any Checkmate subsidiary to
(1) enter into or consent to the issuance of a cease and
desist order (or other similar Order) or a formal agreement,
directive, commitment or memorandum of understanding (or other
similar Contract), or
(2) to adopt any board or shareholder resolution or similar
undertaking.
7.7 SECURITIES REGULATORY AUTHORITY REPORTS AND FINANCIAL STATEMENTS
(a) SEC REPORTS
Checkmate has delivered to IVI's counsel correct and complete copies of
each report, schedule, registration statement and definitive proxy statement
(other than preliminary material) filed by Checkmate with the SEC on or
after January 1, 1995 (the "Checkmate SEC Documents"), which are all the
documents that Checkmate was required to file with the SEC on or after such
date and all of which were timely filed in accordance with the rules and
regulations of the SEC. As of their respective dates or, in the case of
registration statements, their effective dates (or if amended or superseded
by a filing prior to the date of this Agreement, then on the date of such
filing), none of the Checkmate SEC Documents (including all exhibits and
schedules thereto and documents incorporated by reference therein) contained
any untrue statement of a material fact or omitted to state a 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, and the Checkmate SEC Documents complied when filed in all
material respects with the then applicable requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and regulations
promulgated by the SEC thereunder. Checkmate has filed all material
documents and agreements which were required to be filed as exhibits to the
Checkmate SEC Documents.
(b) FINANCIAL STATEMENTS
The consolidated balance sheets and the consolidated statements of
income, stockholders' equity and cash flows (including the related notes
thereto) of Checkmate contained in the Checkmate SEC Reports are in
accordance with the books and records of Checkmate and its subsidiaries, and
present fairly the consolidated financial position and the consolidated
results of operations and cash flows of Checkmate and its consolidated
subsidiaries as of the dates or for the periods presented therein in
conformity with GAAP applied on a consistent basis during the periods
involved, except as otherwise noted therein and, in the case of unaudited
quarterly financial statements, as permitted by Form 10-Q and Rule 10-01 of
Regulation S-X as promulgated by the SEC, and subject in the case of
quarterly financial statements to normal and recurring year-end audit
adjustments, none of which were or are reasonably expected to be material as
to kind or amount, individually or in the aggregate.
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7.8 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except as set forth in Section 7.8 of the Checkmate Disclosure Schedule and
Checkmate SEC Reports, since September 30, 1997, Checkmate and its subsidiaries
have conducted their business in the ordinary course and there has not occurred:
(i) any Material Adverse Effect;
(ii) any amendments or changes in the Articles of Incorporation or
By-laws of Checkmate;
(iii) any damage to, destruction or loss of any properties of
Checkmate and its subsidiaries (whether or not covered by insurance) that
could have a Material Adverse Effect;
(iv) any revaluation by Checkmate of any of its and its subsidiaries'
properties, including, without limitation, writing down the value of
capitalized software or inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
(v) any other action or event that would have required the consent of
Checkmate pursuant to Section 10.3 hereof had such action or event
occurred after the date of this Agreement; or
(vi) any sale of a material amount of the properties of Checkmate and
its subsidiaries, except for the sale of inventory in the ordinary course
of business.
7.9 NO UNDISCLOSED LIABILITIES
Except as is disclosed in Section 7.9 of Checkmate Disclosure Schedule,
neither Checkmate nor any of its subsidiaries has any Liabilities which are,
individually or in the aggregate, material to the business, operations or
financial condition of Checkmate and its subsidiaries on a consolidated basis,
except Liabilities
(a) accrued or reserved against in Checkmate's balance sheet (including
any related notes thereto) for the period ended September 30, 1997 included
in Checkmate SEC Reports (the "Checkmate Balance Sheet"),
(b) incurred since September 30, 1997 in the ordinary course of business
consistent with past practices,
(c) disclosed in the Checkmate SEC Reports,
(d) incurred in connection with this Agreement.
7.10 ABSENCE OF LITIGATION
Except as set forth in Section 7.10 of the Checkmate Disclosure Schedule,
there is no Litigation pending or, to the knowledge of Checkmate, threatened (or
unasserted but considered by Checkmate probable of assertion and which if
asserted would have at least a reasonable probability of an unfavourable
outcome) against Checkmate or any of its subsidiaries, or any properties or
rights of Checkmate or any of its subsidiaries, before any governmental entity
that have a Material Adverse Effect, nor are there any Orders outstanding
against Checkmate or any Checkmate subsidiary that have a Material Adverse
Effect. Section 7.10 of the Checkmate Disclosure Schedule contains a summary of
all Litigation as of the date of this Agreement to which Checkmate or a
Checkmate subsidiary is a party, or for which Checkmate or a subsidiary of
Checkmate has any potential Liability.
7.11 EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS
(a) Section 7.11(a) of the Checkmate Disclosure Schedule lists all
employee benefit plans (as defined in Section 3(3) of ERISA), regardless of
whether ERISA is applicable thereto, all other
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bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance or termination pay, or medical, life or
other insurance, supplemental unemployment benefits, profit-sharing, pension
or retirement plans, agreements or arrangements and other similar fringe or
employee benefit plans, programs or arrangements and any current or former
(solely to the extent obligations thereunder are still enforceable)
employment or executive compensation or severance Contracts for the benefit
of, or relating to, any employee of Checkmate, any trade or business
(whether or not incorporated) which is a member of a controlled group
including Checkmate or which is under common control with Checkmate (a
"Checkmate ERISA Affiliate") within the meaning of Section 414 of the Code,
or any subsidiary of Checkmate, as well as each plan with respect to which
Checkmate or a Checkmate ERISA Affiliate could incur Liability if such plan
has been or were terminated (together, along with all amendments thereto,
the "Checkmate Employee Plans"), and a complete and correct copy of each
such written Checkmate Employee Plan has been made available to IVI.
(b) Except as set forth in Section 7.11(b) of the Checkmate Disclosure
Schedule,
(i) none of the Checkmate Employee Plans promises or provides retiree
medical, post termination medical or other retiree or post termination
welfare benefits to any person and none of the Checkmate Employee Plans
is a "multiemployer plan" as such term is defined in Section 3(37) of
ERISA;
(ii) there has been no transaction or failure to act with respect to
any Checkmate Employee Plan by any person, which could result in any
material Liability of Checkmate or any of its subsidiaries;
(iii) all Checkmate Employee Plans are in compliance in all material
respects with the requirements prescribed by any and all Laws and Orders
currently in effect with respect thereto, and Checkmate and each of its
subsidiaries have performed all material obligations required to be
performed by them under, are not in any material respect in default or
violation of, and have no knowledge of any default or violation by any
other party to, any of the Checkmate Employee Plans;
(iv) each Checkmate Employee Plan intended to qualify under Section
401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code is the subject of a favorable determination letter
from the IRS, and to the knowledge of Checkmate nothing has occurred
which may reasonably be expected to impair such determination;
(v) all contributions required to be made to any Checkmate Employee
Plan, under the terms of the Checkmate Employee Plan or any collective
bargaining agreement, have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Checkmate
Employee Plan for the current plan years;
(vi) with respect to each Checkmate Employee Plan subject to Title IV
of ERISA, no "reportable event" within the meaning of Section 4043 of
ERISA (excluding any such event for which the thirty (30) day notice
requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has
occurred;
(vii) neither Checkmate nor any Checkmate ERISA Affiliate has
incurred, nor reasonably expects to incur, any Liability under Title IV
of ERISA (other than liability for premium payments to the Pension
Benefit Guaranty Corporation arising in the ordinary course);
(viii) no material oral or written representation or communication
with respect to any aspect of the Checkmate Employee Plans has been made
to employees of Checkmate or any Checkmate subsidiary prior to the date
hereof that is not in accordance with the written or otherwise
preexisting terms and provisions of such plans;
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(ix) no Checkmate Employee Plan is an employee pension benefit plan
as defined in ERISA Section 3(2).
(c) Each Checkmate Employee Plan that is required or intended to be
qualified under applicable Law or registered or approved by a governmental
entity has been so qualified, registered or approved by the appropriate
governmental entity, and nothing has occurred since the date of the last
qualification, registration or approval to adversely affect, or cause, the
appropriate governmental entity to revoke such qualification, registration
or approval.
(d) All contributions (including premiums) required by any Law or
Contract to have been made or approved by Checkmate and its subsidiaries
under or with respect to the Checkmate Employee Plans have been paid or
accrued by Checkmate. Without limiting the foregoing, there are no material
unfunded liabilities under any Checkmate Employee Plan.
(e) There is no pending, or to the knowledge of Checkmate, threatened
Litigation against Checkmate or any of its subsidiaries with respect to any
of the Checkmate Employee Plans to the knowledge of Checkmate.
(f) There is no pending or, to the knowledge of Checkmate, threatened
Litigation by former or present employees of Checkmate and its subsidiaries
(or their beneficiaries) with respect to the Checkmate Employee Plans or the
assets or fiduciaries thereof (other than routine claims for benefits).
(g) Except as set forth in Section 7.11 of the Checkmate Disclosure
Schedule neither Checkmate nor any of its subsidiaries maintains any 401(k)
or other type of pension plan subject to Section 401(a) of the Code in the
United States.
(h) No condition or event has occurred with respect to the Checkmate
Employee Plans which has a Material Adverse Effect.
(i) Checkmate has made available to IVI:
(i) copies of all employment Contracts with officers of Checkmate or
a subsidiary of Checkmate;
(ii) copies of all Contracts with consultants or employees who are
individuals obligating Checkmate and its subsidiaries (collectively) to
make annual cash payments in an amount exceeding $100,000;
(iii) a schedule listing all officers of Checkmate and its
subsidiaries who have executed a non-competition agreement with Checkmate
or a subsidiary of Checkmate;
(iv) copies of all severance Contracts, programs and policies of
Checkmate and its subsidiaries with or relating to their employees; and
(v) copies of all plans, programs, Contracts and other arrangements
of Checkmate and its subsidiaries with or relating to their employees
which contain change in control provisions.
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7.12 LABOUR MATTERS
(i) There is no Litigation pending or, to the knowledge of Checkmate,
threatened, between Checkmate or any of its subsidiaries and any of their
respective current or former employees, which have or may have a Material
Adverse Effect, or asserting that Checkmate or any subsidiary has committed
an unfair labor practice (within the meaning of the National Labor Relations
Act of the United States or any other comparable Law), or seeking to compel
Checkmate or one of its subsidiaries to bargain with any labor union or
other collective bargaining unit.
(ii) Neither Checkmate nor any of its subsidiaries is a party to any
collective bargaining agreement or other labour union contract applicable to
persons employed by Checkmate or any of its subsidiaries nor does Checkmate
know of any activities or proceedings of any labour union or other
collective bargaining unit to organize any such employees.
(iii) There are no strikes, slowdowns, work stops, lockouts, or other
labour disputes pending or, to the knowledge of Checkmate, threatened by or
with respect to any employees of Checkmate or any of its subsidiaries.
7.13 REGISTRATION STATEMENT; PROXY STATEMENT
None of the information supplied or to be supplied by Checkmate in writing
for inclusion or incorporation by reference in
(i) the Registration Statement,
(ii) the Proxy Statement/Prospectus,
(iii) the Prospectus, and
(iv) any other document to be filed with the SEC or any regulatory
agency by Newco, Merger Sub or Checkmate in connection with the transactions
contemplated by this Agreement (the "Other Checkmate Filings")
will, at the respective times filed with the SEC or other regulatory
agency and, in addition,
A. in the case of the Proxy Statement/Prospectus, at the date it or
any amendments or supplements thereto are mailed to shareholders,
B. in the case of the Registration Statement, when it becomes
effective under the Securities Act, and
C. in the case of the Prospectus, at the date of the receipt from the
OSC for the Prospectus
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 light of the circumstances under which they are
made, not misleading. The Checkmate Proxy Statement will comply as to form
in all material respects with the applicable provisions of the Exchange Act
and the rules and regulations thereunder. If at any time prior to the
Effective Date any event relating to Checkmate or any of its respective
affiliates, officers or directors should be discovered by Checkmate which
should be set forth in an amendment to the Registration Statement or
Prospectus or a supplement to the Checkmate Proxy Statement, Checkmate shall
promptly inform Newco and IVI.
Notwithstanding the foregoing, Checkmate makes no representation or warranty
with respect to any information supplied by IVI or Newco which is contained in
any of the foregoing documents.
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7.14 RESTRICTIONS ON BUSINESS ACTIVITIES
Except for this Agreement and as set forth in Section 7.14 of the Checkmate
Disclosure Schedule, there is no material Contract or Order binding upon
Checkmate or any of its subsidiaries which has or could reasonably be expected
to have the effect of prohibiting or impairing any material business practice of
Checkmate or any of its subsidiaries, the acquisition of property by Checkmate
or any of its subsidiaries or the conduct of business by Checkmate or any of its
subsidiaries as currently conducted or as proposed to be conducted by Checkmate.
7.15 TITLE TO PROPERTY
Checkmate owns no real property. Section 7.15 of the Checkmate Disclosure
Schedule sets forth a true and complete list of all real property leased by
Checkmate or any of its subsidiaries requiring annual lease payments of more
than $50,000, and the aggregate monthly rental or other fee payable under such
lease. Checkmate and each of its subsidiaries have good and marketable title to
all of their properties free and clear of all Liens except for any Lien:
(i) identified in Section 7.15 of the Checkmate Disclosure Schedule or
disclosed or reserved against the Checkmate Balance Sheet;
(ii) created, arising or existing under or in connection with any
agreement or other matter referred to in the Checkmate Disclosure Schedule,
provided that any such Lien (and a description of its material terms) is
identified with such Agreement or matter in the Checkmate Disclosure
Schedule;
(iii) relating to any Tax or other governmental charge or levy that is
not yet due and payable;
(iv) relating to, or created arising or existing in connection with, any
Litigation that is being contested in good faith, provided that any such
Lien (and a description of its material terms) is identified with such
Litigation in the Checkmate Disclosure Schedule, or
(vi) which, individually or in the aggregate, would not result in a
Material Adverse Effect to Checkmate;
and all leases pursuant to which Checkmate or any of its subsidiaries lease from
others material items or amounts of real or personal property, are in good
standing, valid, effective and enforceable in accordance with their respective
terms, and there is not, under any of such leases, any existing material default
or violation except where the lack of such good standing, validity,
effectiveness or enforceability or the existence of such default or violation
would not have a Material Adverse Effect. All the facilities of Checkmate and
its subsidiaries, except such as may be under construction, are in good
operating condition and repair, reasonable wear and tear expected, and are
usable in the ordinary course of business consistent with past practice, except
where the failure of such plants, structures and equipment to be in such good
operating condition and repair or so usable would not have a Material Adverse
Effect. The properties of Checkmate and its subsidiaries include, in the
aggregate, all of the properties required to operate the business of Checkmate
and its subsidiaries as presently conducted. All items of inventory of Checkmate
and its subsidiaries reflected in the Checkmate Balance Sheet consisted of items
of a quality and quantity usable and saleable in the ordinary course of business
and conform to generally accepted standards in the industry in which Checkmate
and its subsidiaries are a part.
7.16 TAXES
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean all taxes,
fees, levies, duties, tariffs, imposts, premiums and governmental impositions or
charges of any kind, payable to any federal, state, provincial, local or foreign
taxing authority, including (without limitation):
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(i) income, capital, business, franchise, profits, corporate,
alternative minimum, gross receipts, ad valorem, goods and services,
customs, net worth, value added, sales, use, service, real or personal
property, special assessments, capital stock, licence, payroll, withholding,
employment, social security, workers' compensation, unemployment insurance
or compensation, utility, severance, production, excise, stamp, occupation,
premiums, windfall profits, transfer and gains taxes, surtaxes, fees,
levies, duties, tariffs, imposts, premiums and governmental impositions,
whether disputed or not; and
(ii) interest, penalties, additional taxes and additions to tax imposed
with respect thereto;
and "Tax Returns" shall mean returns, reports and information statements
of any kind with respect to Taxes required to be filed with the IRS or any
other taxing authority, domestic or foreign, including, without limitation,
consolidated, combined and unitary tax returns.
(b) Checkmate and its subsidiaries have filed all United States federal
income Tax Returns and all other Tax Returns required to be filed by them on or
prior to the date hereof, or requests for extensions have been timely filed,
granted and have not expired; all Tax Returns filed by Checkmate and its
subsidiaries are complete and accurate; and Checkmate and its subsidiaries have
paid and discharged all Taxes when due, whether or not shown on any Tax Return,
except such as are being contested in good faith by appropriate proceedings
(except in each case, as disclosed in Section 7.16(b) of the Checkmate
Disclosure Schedule) and with respect to which Checkmate is maintaining reserves
to the extent currently required for their payment; except to the extent that
the failure so to file, to be complete and correct, to reserve or so to pay,
individually or in the aggregate with all other such failures, would not have a
Material Adverse Effect. Neither the IRS nor any other taxing authority is now
asserting or, to the knowledge of Checkmate, threatening to assert against
Checkmate or any of its subsidiaries any deficiency or claim for additional
Taxes other than additional Taxes (in each case, as disclosed in Section 7.16(b)
of the Checkmate Disclosure Schedule) with respect to which Checkmate is
maintaining reserves in all material respects adequate for their payment. Except
as disclosed in Section 7.16(b) of the Checkmate Disclosure Schedule, neither
Checkmate nor any of its subsidiaries is currently being audited by any taxing
authority nor has notice been given by any taxing authority that it will
commence such an audit or examination. There are no Tax Liens on any properties
of Checkmate or any subsidiary thereof and neither Checkmate nor any of its
subsidiaries has granted any waiver of any statute of limitations with respect
to, or any extension of a period for the assessment of, any Tax. Neither
Checkmate nor any of its subsidiaries has received any notice of seizure from
any taxation authority. The accruals and reserves for Taxes reflected in the
Checkmate Balance Sheet are in all material respects sufficient to cover all
Taxes accruable through the date thereof (including Taxes being contested and
any deferred Taxes) in accordance with GAAP and, as of the Effective Date, such
accruals and reserves, as adjusted for the passage of time through the Effective
Date, will be sufficient for the then unpaid Taxes of Checkmate and its
subsidiaries. Except as disclosed in Section 7.16(b) of the Checkmate Disclosure
Schedule, neither Checkmate nor any of its subsidiaries (whether as a result of
the Transactions or otherwise) is required to include in income:
(i) items in respect of any change in accounting principles or deferred
intercompany transactions; or
(ii) any installment sale gain;
in each case where the inclusion in income would result in a tax
Liability materially in excess of the reserves therefor.
(c) Checkmate, on behalf of itself and all its subsidiaries, hereby
represents that, other than as disclosed on Section 7.16(c) of the Checkmate
Disclosure Schedule, and other than with respect to items the inaccuracy of
which would not have a Material Adverse Effect:
(i) neither Checkmate nor any of its subsidiaries has made any payment
or is a party to any agreement, contract or arrangement that may result,
separately or in the aggregate, in the payment of
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any "excess parachute payment" within the meaning of Section 280G of the
Code, determined without regard to Section 280G(b)(4) of the Code;
(ii) neither Checkmate nor any of its subsidiaries has been subject to
any accumulated earnings tax or personal holding company tax;
(iii) neither Checkmate nor any of its subsidiaries owns stock in a
passive foreign investment company within the meaning of Section 1296 of the
Code;
(iv) neither Checkmate nor any of its subsidiaries is obligated under
any agreement with respect to industrial development bonds or other
obligations the tax exempt character of which for United States federal or
state income tax purposes could be affected by the transactions contemplated
hereunder; and
(v) neither Checkmate nor any of its subsidiaries has, prior to the date
hereof, acquired or had the use of any material property from a person with
whom it was not dealing at arm's length, or disposed of any material
property to a person with whom it was not dealing at arm's length for
proceeds less than the fair market value thereof.
(d) No power of attorney has been granted by Checkmate or any of its
subsidiaries with respect to any matter relating to Taxes which is currently in
force.
(e) Neither Checkmate nor any of its subsidiaries
(i) is a party to any agreement or arrangement (written or oral)
providing for the allocation or sharing of Taxes,
(ii) has been a member of an affiliated group filing a consolidated Tax
Return (other than a group the common parent of which is Checkmate), or
(iii) has any Liability for Taxes of any person (other than Checkmate
and its subsidiaries) under Treasury Regulation Section 1.1502-6 (or any
similar provision of Law) as a transferee or successor, by Contract or
otherwise.
(f) Checkmate and each of its subsidiaries has withheld all material
amounts from each payment made to any of its respective past or present
employees, officers or directors, suppliers, customers or other third
parties the amount of all Taxes and other material deductions required to be
withheld therefrom and has paid the same to the proper taxation authority or
other receiving officers within the time required under any applicable Law.
(g) Checkmate has remitted to the appropriate taxation authority when
required by law to do so all amounts collected by it on account of all
retail sales and similar Taxes.
(h) Checkmate has withheld from each payment made to any non-resident of
the United States of America the amount of all material Taxes and other
deductions required to be withheld therefrom and has paid the same to the
proper taxation authority or other receiving officers within the time
required under any applicable Law.
(i) Checkmate and all of the subsidiaries of Checkmate have taxation
years ending on December 31 of each year.
7.17 ENVIRONMENTAL MATTERS
(a) Except in all cases as do not have a Material Adverse Effect, Checkmate
and each of its subsidiaries:
(i) have obtained all applicable Approvals which are required under
Environmental Laws; and
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(ii) are in compliance with all terms and conditions of such Approvals
and also are in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules
and timetables contained in Environmental Laws or contained in any Law or
Order issued, entered, promulgated or approved thereunder.
(b) There is no Litigation pending or, to the knowledge of Checkmate,
threatened before any governmental entity in which Checkmate or any Checkmate
subsidiary or any of the properties owned, leased, managed or operated by
Checkmate or one of its subsidiaries has been or, with respect to threatened
Litigation, may be named as a defendant for alleged noncompliance (including by
any predecessor) with any Environmental Law, whether or not occurring at, on,
under, or involving a property owned, leased, managed or operated (in whole or
in part) by Checkmate or any subsidiary of Checkmate or any of their properties.
To the knowledge of Checkmate, there is no reasonable basis for any Litigation
of a type described in the immediately foregoing sentence.
(c) During the period of Checkmate's or any of its subsidiaries'
(i) ownership or operation of any of their respective current
properties,
(ii) participation in the management of any properties of any other
person, or
(iii) holding of a security interest in any properties of any other
person, there have been no releases of "hazardous substances" in, on, under,
or affecting such properties. Prior to the period of Checkmate's or any of
its subsidiaries'
A. ownership or operation of any of their respective current
properties,
B. Checkmate's or any of its subsidiaries' participation in the
management of any properties of any other person, or
C. holding of a security interest in any properties of any other
person, there were no releases of "hazardous substances" in, on, under,
or affecting any such properties.
7.18 BROKERS
Except as set forth in Section 7.18 of the Checkmate Disclosure Schedule, no
broker, finder or investment banker (other than BT Alex.Brown) 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 or
on behalf of Checkmate. A complete and correct copy of all agreements between
Checkmate and BT Alex.Brown pursuant to which such firm would be entitled to any
payment relating to the transactions contemplated hereunder are set forth in
Section 7.18 of the Checkmate Disclosure Schedule.
7.19 FULL DISCLOSURE
No statement contained in this Agreement or any certificate or schedule
furnished or to be furnished by Checkmate or any of its subsidiaries to IVI in,
or pursuant to the provisions of, this Agreement contains or shall contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary, in the light of the circumstances under which it was made, in
order to make the statements herein or therein not misleading.
7.20 INTELLECTUAL PROPERTY
(a) Except in such instances that do not have a Material Adverse Effect,
Checkmate or a Checkmate subsidiary owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights and any applications therefor, technology, know-how, computer
software programs or applications (in both source code and object code form)
tangible or intangible proprietary information or material and other
intellectual property rights that are used or
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proposed to be used in the business of Checkmate and its subsidiaries as
currently conducted. Section 7.20(a) of the Checkmate Disclosure Schedule lists
all current and past (lapsed, expired, abandoned or canceled) patents,
registered and material unregistered trademarks and service marks, registered
and material unregistered copyrights, trade names, other intellectual property
and any applications therefor owned by Checkmate and its subsidiaries (the
"Checkmate Intellectual Property Rights"), and specifies the jurisdictions in
which each such Checkmate Intellectual Property Right has been issued or
registered (if any) or in which an application for such issuance and
registration has been filed (if any), including the respective registration or
application numbers and the names of all registered owners, together with a list
of all of Checkmate's and its subsidiaries' currently marketed software products
and an indication as to which, if any, of such software products have been
registered for copyright protection with the United States or Canadian Copyright
Office and any other foreign offices and by whom such items have been
registered. Section 7.20(a) of the Checkmate Disclosure Schedule includes and
specifically identifies all third-party patents, trademarks or copyrights
(including software), and other intellectual property (the "Checkmate Third
Party Intellectual Property Rights") to the knowledge of Checkmate which are
incorporated in, are, or form a part of, any product of Checkmate or are
otherwise used in (or proposed to be used in) or necessary for the conduct of
Checkmate's business as currently conducted. Section 7.20(a) of the Checkmate
Disclosure Schedule lists:
(i) any requests Checkmate has received to make any such registration,
including the identity of the requestor and the item requested to be so
registered, and the jurisdiction for which such request has been made;
(ii) except for object code licence agreements for Checkmate's and its
subsidiaries' products executed in the ordinary course of business and in
accordance with Checkmate's and its subsidiaries' past practices, all
material licences, sublicences and other Contracts as to which Checkmate or
any subsidiary of Checkmate is a party and pursuant to which any person is
authorized to use any Checkmate Intellectual Property Right, including any
trade secret material to Checkmate or any subsidiary of Checkmate; and
(iii) all material licences, sublicences and other Contracts as to which
Checkmate is a party and pursuant to which Checkmate is authorized to use
any Checkmate Third Party Intellectual Property Rights, including any trade
secret of a third party, and includes the identity of all parties thereto, a
description of the nature and subject matter thereof, the applicable royalty
and the term thereof.
(b) Checkmate and its subsidiaries are not, nor will they be as a result of
the execution and delivery of this Agreement by Checkmate or the performance of
its obligations hereunder, in violation in any material respect of any licence,
sublicence or Contract described in Section 7.20(a) of the Checkmate Disclosure
Schedule. No Litigation with respect to the Checkmate Intellectual Property
Rights, including any trade secret material to Checkmate, or Checkmate Third
Party Intellectual Property Rights is currently pending or, to the knowledge of
Checkmate, is threatened by any person, nor does Checkmate know of any valid
grounds for any bona fide Litigation:
(i) to the effect that the manufacture, sale, licensing or use of any
product as now used, sold or licensed or proposed for use, sale or license
by Checkmate or any of its subsidiaries infringes on any copyright, patent,
trademark, service mark or trade secret;
(ii) against the use by Checkmate or any of its subsidiaries of any
trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in Checkmate's
or any of its subsidiaries' business as currently conducted or as proposed
to be conducted by Checkmate or any of its subsidiaries;
(iii) challenging the ownership, validity or effectiveness of any of the
Checkmate Intellectual Property Rights, including trade secrets, material to
Checkmate or any of its subsidiaries; or
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(iv) challenging Checkmate's or any of its subsidiaries' license or
legally enforceable right to use of the Checkmate Third Party Intellectual
Property Rights. To Checkmate's knowledge, all patents, registered
trademarks, maskworks and copyrights held by Checkmate or any of its
subsidiaries are valid and subsisting. Except as set forth in Section
7.20(b) of the Checkmate Disclosure Schedule, to Checkmate's knowledge,
there is no material unauthorized use, infringement or misappropriation of
any of the Checkmate Intellectual Property by any third party, including any
employee or former employee of Checkmate or any of its subsidiaries.
Except as set forth in Section 7.20(b) of the Checkmate Disclosure Schedule,
neither Checkmate nor any of its subsidiaries
(i) has been sued or charged in writing as a defendant in any Litigation
which involves a claim or infringement of trade secrets, any patents,
trademarks, service marks, maskworks or copyrights and which has not been
finally terminated prior to the date hereof, or been informed or notified by
any third party that Checkmate or any of its subsidiaries may be engaged in
such infringement, or
(ii) has knowledge of any infringement Liability with respect to, or
infringement by, Checkmate or any of its subsidiaries of any trade secret,
patent, trademark, service mark, maskwork, copyright or other intellectual
property of another.
(c) Except as noted in Section 7.20(d) of the Checkmate Disclosure Schedule,
all software that is Checkmate Intellectual Property Rights and Checkmate's and
its subsidiaries' business systems (including hardware and software) and
products are Year 2000 Compliant.
7.21 INTERESTED PARTY TRANSACTIONS
Except as disclosed in Section 7.21 of the Checkmate Disclosure Schedule,
since December 31, 1996 no event has occurred that would be required to be
reported as a Certain Relationship or Related Transaction, pursuant to Item 404
of Regulation S-K promulgated by the SEC.
7.22 INSURANCE
Section 7.22 of the Checkmate Disclosure Schedule lists all material
insurance policies and fidelity bonds covering the business, properties,
operations, employees, officers and directors of Checkmate and its subsidiaries.
Except as is set forth in Section 7.22 of the Checkmate Disclosure Schedule,
there is no claim by Checkmate or any of its subsidiaries pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums payable
under all such policies and bonds have been paid and Checkmate and its
subsidiaries are otherwise in compliance in all material respects with the terms
of such policies and bonds (or other policies and bonds providing substantially
similar insurance coverage). Such policies of insurance and bonds are of the
type and in amounts customarily carried by persons conducting businesses similar
to those of Checkmate and its subsidiaries. Checkmate and its subsidiaries have
not received notice of and do not know of any threatened termination of, or
material premium increase with respect to, any of such policies.
7.23 OPTION PLANS
Except as set forth in Section 7.23 of the Checkmate Disclosure Schedule,
the Board of Directors of Checkmate has taken all necessary action (or refrained
from taking action, where appropriate) under the Checkmate Stock Option Plans so
that none of the Checkmate Stock Options (or any portion thereof) will be
entitled to receive cash or other property as a result of the consummation of
the transactions contemplated hereby, but instead shall be assumed as provided
in Section 5.10 hereof.
7.24 POOLING MATTERS
Neither Checkmate nor to Checkmate's knowledge any of its affiliates has
taken or agreed to take any action that (without giving effect to any action
taken or agreed to be taken by IVI or any of its affiliates or Newco) would
affect the ability of Newco to account for the business combination to be
effected by the Transactions as a pooling of interests.
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7.25 AFFILIATES
Section 7.25 of the Checkmate Disclosure Schedule sets forth each person
who, as of the date hereof, is an affiliate of Checkmate.
7.26 OPINION OF FINANCIAL ADVISOR
Checkmate has been advised by its financial advisor, BT Alex.Brown, that, in
its opinion, as of the date hereof, the terms of the Transactions are fair to
the stockholders of Checkmate from a financial point of view, and has delivered
a written copy of such opinion to Checkmate.
ARTICLE 8.00--REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco hereby represents and warrants to IVI and Checkmate that:
8.1 ORGANIZATION AND QUALIFICATION
Newco is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware or organization and has the requisite
corporate power and authority and is in possession of all Approvals necessary to
own, lease and operate the properties it purports to own, operate or lease and
to carry on its business as it is now being conducted. Newco does not directly
or indirectly own any equity or similar interest in, or any Rights in, any
corporation, partnership, joint venture or other business association or entity,
except that it owns all of the outstanding capital stock of Merger Sub.
8.2 ARTICLES OF INCORPORATION AND BY-LAWS; MINUTES
The Certificate of Incorporation and By-Laws of Newco are in full force and
effect. Newco is not in violation of any of the provisions of its Certificate of
Incorporation or By-Laws or equivalent organizational documents.
8.3 CAPITALIZATION
The authorized capital stock of Newco consists of 99,000,000 shares of Newco
Common Stock and 1,000,000 shares of preferred stock of Newco ("Newco Preferred
Stock"). As of the date of this Agreement:
(i) 10 shares of Newco Common Stock are issued and outstanding, all
of which are validly issued, fully paid and nonassessable under the
Delaware Law. None of the outstanding shares of capital stock of Newco
has been issued in violation of any preemptive rights of any current or
past holder of Newco capital stock; and
(ii) no shares of Newco Preferred Stock are issued or outstanding.
8.4 AUTHORITY RELATIVE TO THIS AGREEMENT
Newco has all necessary corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Newco and the consummation by Newco of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of Newco are necessary to authorize this
Agreement or to consummate the transactions so contemplated. The Board of
Directors of Newco has determined that it is advisable and in the best interest
of Newco's shareholders for Newco to enter into a business combination with IVI,
Checkmate and Merger Sub upon the terms and subject to the conditions of this
Agreement. This
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Agreement has been duly and validly executed and delivered by Newco and,
assuming the due authorization, execution and delivery by IVI, Checkmate and
Merger Sub, as applicable, constitutes a legal, valid and binding obligation of
Newco.
ARTICLE 9.00--REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Merger Sub hereby represents and warrants to IVI and Checkmate that:
9.1 ORGANIZATION AND QUALIFICATION
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Georgia or organization and has the
requisite corporate power and authority and is in possession of all Approvals
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted. Merger Sub
does not directly or indirectly own any equity or similar interest in, or any
Rights in, any corporation, partnership, joint venture or other business
association or entity.
9.2 ARTICLES OF INCORPORATION AND BY-LAWS; MINUTES
The Articles of Incorporation and By-Laws of Merger Sub are in full force
and effect. Merger Sub is not in violation of any of the provisions of its
Articles of Incorporation or By-Laws or equivalent organizational documents.
9.3 CAPITALIZATION
The authorized capital stock of Merger Sub consists of 1,000 shares of
Merger Sub Common Stock. As of the date of this Agreement 100 shares of Merger
Sub Common Stock are issued and outstanding, all of which are validly issued,
fully paid and nonassessable.
9.4 AUTHORITY RELATIVE TO THIS AGREEMENT
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Merger Sub and the consummation by Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement or to consummate the
transactions so contemplated. The Board of Directors of Merger Sub has
determined that it is advisable and in the best interest of Merger Sub's
shareholders for Merger Sub to enter into a business combination with IVI, Newco
and Checkmate upon the terms and subject to the conditions of this Agreement.
This Agreement has been duly and validly executed and delivered by Merger Sub
and, assuming the due authorization, execution and delivery by IVI, Newco and
Checkmate, as applicable, constitutes a legal, valid and binding obligation of
Merger Sub.
ARTICLE 10.00--CONDUCT OF BUSINESS PENDING THE ARRANGEMENT
10.1 CONDUCT OF BUSINESS BY IVI PENDING THE TRANSACTIONS
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Date, IVI
covenants and agrees that, unless Checkmate shall otherwise agree in writing,
IVI shall conduct its business and shall cause the businesses of its
subsidiaries to be conducted only in, and IVI and its subsidiaries shall not
take any action except in, the ordinary course of business and in a manner
consistent with past practice except as may be otherwise provided herein; and
IVI shall use reasonable commercial efforts to preserve substantially intact the
business organization of IVI and its subsidiaries, to keep available the
services of the present officers, employees and consultants of
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IVI and its subsidiaries, to take all action reasonably necessary to prevent the
loss, cancellation, abandonment, forfeiture or expiration of any IVI
Intellectual Property and to preserve the present relationships of IVI and its
subsidiaries with customers, suppliers and other persons with which IVI or any
of its subsidiaries has significant business relations.
In addition, except as contemplated by this Agreement, IVI shall not, and
shall cause its subsidiaries not to, except to the extent necessary to implement
the Transactions and to carry out the intentions of the parties set forth in
Section 4.1, during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement or the Effective Date,
directly or indirectly do, or agree, propose or Contract to do, any of the
following without the prior written consent of Checkmate:
(a) amend or otherwise change IVI's Articles of Continuation or By-Laws;
(b) issue, sell, pledge, dispose of or encumber or otherwise subject to
any Lien, or authorize the issuance or reservation for issuance, sale,
pledge, disposition or encumbrance of or otherwise subjecting to any Lien,
any shares of capital stock of any class or other ownership interests, or
any Rights of IVI, any of its subsidiaries or affiliates (except for the
issuance of IVI Common Shares issuable pursuant to employee stock options
under the IVI Option Plan or pursuant to the Participation Right, which
options or rights, as the case may be, are outstanding on the date hereof
and except for the issuance of shares of NTN common stock pursuant to
employee stock options which options are outstanding on the date hereof);
(c) sell, dispose of or subject any properties of IVI or any of its
subsidiaries to any Lien (except for
(i) sales of properties in the ordinary course of business and in a
manner consistent with past practice and
(ii) dispositions of obsolete or worthless properties);
(d) amend or change the period (or permit any acceleration, amendment or
change) of exercisability of options or restricted stock granted under the
IVI Employee Plans (including the IVI Option Plan) or authorize cash
payments in exchange for any options granted under any of such plans;
(e) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of any of its capital stock or other ownership interest, except
that a wholly-owned subsidiary of IVI may declare and pay a dividend to its
parent,
(ii) split, combine or reclassify any of its capital stock or other
ownership interests or issue or authorize or propose the issuance of any
other securities or Rights in respect of, in lieu of or in substitution
for shares of its capital stock or other ownership interests, or
(iii) amend the terms of, repurchase, redeem or otherwise acquire, or
permit any subsidiary to repurchase, redeem or otherwise acquire, any of
its securities or any securities of its subsidiaries;
(f) sell, transfer, license, sublicense or otherwise dispose of any IVI
Intellectual Property, or amend or modify any existing Contracts with
respect to any IVI Intellectual Property or IVI Third Party Intellectual
Property Rights, other than nonexclusive object and source code licences in
the ordinary course of business consistent with past practice;
(g) acquire (by merger, consolidation, acquisition of stock or assets or
otherwise) any corporation, partnership or other business organization or
division thereof, other than the purchase of the assets of BancTec Payment
System's Open Payment Systems Group by NTN;
(i) incur or amend any indebtedness for borrowed money or issue any
debt securities or assume, guarantee (other than guarantees of currently
existing bank debt of IVI or IVI's
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subsidiaries entered into in the ordinary course of business), endorse or
otherwise as an accommodation become responsible for, the obligations of
any person, or make any loans or advances, except in the ordinary course
of business consistent with past practice; or
(ii) authorize any capital expenditures or purchase of fixed assets
which are, in the aggregate, in excess of $1,000,000 for IVI and its
subsidiaries taken as a whole;
(h) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of officers
or employees of IVI or any of its subsidiaries subject to performance and
compensation reviews, or grant any severance or termination pay to, or enter
into any employment or severance agreement with, any director, officer or
other employee of IVI or any of its subsidiaries, or (except as required by
Law) terminate, establish, adopt, enter into or amend any IVI Employee Plan;
(i) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, capitalization of software development costs, payments of
accounts payable and collection of accounts receivable) other than as may be
required by Canadian generally accepted accounting principles applied on a
basis consistent with past practice;
(j) make any material Tax election inconsistent with past practices or
settle or compromise any material federal, state, local or foreign Tax
Liability or agree to an extension of a statute of limitations except to the
extent the amount of any such settlement has been reserved for on the
consolidated balance sheet contained in IVI's most recent OSC Report;
(k) pay, discharge or satisfy any material Litigation or Liabilities,
other than the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practice, of Liabilities reflected or
reserved against on the consolidated balance sheet contained in IVI's most
recent OSC Report or incurred in the ordinary course of business and
consistent with past practice;
(l) modify, amend or terminate any Contracts, waive, release, relinquish
or assign any contract or other rights or claims or cancel or forgive any
indebtedness owed to it, other than in the ordinary course of business
consistent with past practice or with respect to Contracts which are not
material to IVI and its subsidiaries taken as a whole;
(m) take or allow to be taken or fail or omit to take any act which
would jeopardize the treatment of the Transactions as a pooling of interests
for accounting purposes under GAAP; or
(n) any action which would make any of the representations or warranties
of IVI contained in this Agreement untrue or incorrect in any material
respect or prevent IVI from performing or cause IVI not to perform its
covenants hereunder or result in any of the conditions to the Arrangement
set forth herein not being satisfied.
10.2 NO SOLICITATION
(a) Neither IVI nor Checkmate (each, for purposes of this Section 10.2,
a "Company"), nor any of their respective subsidiaries shall (whether
directly or indirectly through advisors, agents or other intermediaries),
nor shall such Company or any of its subsidiaries authorize or permit any of
its or their officers, directors, agents, representatives, advisors or
subsidiaries to solicit, initiate or knowingly take any action to facilitate
the submission of inquiries, proposals or offers from any Third Party
relating to (A) any acquisition or purchase of 5% or more of the assets of
such Company and its subsidiaries as stated in the consolidated balance
sheet contained in IVI's most recent OSC Report or Checkmate's most recent
Checkmate SEC Document, as the case may be, or of 5% or more of the number
of outstanding equity securities of any class of such Company or any of its
subsidiaries, (B) any tender offer (including a self tender offer) or
exchange offer, (C) any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution or
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similar transaction involving such Company or any of its subsidiaries whose
assets, individually or in the aggregate, constitute 5% or more of the
assets of such Company and its subsidiaries as stated in the consolidated
balance sheet contained in IVI's most recent OSC Report or Checkmate's most
recent Checkmate SEC Document, as the case may be, other than the
transactions contemplated by this Agreement, the Shareholders Agreements and
any transaction pursuant to the Participation Right, or (D) any other
transaction the consummation of which would, or could reasonably be expected
to materially impede, interfere with, prevent or delay any or all of the
Transactions (collectively, "Acquisition Proposals"), or (ii) agree to or
endorse an Acquisition Proposal, or (iii) enter into or participate in any
discussions or negotiations regarding any of the foregoing, or furnish to
any Third Party any information with respect to its business or properties
or any of the foregoing, or otherwise cooperate in any way with, or
knowingly assist or participate in, facilitate or encourage, any effort or
attempt by any Third Party to do or seek any of the foregoing; provided,
however, that the foregoing shall not prohibit such Company (either directly
or indirectly through advisors, agents or other intermediaries) from (i)
engaging in discussions or negotiations with such a Third Party who has made
a Superior Proposal but only to the extent that the Board of Directors of
such Company shall have concluded in good faith on the basis of written
advice from its outside counsel that such action is required to prevent the
Board of Directors of such Company from breaching its fiduciary duties to
the stockholders or shareholders of such Company under applicable law; or
(ii) furnishing information pursuant to an appropriate confidentiality
letter (which letter shall not be less favorable to such Company in any
material respect than the Confidentiality/Standstill Agreement, and a copy
of which shall be provided for informational purposes only to the other
Company) concerning such Company and its businesses or properties to a Third
Party who has made a Superior Proposal; provided, further, that if the Board
of Directors of such Company receives a Superior Proposal, to the extent it
may do so without breaching its fiduciary duties as advised in writing by
its outside counsel and as determined in good faith, and without violating
any of the conditions of such Superior Proposal, (A) the Board of Directors
of such Company shall not, and shall not authorize any officers or
representatives to, take any of the foregoing actions until reasonable
notice to the other Company of its intent to take such action shall have
been given in writing to the other Company; and (B) such Company shall
promptly inform the other Company of the terms and conditions of such
proposal and the identity of the person making it. As of the date hereof,
each Company shall immediately cease and cause each of its subsidiaries and
its and their advisors, agents and other intermediaries to cease, any and
all existing activities, discussions or negotiations with any Third Party
conducted heretofore with respect to any of the foregoing, and shall use its
reasonable best efforts to cause any such parties in possession of
confidential information about such Company that was furnished by or on
behalf of such Company to return or destroy all such information in the
possession of any such Third Party or in the possession of any agent or
advisor of any such party.
(b) If (A) a Third Party has made an Acquisition Proposal, (B) the
Agreement is terminated pursuant to Section 12.1(e), 12.1(f), 12.1(g) or
12.1(h) and (C) any Acquisition Proposal (whether or not proposed prior to
the IVI Shareholders' Meeting or the Checkmate Stockholders' Meeting, as the
case may be, and whether or not it involves the Third Party making the
Acquisition Proposal referred to in Section 10.2(b)(A) above) has been
consummated within twelve months following the termination of this
Agreement, then, the Company (i) whose Board of Directors took the action or
failed to take the action referred to in Section 12.1(e), (ii) which made
the Terminating Breach, (iii) who is the subject of the Superior Proposal
referred to in Sections 12.1(g) or 12.1(h); or (iv) which is subject to such
consummated Acquisition Proposal, shall pay to the other Company, within two
business days following such occurrence, a fee of $3,000,000, as liquidated
damages and not as a penalty, together with reimbursement of all reasonable
out-of-pocket costs, fees and expenses, including, without limitation, the
reasonable fees and disbursements of banks, investment banks, accountants
and legal counsel and the expenses of any litigation incurred in connection
with collecting the fee provided for in this subsection 10.2(b).
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(c) For purposes of this Agreement, "Superior Proposal" means a bona
fide Acquisition Proposal that the Board of Directors of the Company subject
to such Acquisition Proposal believes, in its good faith judgment (based on
the advice of a financial advisor of nationally recognized reputation,
taking into account all the terms and conditions of the Acquisition
Proposal, including any break-up fees, expense reimbursement provisions and
conditions to consummation) is more favorable, from a financial point of
view, to the stockholders or shareholders of such Company than this
Agreement and the Transactions and that the funds or other consideration
necessary for the Acquisition Proposal are reasonably likely to be
available. For purposes of this Agreement, "Third Party" means any "group,"
as described in Rule 13d-5(b) promulgated under the Exchange Act, or person,
other than IVI, Checkmate or any of their respective affiliates as of the
date hereof.
(d) Both IVI and Checkmate shall ensure that the respective officers,
directors and employees of itself and its subsidiaries and any investment
bankers or other advisors or representatives retained by IVI or Checkmate,
as the case may be, are aware of the restrictions described in this Section
10.2, and shall be responsible for any breach of this Section 10.2 by such
officers, directors, employees, bankers, advisors or representatives.
10.3 CONDUCT OF BUSINESS BY CHECKMATE PENDING THE TRANSACTIONS
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Date, Checkmate
covenants and agrees that, unless IVI shall otherwise agree in writing,
Checkmate shall conduct its business and shall cause the businesses of its
subsidiaries to be conducted only in, and Checkmate and its subsidiaries shall
not take any action except in, the ordinary course of business and in a manner
consistent with past practice except as may be otherwise provided herein; and
Checkmate shall use reasonable commercial efforts to preserve substantially
intact the business organization of Checkmate and its subsidiaries, to keep
available the services of the present officers, employees and consultants of
Checkmate and its subsidiaries, to take all action reasonably necessary to
prevent the loss, cancellation, abandonment, forfeiture or expiration of any
Checkmate Intellectual Property and to preserve the present relationships of
Checkmate and its subsidiaries with customers, suppliers and other persons with
which Checkmate or any of its subsidiaries has significant business relations.
In addition, except as contemplated by this Agreement, Checkmate shall not,
and shall cause its subsidiaries not to, except to the extent necessary to
implement the Transactions and carry out the intentions of the parties set forth
in Section 4.1 during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement or the Effective Date,
directly or indirectly do, or agree, propose or Contract to do, any of the
following without the prior written consent of IVI:
(a) amend or otherwise change Checkmate's Articles of Incorporation or
By-Laws;
(b) issue, sell, pledge, dispose of or encumber or otherwise subject to
any Lien, or authorize the issuance or reservation for issuance, sale,
pledge, disposition or encumbrance of or otherwise subjecting to any Lien,
any shares of capital stock of any class or other ownership interests, or
any Rights (except for the issuance of Checkmate Common Shares issuable
pursuant to employee stock options under the Checkmate Stock Option Plans,
which options are outstanding on the date hereof);
(c) sell, dispose of or subject any properties of Checkmate or any of
its subsidiaries to any Lien (except for
(i) sales of properties in the ordinary course of business and in a
manner consistent with past practice and
(ii) dispositions of obsolete or worthless properties);
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(d) amend or change the period (or permit any acceleration, amendment or
change) of exercisability of options or restricted stock granted under the
Checkmate Employee Plans (including the Checkmate Stock Option Plans) or
authorize cash payments in exchange for any options granted under any of
such plans;
(e) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of any of its capital stock or other ownership interest, except
that a wholly-owned subsidiary of Checkmate may declare and pay a dividend
to its parent,
(ii) split, combine or reclassify any of its capital stock or other
ownership interests or issue or authorize or propose the issuance of any
other securities or Rights in respect of, in lieu of or in substitution
for shares of its capital stock or other ownership interests, or
(iii) amend the terms of, repurchase, redeem or otherwise acquire, or
permit any subsidiary to repurchase, redeem or otherwise acquire, any of
its securities or any securities of its subsidiaries;
(f) sell, transfer, license, sublicense or otherwise dispose of any
Checkmate Intellectual Property, or amend or modify any existing Contracts
with respect to any Checkmate Intellectual Property or Checkmate Third Party
Intellectual Property Rights, other than nonexclusive object and source code
licences in the ordinary course of business consistent with past practice;
(g) (i) acquire (by merger, consolidation, or acquisition of stock or
assets or otherwise) any corporation, partnership or other business
organization or division thereof;
(ii) incur or amend any indebtedness for borrowed money or issue any
debt securities or assume, guarantee (other than guarantees of currently
existing bank debt of Checkmate's subsidiaries entered into in the
ordinary course of business), endorse or otherwise as an accommodation
become responsible for, the obligations of any person, or make any loans
or advances, except in the ordinary course of business consistent with
past practice; or
(iii) authorize any capital expenditures or purchase of fixed assets
which are, in the aggregate, in excess of $1,000,000 for Checkmate and
its subsidiaries taken as a whole;
(h) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of officers
or employees of Checkmate or any of its subsidiaries subject to performance
and compensation reviews, or grant any severance or termination pay to, or
enter into any employment or severance agreement with, any director, officer
or other employee of Checkmate or any of its subsidiaries, or (except as
required by Law) terminate, establish, adopt, enter into or amend any
Checkmate Employee Plan;
(i) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, capitalization of software development costs, payments of
accounts payable and collection of accounts receivable) other than as may be
required by GAAP;
(j) make any material Tax election inconsistent with past practices or
settle or compromise any material federal, state, local or foreign Tax
Liability or agree to an extension of a statute of limitations except to the
extent the amount of any such settlement has been reserved for on the
consolidated balance sheet contained in the most recent Checkmate SEC
Document;
(k) pay, discharge or satisfy any material Liabilities, other than the
payment, discharge or satisfaction, in the ordinary course of business and
consistent with past practice, of Liabilities reflected or reserved against
in the consolidated balance sheet contained in Checkmate's most recent SEC
Report or incurred in the ordinary course of business and consistent with
past practice;
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(l) modify, amend or terminate any Contracts, waive, release, relinquish
or assign any contract or other rights or claims or cancel or forgive any
indebtedness owed to it, other than in the ordinary course of business
consistent with past practice with respect to Contracts which are not
material to Checkmate and its subsidiaries taken as a whole;
(m) take or allow to be taken or fail or omit to take any act which
would jeopardize the treatment of the Transactions as a pooling of interests
for accounting purposes under GAAP; or
(n) take any action which would make any of the representations or
warranties of Checkmate contained in this Agreement untrue or incorrect in
any material respect or prevent Checkmate from performing or cause Checkmate
to perform its covenants hereunder or result in any of the conditions to the
Transactions set forth herein not being satisfied.
ARTICLE 11.00--CONDITIONS TO THE TRANSACTIONS
11.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE TRANSACTIONS
The respective obligations of each party to effect the Transactions shall be
subject to the satisfaction at or prior to the Effective Date of the following
conditions:
(a) EFFECTIVENESS OF THE REGISTRATION STATEMENT/COURT APPROVAL
The Registration Statement shall have been declared effective by the SEC
under the Securities Act and shall cover the Newco Common Stock both to be
issued at or immediately after the Effective Date. No stop order suspending
the effectiveness of the Registration Statement, if any, shall have been
issued by the SEC and no Litigation for that purpose and no similar
proceeding in respect of either Proxy Statement shall have been initiated or
threatened by the SEC or the OSC. The final receipt from the OSC and other
provincial securities regulatory authorities for the Prospectus shall have
been obtained. The Court shall have issued its final order approving the
Arrangement in form and substance satisfactory to IVI and Checkmate (such
approvals not to be unreasonably withheld or delayed);
(b) SHAREHOLDER APPROVAL
This Agreement and the applicable Transaction shall have been approved
and adopted by the affirmative requisite vote of the shareholders of each of
IVI and Checkmate;
(c) HSR ACT
The waiting period applicable to the consummation of the Transactions
under the HSR Act shall have expired or been terminated;
(d) OSC, ETC.
All necessary rulings shall have been obtained from the OSC and other
relevant Canadian, provincial and state securities regulatory authorities in
connection with the Transactions. The applicable waiting periods and any
extensions thereof under Part IX of the COMPETITION ACT (Canada) shall have
expired or the parties shall have received an Advance Ruling Certificate
("ARC") pursuant to section 102 of the COMPETITION ACT (Canada) setting out
that the Director under such Act is satisfied he would not have sufficient
grounds on which to apply for an order in respect of the Transactions;
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY
No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the consummation of
the Transactions shall be in effect, nor shall any Litigation brought by any
governmental entity seeking any of the foregoing be pending; and there shall
not be any action taken, or any Law or Order applicable to the Transactions,
which makes the consummation of the Transactions illegal;
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(f) LISTING
The Newco Common Stock issued at or immediately after the Effective Date
and any additional shares issued as a result of the exercise of rights
attaching to the Exchangeable Shares shall have been approved for
(i) listing, subject to notice of issuance, on the TSE, and
(ii) quotation, subject to notice of issuance, on the Nasdaq National
Market. The Exchangeable Shares shall have been approved for listing,
subject to notice of issuance, on the TSE; and
(g) DISSENT RIGHTS
IVI and Checkmate shall not have received, on or prior to the Effective
Time, notice from the holders of, in IVI's case, IVI Common Shares, and, in
Checkmate's case, Checkmate Common Shares of their intention to exercise
their rights of dissent under Section 190 of the CBCA and Article 13 of the
Georgia Law, respectively, that in the aggregate, after taking into account
all other facts and circumstances of the parties, would prevent the
Transactions from being treated as a pooling of interests under GAAP.
11.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF IVI
The obligations of IVI to effect the Transactions are also subject to the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES
The representations and warranties of Checkmate contained in this
Agreement shall be true and correct in all material respects (except for
such representations and warranties which are qualified as to materiality
which shall be true and correct in all respects) on and as of the Effective
Date, except for
(i) changes contemplated by this Agreement, or
(ii) those representations and warranties which address matters only
as of a particular date (which shall remain true and correct as of such
date), or
and IVI shall have received a certificate to such effect signed on
behalf of Checkmate by the Chief Executive Officer and the Chief Financial
Officer of Checkmate;
(b) AGREEMENTS AND COVENANTS
Checkmate, Newco and Merger Sub shall have performed or complied in all
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Date, and IVI
shall have received a certificate to such effect signed on behalf of
Checkmate by the Chief Executive Officer and the Chief Financial Officer of
Checkmate and with respect to Newco and Merger Sub, by a director or officer
of such corporation;
(c) CONSENTS OBTAINED
All material Approvals required to be obtained or made by Checkmate for
the authorization, execution and delivery of this Agreement and the
consummation by it of the transactions contemplated hereby shall have been
obtained and made by Checkmate;
(d) GOVERNMENTAL ACTIONS
There shall not have been instituted, pending or threatened any action
or proceeding (or any investigation or other inquiry that might result in
such an action or proceeding) by any governmental entity before any
governmental entity, nor shall there be in effect any Order of any
governmental entity, in either case, seeking to prohibit or limit IVI from
exercising all material rights and privileges pertaining to the ownership or
operation by IVI or any of its subsidiaries of all or a material portion of
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the business or properties of IVI or any of its subsidiaries, or seeking to
compel IVI or any of its subsidiaries to dispose of or hold separate all or
any material portion of the business or properties of IVI or any of its
subsidiaries, as a result of the Transactions;
(e) MATERIAL ADVERSE CHANGE
Since the date of this Agreement, there shall have been no change,
occurrence or circumstance in the business, results of operations or
financial condition of Checkmate or any subsidiary of Checkmate having a
Material Adverse Effect;
(f) ACCOUNTANTS' POOLING LETTERS
IVI shall have received a letter, dated as of the date hereof, in form
and substance reasonably acceptable to such party, from Coopers & Lybrand to
the effect that such firm is not aware of any matters relating to IVI and
its subsidiaries which would preclude the Transactions from qualifying for
pooling-of-interests accounting treatment. IVI also shall have received a
letter, dated as of the Effective Date in form and substance reasonably
acceptable to such party, from Coopers & Lybrand to the effect that the
Transactions qualify for pooling-of-interests accounting treatment;
(g) AFFILIATE AGREEMENTS
IVI shall have received from each person who is identified in the
Checkmate Affiliate Letter as an "affiliate" of Checkmate a Checkmate
Affiliate Agreement, and each such Checkmate Affiliate Agreement shall be in
full force and effect;
(h) OPINION OF CHECKMATE COUNSEL
IVI shall have received from Alston & Bird, counsel to Checkmate, an
opinion that the Merger is effective under Georgia Law, in form and
substance reasonably satisfactory to IVI and its counsel; and
(i) TAX OPINION
IVI shall have received an opinion in form and substance satisfactory to
IVI of Meighen Demers, counsel for IVI, to the effect that the Arrangement
will be generally treated for Canadian federal income tax purposes as a
reorganization of capital for those shareholders of IVI who hold their IVI
Common Shares as capital property for purposes of the ITA and an opinion in
form and substance satisfactory to IVI from Morgan, Lewis & Bockius, counsel
for IVI, to the effect that a Shareholder of IVI who exchanges IVI Common
Shares for Newco Common Stock should not recognize gain or loss under
Section 351 of the Code.
11.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF CHECKMATE
The obligations of Checkmate to effect the Transactions is also subject to
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES
The representations and warranties of IVI contained in this Agreement
shall be true and correct in all material respects (except for such
representations and warranties which are qualified as to materiality which
shall be true and correct in all respects) on and as of the Effective Date,
except for
(i) changes contemplated by this Agreement, or
(ii) those representations and warranties which address matters only
as of a particular date (which shall remain true and correct as of such
date),
and Checkmate shall have received a certificate to such effect signed on
behalf of IVI by the Chief Executive Officer and the Chief Financial Officer
of IVI;
(b) AGREEMENTS AND COVENANTS
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IVI, Newco and Merger Sub shall have performed or complied in all
material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the
Effective Date, and Checkmate shall have received a certificate to such
effect signed by the Chief Executive Officer and the Chief Financial Officer
of IVI and with respect to Newco and Merger Sub, by a director or officer of
such corporations;
(c) CONSENTS OBTAINED
All material Approvals required to be obtained or made by IVI for the
authorization, execution and delivery of this Agreement and the consummation
by them of the transactions contemplated hereby shall have been obtained and
made by IVI;
(d) GOVERNMENTAL ACTIONS
There shall not have been instituted, pending or threatened any action
or proceeding (or any investigation or other inquiry that might result in
such an action or proceeding) by any governmental entity before any
governmental entity, nor shall there be in effect any Order of any
governmental entity, in either case, seeking to prohibit or limit Checkmate
from exercising all material rights and privileges pertaining to the
ownership or operation by Checkmate or any of its subsidiaries of all or a
material portion of the business or properties of Checkmate or any of its
subsidiaries, or seeking to compel Checkmate or any of its subsidiaries to
dispose of or hold separate all or any material portion of the business or
properties of Checkmate or any of its subsidiaries, as a result of the
Transactions;
(e) MATERIAL ADVERSE CHANGE
Since the date of this Agreement, there shall have been no change,
occurrence or circumstance in the business, results of operations or
financial condition of IVI or any subsidiary of IVI having a Material
Adverse Effect;
(f) ACCOUNTANTS' POOLING LETTERS
Checkmate shall have received a letter, dated as of the date hereof, in
form and substance reasonably acceptable to such party, from Ernst & Young
to the effect that such firm is not aware of any matters relating to
Checkmate and its subsidiaries which would preclude the Transactions from
qualifying for pooling-of-interests accounting treatment. Checkmate also
shall have received a letter, dated as of the Effective Date, in form and
substance reasonably acceptable to such party, from Coopers & Lybrand to the
effect that the Transactions qualify for pooling-of-interests accounting
treatment;
(g) AFFILIATE AGREEMENTS
Checkmate shall have received from each person who is identified in the
IVI Affiliate Letter as an "affiliate" of IVI an IVI Affiliate Agreement,
and each such IVI Affiliate Agreement shall be in full force and effect.
(h) OPINION OF IVI COUNSEL
Checkmate shall have received from Meighen Demers, counsel to IVI, an
opinion that the Arrangement is effective under Ontario Law, in form and
substance reasonably satisfactory to Checkmate and its counsel; and
(i) TAX OPINION
Checkmate shall have received an opinion in form and substance
satisfactory to Checkmate of Alston & Bird, counsel for Checkmate, to the
effect that the Merger will be generally treated for U.S. federal income tax
purposes as a tax-free reorganization under Section 368(a) of the Code.
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ARTICLE 12.00--TERMINATION
12.1 TERMINATION
This Agreement may be terminated at any time prior to the Effective Date,
notwithstanding approval thereof by the shareholders of IVI or Checkmate:
(a) by mutual written consent duly authorized by the Boards of Directors
of IVI and Checkmate; or
(b) by either IVI or Checkmate if the Transactions shall not have been
consummated by July 31, 1998 (PROVIDED, THAT, the right to terminate this
Agreement under this Section 12.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Transactions to occur on or
before such date); or
(c) by either IVI or Checkmate if a court of competent jurisdiction or
other governmental entity shall have issued a non-appealable final Order or
taken any other action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Arrangement or the
Merger; or
(d) by either IVI or Checkmate, if, at either of the IVI Shareholders'
Meeting (including any adjournment or postponement thereof) or the Checkmate
Shareholders' Meeting (including, any adjournment or postponement thereof),
the requisite affirmative vote of the shareholders of IVI or Checkmate, as
the case may be, shall not have been obtained; or
(e) by either Company if
(i) the Board of Directors of the other Company shall withdraw,
modify or change its recommendation of this Agreement or the Transactions
in a manner adverse to the other party or shall have resolved to do so or
shall have failed by June 15 , 1998 to call the IVI Shareholders' Meeting
or the Checkmate Shareholders' Meeting, as the case may be; or
(ii) the Board of Directors of the other Company shall have taken a
"neutral" position with respect to (or shall have failed to reject as
inadequate, or shall have failed to reaffirm its recommendation of this
Agreement and the Transactions within 10 business days after the public
announcement or commencement of) an Acquisition Proposal; or
(f) by either IVI or Checkmate, upon a breach of any representation,
warranty, covenant or agreement on the part of Checkmate or IVI,
respectively, set forth in this Agreement or if any representation or
warranty of Checkmate or IVI, respectively, shall have become untrue, in
either case, such that the conditions set forth in Section 11.2(a) or
11.2(b), or Section 11.3(a) or 11.3(b),
would not be satisfied (a "Terminating Breach"),
PROVIDED, THAT, if such Terminating Breach is curable prior to the
expiration of 30 days from its occurrence (but in no event later than July
31, 1998) by Checkmate or IVI, as the case may be, through the exercise of
its reasonable best efforts and for so long as Checkmate or IVI, as the case
may be, continues to exercise such reasonable best efforts, neither
Checkmate nor IVI, respectively, may terminate this Agreement under this
Section 12.1(f) until the earlier of July 31, 1998 or the expiration of such
30-day period without such Terminating Breach having been cured; or
(g) Either Company may terminate this Agreement by written notice to the
other Company at any time prior to the Effective Time, provided that a
person has made a Superior Proposal to such Company, provided that the other
Company does not make, within five business days of the aforesaid notice, an
offer that the Board of Directors of the Company subject to such Superior
Proposal believes, in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation, taking into account
all the terms and conditions of the Superior Proposal, including any
break-up fees, expense reimbursement provisions and conditions to
consummation) is at least as favorable, from a financial point of view, to
the shareholders of such Company as such Superior
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Proposal and that the funds or other consideration necessary for such offer
are reasonably likely to be available; or
(h) Either Company may terminate this Agreement by written notice to the
other Company if prior to the Effective Time the Board of Directors of such
Company shall have withdrawn or modified or amended, in a manner adverse to
the other Company, its approval or recommendation of this Agreement, the
Arrangement or the Merger or its recommendation that the shareholders of
such Company adopt and approve this Agreement, the Arrangement or the Merger
in order to permit such Company to execute a definitive agreement providing
for the consummation of a Superior Proposal with respect to such Company,
provided that such Company shall be in compliance with the terms of Section
10.2.
12.2 EFFECT OF TERMINATION
In the event of the termination of this Agreement pursuant to Section 12.1,
this Agreement shall forthwith become void and there shall be no Liability on
the part of any party hereto or any of its affiliates, directors, officers or
shareholders except
(i) as set forth in Section 10.2, Section 12.3 and the second
sentence of Section 13.1 hereof, and
(ii) nothing herein shall relieve any party from Liability for any
willful breach hereof.
12.3 FEES AND EXPENSES
Except as otherwise set forth in Section 10.2, each of IVI and Checkmate
shall be responsible for the fees and expenses of its own legal counsel,
accountants, investment bankers and other professional advisors in connection
with this Agreement and the Transactions, including, without limitation, the
Registration Statement, Proxy Statement/Prospectus and the Prospectus. All fees
and expenses incurred in connection with this Agreement and the Transactions by
Newco and Merger Sub, including, without limitation, fees and expenses incurred
with respect to the incorporation and organization of each of them, registration
fees and filing fees paid with respect to the Registration Statement or the
Prospectus, and printing costs incurred with respect to the Registration
Statement, Proxy Statement/Prospectus and the Prospectus shall be shared on an
equal basis by IVI and Checkmate, whether or not the Transactions are
consummated.
ARTICLE 13.00--GENERAL PROVISIONS
13.1 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
Except as otherwise provided in this Section 13.1, the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
officers or directors, whether prior to or after the execution of this
Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Date or upon the termination of this Agreement
pursuant to Section 12.1, as the case may be, except that the agreements set
forth in Sections 5.10, 5.12, 5.23 and 5.25 shall survive the Effective Date
indefinitely and those set forth in Sections 5.8, 10.2 and 12.3 shall survive
termination indefinitely. The Confidentiality/Standstill Agreement shall survive
termination of this Agreement as provided therein.
13.2 NOTICES
All notices and other communications given or made pursuant hereto shall be
in writing and shall be deemed to have been duly given or made as of the date
delivered, if delivered personally, three days after being sent by registered or
certified mail (postage prepaid, return receipt requested), one day after
dispatch by recognized overnight courier (provided delivery is confirmed by the
courier), and upon
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transmission by telecopy, confirmed received, to the parties at the following
addresses (or at such other address for a party as shall be specified by such
party in a notice pursuant to this Section 13.2):
(a) If to IVI:
<TABLE>
<S> <C>
International Verifact Inc.
79 Torbarrie Road
Toronto, Ontario M3L 1G5
Telecopier No.: (416) 245-9896
Attention: L. Barry Thomson
President and CEO
With a copy to:
Meighen Demers
Merrill Lynch Canada Tower
200 King Street West
Suite 1100
Toronto, Ontario
Canada M5H 3T4
Telecopier No.: (416) 977-5239
Attention: Mark A. Convery
And to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
46th Floor
New York, NY
U.S.A. 10178
Telecopier No.: (212) 309-6273
Attention: David G. Nichols, Jr.
</TABLE>
(a) If to Checkmate:
<TABLE>
<S> <C>
Checkmate Electronics, Inc.
1003 Mansell Road
Roswell, Georgia
U.S.A. 30076
Telecopier No.: (770) 594-6019
Attention: John C. Neubert
With a copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia
U.S.A. 3039-3424
Telecopier No.: (404) 881-4777
Attention: M. Hill Jeffries
</TABLE>
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13.3 AMENDMENT
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 Date;
PROVIDED, HOWEVER, that, after approval of the matters put before the
shareholders of Checkmate or the shareholders of IVI, no amendment may be made
which by any Law requires further approval by such shareholders without such
further approval. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
13.4 WAIVER
At any time prior to the Effective Date, any party hereto may with respect
to any other party hereto
(a) extend the time for the performance of any of the obligations or
other acts,
(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 if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
13.5 HEADINGS
The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
13.6 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 transactions
contemplated hereby are fulfilled to the extent possible.
13.7 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement and supersedes all prior
agreements and undertakings (other than the Confidentiality/Standstill
Agreement), both written and oral, among the parties, or any of them, with
respect to the subject matter hereof and, except as otherwise expressly provided
herein, is not intended to confer upon any other person any rights or remedies
hereunder.
13.8 ASSIGNMENT
None of the parties hereto may assign any of its rights or obligations
hereunder without the prior written consent of the other parties hereto.
13.9 PARTIES IN INTEREST
This Agreement shall be binding upon and enure solely to the benefit of each
party hereto, and nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement, other than
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Section 5.12 (which is intended to be for the benefit of the parties indemnified
therein and may be enforced by such parties).
13.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE
No failure or delay on the part of any party hereto in the exercise of any
right hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
13.11 GOVERNING LAW
This Agreement (for purposes of Section 13.16 or otherwise) shall be
governed by and construed in accordance with the laws of the Province of Ontario
and the federal laws of Canada applicable therein, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Subject to Section 13.16, each of the parties submits to the jurisdiction of the
courts of the Province of Ontario to hear all actions, suits and proceedings
arising in connection with this Agreement arising from the enforcement of
arbitration judgments made pursuant to Section 13.16. Checkmate hereby appoints
Cassels, Brock & Blackwell as its agent for service of process in respects of
all actions, suits and proceedings in the courts of Ontario in connection with
this Agreement.
13.12 COUNSEL FEE
In the event of any Litigation by any party against the other for specific
performance or damages for breach of this Agreement which results in a final
judgment not subject to further appeal by one of the parties, the party against
whom the judgment is entered shall pay to the party in whose favour the judgment
is entered (the "successful party") all of the successful party's counsel fees
and expenses in connection with the prosecution or defence of the action,
including in respect of investigations, depositions and discoveries in
connection therewith (and including, in connection with any litigation in a
Canadian court, costs on a solicitor and his own client basis).
13.13 COUNTERPARTS
This Agreement may be executed 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.
13.14 WAIVER OF JURY TRIAL
Each of IVI and Checkmate hereby irrevocably waives, to the fullest extent
permitted by law, all rights to trial by jury in any action, proceeding, or
counterclaim (whether based upon contract, tort or otherwise) arising out of or
relating to this agreement or any of the transactions contemplated hereby.
13.15 U.S. CURRENCY
Except as otherwise expressly stated, all dollar amounts referred to in this
Agreement are in United States currency.
13.16 ARBITRATION
(a) In the event of any dispute, claim, question or difference arising
between IVI and Checkmate in respect of the provisions, the subject matter,
the interpretation, or the effect of this Agreement or any breach hereof,
the parties shall use their best endeavors to settle such dispute, claim,
question or
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difference. To this effect the party which raises the concern shall give
notice in writing to the other of the concern and the reasons therefor and
its proposal for resolution. Thereafter, they shall consult and negotiate
with each other, in good faith and understanding of their mutual interests,
to reach a just and equitable solution satisfactory to both parties.
(b) Except as is expressly otherwise provided in this Agreement, if the
parties do not reach a solution pursuant to Section 13.16(a) within a period
of 30 days from the written notice contemplated in Section 13.16(a), then
upon written notice by either party to the other, the dispute, claim,
question or difference shall be finally settled by arbitration in accordance
with the American Arbitration Association Rules for the conduct of
arbitrations in effect at the date of commencement of such arbitration,
based upon the following:
(i) the arbitration tribunal shall consist of one arbitrator
appointed by each of the parties who is qualified by education and
training to pass upon the particular matter to be decided, together with
a third arbitrator appointed by the first two-selected arbitrators;
(ii) the arbitrators shall be instructed that time is of the essence
in proceeding with their determination of any dispute, claim, question or
difference and, in any event, the arbitration award must be rendered
within 30 days of the submission of such dispute to arbitration;
(iii) the arbitration shall take place in the State of Delaware;
(iv) the arbitration award shall be given in writing and shall be
final and binding on the parties, not subject to any appeal, and shall
deal with the question of costs of arbitration and all matters related
thereto; and
(v) judgment upon the award rendered may be entered in any court
having jurisdiction, or, application may be made to such court for a
judicial recognition of the award or an order of enforcement thereof, as
the case may be.
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IN WITNESS WHEREOF, IVI, Checkmate, Newco and Merger Sub have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
<TABLE>
<S> <C> <C>
INTERNATIONAL VERIFACT INC.
Per: /s/ L. BARRY THOMSON
-----------------------------------------
Name: L. Barry Thomson
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
CHECKMATE ELECTRONICS, INC.
Per: /s/ J. STANFORD SPENCE
-----------------------------------------
Name: J. Stanford Spence
Title: CHAIRMAN AND CEO
IVI CHECKMATE CORP.
Per: /s/ L. BARRY THOMSON
-----------------------------------------
Name: L. Barry Thomson
Title: PRESIDENT AND CEO
FUTURE MERGER CORPORATION
Per: /s/ J. STANFORD SPENCE
-----------------------------------------
Name: J. Stanford Spence
Title: CHAIRMAN
</TABLE>
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SCHEDULE "A"
SCHEDULE OF CERTAIN DEFINITIONS
Where used in this Agreement, unless there is something in the context or
the subject matter inconsistent therewith, the following terms shall have the
following meanings, respectively:
<TABLE>
<S> <C>
(a) "Acquisition Proposals" shall bear the meaning ascribed to it in Section
10.2(a);
(b) "Affiliate Agreement" shall bear the meaning ascribed to it in Section 5.11;
(c) "Affiliate Letter" shall bear the meaning ascribed to it in Section 5.11;
(d) "affiliates" 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; including, without limitation, any partnership or joint
venture in which Checkmate or IVI, as the case may be, (either along, or through
or together with any other subsidiary) has, directly or indirectly, an equity
interest of 10 percent or more;
(e) "Agreement", "hereof", "herein", "hereunder", and similar expressions refer to
this Agreement and the schedules and exhibits hereto and not to any particular
article, section, paragraph, clause or other portion hereof and include any
agreement or instrument supplementary or ancillary hereto;
(f) "Approvals" shall bear the meaning ascribed to it in Section 6.1;
(g) "Arrangement" shall bear the meaning ascribed to it in the recitals;
(h) "business day" means any day other than a Saturday, Sunday or a day when banks
are not open for business in either or both of Atlanta, Georgia and Toronto,
Ontario;
(i) "Call Rights" shall bear the meaning ascribed to it in the recitals;
(j) "CBCA" shall mean the CANADA BUSINESS CORPORATIONS ACT, as amended;
(k) "Checkmate Balance Sheet" shall bear the meaning ascribed to it in Section 7.9;
(l) "Checkmate Common Shares" shall bear the meaning ascribed to in the recitals;
(m) "Checkmate Disclosure Schedule" shall bear the meaning ascribed to it in Section
7.1;
(n) "Checkmate Dissenting Shares" shall bear the meaning ascribed to it in Section
3.8;
(o) "Checkmate Employee Plan" shall bear the meaning ascribed to it in Section 7.11;
(p) "Checkmate Exchange Ratio" shall bear the meaning ascribed to it in Section
3.4(a)(ii);
(q) "Checkmate Intellectual Property Rights" shall bear the meaning ascribed to it
in Section 7.20;
(r) "Checkmate Option" shall bear the meaning ascribed to it in Section 5.10(a);
(s) "Checkmate Proxy Statement" shall bear the meaning ascribed to it in Section
5.7(a);
(t) "Checkmate SEC Documents" shall bear the meaning ascribed to it in Section
7.7(a);
(u) "Checkmate Share" shall bear the meaning ascribed to it in the recitals;
(v) "Checkmate Shareholder Approval" shall bear the meaning ascribed to it in
Section 5.7(a);
(w) "Checkmate Shareholders' Meeting" shall bear the meaning ascribed to it in
Section 5.7(a);
(x) "Checkmate Stock Option Plans" shall bear the meaning ascribed to it in Section
5.10(a);
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(y) "Checkmate Third Party Intellectual Property Rights" shall bear the meaning
ascribed to it in Section 7.20;
(z) "Closing" shall bear the meaning ascribed to it in Section 5.1;
(aa) "Code" shall mean the United States Internal Revenue Code of 1986, as amended;
(bb) "Company" shall mean IVI or Checkmate;
(cc) "Confidentiality/Standstill Agreement" shall bear the meaning ascribed to it in
Section 5.8;
(dd) "Constituent Corporations" shall bear the meaning ascribed to it in Section 3.2;
(ee) "Contracts" means any written or oral agreement, arrangement, authorization,
commitment, contract, indenture, instrument, lease, note, bond, mortgage,
license, obligation, plan, practice, restriction, understanding or undertaking
of any kind or character, or other document to which any person is a party or
that is binding on any person or its equity securities (including capital
stock), properties or business;
(ff) "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 or policies of a
person, whether through the ownership of stock, as trustee or executor, by
Contract or credit arrangement or otherwise;
(gg) "Court" shall bear the meaning ascribed to it in Section 2.1 of this Agreement;
(hh) "default or violation" means
(i) any breach, violation or default,
(ii) any occurrence of any event that with the passage of time or the giving
of notice or both would constitute a breach, violation or default, or
(iii) any occurrence of any event that with or without the passage of time
or the giving of notice would give rise to a right to terminate or revoke,
change the current terms, or renegotiate, or to accelerate, increase,
or impose any Liability;
(ii) "Delaware Law" means Delaware General Corporation Law, as amended;
(jj) "Director" means the director appointed under Section 260 of the CBCA;
(kk) "Effective Date" shall bear the meaning ascribed to it in Section 2.1;
(ll) "Effective Time" shall bear the meaning ascribed to it in Section 2.1;
(mm) "Environmental Laws" shall bear the meaning ascribed to it in Section 6.17;
(nn) "ERISA" shall mean the EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, as
amended;
(oo) "Exchange Act" means the SECURITIES EXCHANGE ACT OF 1934, as amended;
(pp) "Exchange Agent" shall bear the meaning ascribed it in Section 3.6;
(qq) "Exchange Rights" shall bear the meaning ascribed to it in the recitals;
(rr) "Exchangeable Shares" shall bear the meaning ascribed to it in Section 2.1(a);
(ss) "Final Order" shall bear the meaning ascribed to it in Section 2.1;
(tt) "Form S-3" shall bear the meaning ascribed to it in Section 5.7(d);
(uu) "GAAP" shall bear the meaning ascribed to it in the recitals;
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(vv) "Georgia Certificate of Merger" shall bear the meaning ascribed to it in Section
3.1(b);
(ww) "Georgia Law" means the Georgia Business Corporations Code, as amended;
(xx) "governmental entity" shall bear the meaning ascribed to it in Section 6.5(c);
(yy) "hazardous substances" shall bear the meaning ascribed to it in Section 6.17(d);
(zz) "HSR Act" means the HART-SCOTT-RODINO ANTI-TRUST IMPROVEMENTS ACT OF 1976, as
amended;
(aaa) "Indemnified Parties" shall bear the meaning ascribed to it in Section 5.12(b);
(bbb) "Ingenico" means Ingenico, S.A., a French corporation;
(ccc) "IVI Balance Sheet" shall bear the meaning ascribed to it in Section 6.9;
(ddd) "IVI Common Shares" shall bear the meaning ascribed to it in the recitals;
(eee) "IVI Disclosure Schedule" shall bear the meaning ascribed to it in Section 6.1;
(fff) "IVI Dissenting Shares" shall bear the meaning ascribed to it in Section 2.4;
(ggg) "IVI Employee Plan" shall bear the meaning ascribed to it in Section 6.11;
(hhh) "IVI Exchange Ratio" shall bear the meaning ascribed to it in the recitals;
(iii) "IVI Intellectual Property Rights" shall bear the meaning ascribed to it in
Section 6.20;
(jjj) "IVI Option" shall bear the meaning ascribed to it in Section 5.10(a);
(kkk) "IVI Option Plan" shall bear the meaning ascribed to it in Section 5.10(a);
(lll) "IVI OSC Reports" shall bear the meaning ascribed to it in Section 6.7(a);
(mmm) "IVI Proxy Statement" shall bear the meaning ascribed to it in Section 5.7(b);
(nnn) "IVI SEC Documents" shall bear the meaning ascribed to it in Section 6.7(b);
(ooo) "IVI Shareholders' Meeting" shall bear the meaning ascribed to it in Section
5.7(b);
(ppp) "IVI Third Party Intellectual Property Rights" shall bear the meaning ascribed
to it in Section 6.20;
(qqq) "Interim Order" shall bear the meaning ascribed to it in Section 2.1;
(rrr) "IRS" shall mean the United States Internal Revenue Service;
(sss) "ISOs" shall bear the meaning ascribed to it in Section 5.10(b);
(ttt) "ITA" shall mean the INCOME TAX ACT (Canada), as amended;
(uuu) "knowledge of Checkmate" or "Checkmate's knowledge" or like phrases shall mean
only the actual knowledge, information and belief of J. Stanford Spence, Gregory
A. Lewis and John C. Neubert, after, in all cases, reviewing all relevant
records and making due enquiries regarding the relevant matter;
(vvv) "knowledge of IVI" or "IVI's knowledge" or like phrases shall mean only the
actual knowledge, information and belief of George Whitton, L. Barry Thomson and
Peter Henry, after, in all cases, reviewing all relevant records and making due
enquiries regarding the relevant matter;
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(www) "Law" means any code, law, ordinance, regulation, reporting or licensing
requirement, rule, statute or similar requirement applicable to a person or its
properties, Liabilities or business;
(xxx) "Liabilities" means any direct or indirect, primary or secondary, liability,
indebtedness, obligation, penalty, cost or expense (including costs of
investigation, collection and defence), claim, deficiency, guaranty or
endorsement of or by any person of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise;
(yyy) "Liens" means any conditional sale agreement, default of title, easement,
encroachment, encumbrance, hypothecation, infringement, lien, mortgage, pledge,
reservation, restriction, security interest, title retention or other security
arrangement, or any adverse right or interest, charge, or claim of any nature
whatsoever of, on, or with respect to any property or property interest, other
than Liens for current property Taxes not yet due and payable;
(zzz) "Litigation" shall bear the meaning ascribed to it in Section 6.10;
(aaaa) "Merger" shall bear the meaning ascribed to it in the recitals;
(bbbb) "Merger Consideration" shall bear the meaning ascribed to it in Section 3.4(c);
(cccc) "NASD" means the National Association of Securities Dealers, Inc.;
(dddd) "Newco Common Stock" shall bear the meaning ascribed to it in the recitals;
(eeee) "Newco Preferred Stock" shall bear the meaning ascribed to it in Section 2.1(b);
(ffff) "Newco Special Voting Stock" means the preferred stock contemplated by Exhibit
C;
(gggg) "NTN" means National Transaction Network, Inc., a Delaware corporation;
(hhhh) "Order" means any administrative decision or award, decree, injunction,
judgment, order, quasi-judicial decision or award, ruling, or writ of any
governmental entity;
(iiii) "OSA" shall mean the SECURITIES ACT (Ontario);
(jjjj) "OSC" means the Ontario Securities Commission;
(kkkk) "Participation Right" shall bear the meaning ascribed to it in Section 6.3(iv);
(llll) "Person" means an individual, corporation, partnership, association, trust,
unincorporated organization, other entity or group (to the extent such group is
deemed a "person" under Section 13(d)(3) of the Exchange Act);
(mmmm) "Plan of Arrangement" shall bear the meaning ascribed to it in the recitals;
(nnnn) "properties" of Checkmate, IVI, Newco or any other person means all of the
assets, properties, businesses and rights of such person of every kind, nature,
character and description, whether real, personal or mixed, tangible or
intangible, accrued or contingent, or otherwise relating to or utilized in such
person's business, directly or indirectly, in whole or in part, whether or not
carried on the books and records of such person, and whether or not owned in the
name of such person or any affiliate of such person and wherever located;
(oooo) "Prospectus" shall bear the meaning ascribed to it in Section 5.7(e);
(pppp) "Proxy Statements" shall bear the meaning ascribed to it in Section 5.7(b);
(qqqq) "Proxy Statement/Prospectus" shall bear the meaning ascribed to it in Section
6.13(ii);
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(rrrr) "Registration Statement" shall bear the meaning ascribed to it in Section
5.7(c);
(ssss) "Rights" means all arrangements, calls, commitments, Contracts, options, rights
to subscribe to, scrip, understandings, warrants, or other binding obligations
of any character whatsoever relating to, or securities or rights convertible
into or exchangeable for, shares of the capital stock or other types of equity
securities of a person (or an affiliate or successor of such person) or by which
a person is or may be bound to issue additional shares of its capital stock,
other types of equity securities or other Rights;
(tttt) "SEC" shall mean the United States Securities and Exchange Commission;
(uuuu) "Securities Act" means the SECURITIES ACT OF 1933, as amended;
(vvvv) "Series A Preferred Share" shall bear the meaning ascribed to it in Section
2.1(a);
(wwww) "Share" shall bear the meaning ascribed to it in Section 3.4(a)(ii);
(xxxx) "Shareholder Protection Rights Agreement" shall bear the meaning ascribed to it
in Section 5.22;
(yyyy) "State Takeover Laws" shall bear the meaning ascribed to it in Section 6.5(c);
(zzzz) "Stock Option Plans" shall bear the meaning ascribed to it in Section 5.10(a);
(aaaaa) "Subsequent Dividend" shall bear the meaning ascribed to it in Section 3.4(b);
(bbbbb) "subsidiary" or "subsidiaries" of Checkmate, IVI, Newco or any other person
means any corporation, partnership, joint venture or other legal entity of which
Checkmate, IVI, Newco or such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
more than 50% of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporation, partnership, joint venture or other legal
entity;
(ccccc) "Superior Proposal" shall bear the meaning ascribed to it in Section 10.2(c);
(ddddd) "Support Agreement" shall bear the meaning ascribed to it in Section 2.3;
(eeeee) "Surviving Corporation" shall bear the meaning ascribed to it in Section 3.1(a);
(fffff) "Tax" or "Taxes" shall bear the meaning ascribed to it in Section 6.16(a);
(eeeee) "Tax Returns" shall bear the meaning ascribed to it in Section 6.16(a);
(ggggg) "Terminating Breach" shall bear the meaning ascribed to it in Section 12.1(f);
(hhhhh) "Third Party" shall bear the meaning ascribed to it in Section 10.2(c);
(iiiii) "Transactions" shall mean the Arrangement and the Merger;
(jjjjj) "Trustee" shall bear the meaning ascribed to it in Section 2.2;
(kkkkk) "TSE" means The Toronto Stock Exchange;
(lllll) "Voting Rights" shall bear the meaning ascribed to it in the recitals;
(mmmmm) "Voting Trust Agreement" shall bear the meaning ascribed to it in Section 2.2;
(nnnnn) "Year 2000 Compliant" means that the product, software or system in question:
(i) will correctly and unambiguously process date information at all times,
including as the years 1999 and 2000 are approached and reached;
</TABLE>
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<TABLE>
<S> <C>
(ii) will not suffer any abends, aborts, improper operation or other
interruptions in operation as a result of the approach or reaching of any
particular date or the improper processing of any date. "Processing" of
date information includes, but is not limited to, accepting input of
dates without ambiguity, outputting all dates in an unambiguous form,
and performing calculations, comparisons or operations or taking
actions or making decisions using dates, portions of dates, or time
periods. The concept of Year 2000 Compliance includes all issues
relating to the handling of dates or time periods, including the
processing of the leap year that will occur in the year 2000.
</TABLE>
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<PAGE>
ANNEX B
FORM OF ARRANGEMENT RESOLUTION
<PAGE>
RESOLUTION FOR CONSIDERATION AT THE ANNUAL AND SPECIAL MEETING
OF THE SHAREHOLDERS
OF
INTERNATIONAL VERIFACT INC.
("IVI")
BE IT RESOLVED AS A SPECIAL RESOLUTION OF THE SHAREHOLDERS OF IVI THAT:
1. The arrangement involving IVI (the "Arrangement") under Section 192 of the
Canada Business Corporations Act (the "CBCA") as more particularly described
in the joint proxy statement/prospectus dated May 26, 1998 (the "Proxy
Circular") accompanying the notice of this meeting (as the Arrangement may
be modified or amended), is hereby authorized, approved, and adopted;
2. The Combination Agreement, and the Plan of Arrangement described therein,
dated January 16, 1998 between IVI, Checkmate Electronics, Inc., IVI
Checkmate Corp. and Future Merger Corporation, the full text of which is set
out as Annex "A" to the Proxy Circular (as the same may or may have been
amended and presented to this meeting) is hereby approved and adopted;
3. Notwithstanding the passing of this resolution by the IVI shareholders or
the approval of the Ontario Court of Justice (General Division), the board
of directors of IVI, without further notice to or approval of the IVI
shareholders, may decide not to proceed with the Arrangement or may revoke
this resolution at any time prior to the Arrangement becoming effective
pursuant to the provisions of the CBCA;
4. Any two directors or officers of IVI are hereby authorized and directed for
and on behalf of IVI to execute or cause to be executed, under corporate
seal or otherwise, and to deliver or cause to be delivered all such
documents, agreements and instruments and to do or cause to be done all such
other acts and things as such persons shall determine to be necessary or
desirable in order to carry out the intent of the foregoing paragraphs of
this resolution and the matters authorized thereby, such determination to be
conclusively evidenced by the execution and delivery of such document,
agreement, or instrument, or the doing of any such act or thing.
<PAGE>
ANNEX C
INTERIM ORDER
<PAGE>
COURT FILE NO. 98-BK-002263
ONTARIO COURT (GENERAL DIVISION)
COMMERCIAL LIST
THE HONOURABLE MR. JUSTICE FARLEY) TUESDAY, FEBRUARY 24, 1998
)
IN THE MATTER OF INTERNATIONAL VERIFACT INC.
AND IN THE MATTER OF AN APPLICATION UNDER SECTION 192
OF THE CANADA BUSINESS CORPORATIONS ACT,
R.S.C. 1985, C.C-44, AS AMENDED
O R D E R
THIS MOTION, made by the Applicant International Verifact Inc. (the
"Applicant") for advice and directions of the Court in connection with an
arrangement under Section 192 of the CANADA BUSINESS CORPORATIONS ACT, R.S.C.
1985, c. C-44, as amended (the "CBCA") and for an order:
(a) dispensing with or abridging the time period for service of this Notice
of Motion and Motion Record;
(b) authorizing the Applicant to call meetings of the holders of its Common
Shares to approve the proposed plan of arrangement;
(c) granting certain other ancillary relief;
was heard this day at Toronto, Ontario.
ON READING the Notice of Motion, the Affidavit of Peter H. Henry sworn
February 23, 1998 and the exhibits thereto, and on hearing the submissions of
counsel for the Applicant, and upon being advised that the Director under the
CBCA does not oppose this motion,
ON NOTICE that, if issued, the order of the Court approving the Arrangement
will constitute the basis for an exemption under the United States SECURITIES
ACT OF 1933, as amended, (the "Securities Act") with respect to the shares to be
issued pursuant to the Plan of Arrangement.
SERVICE
1. THIS COURT ORDERS that the time for service of the Notice of Motion and
Motion Record be and the same is hereby abridged and that the Notice of Motion
is properly returnable today and that service of the Notice of Motion and Motion
Record on any of the Shareholders as defined herein, or on any other interested
party, is hereby dispensed with.
MEETING
2. THIS COURT ORDERS that the Applicant shall call, hold and conduct a
Special Meeting (the "Meeting") of the holders of its Common Shares (the
"Shareholders") to consider and, if deemed advisable, to pass, with or without
variation, a special resolution to approve the proposed plan of arrangement.
3. THIS COURT ORDERS that the Meeting shall be called, held and conducted in
accordance with the CBCA and the articles and by-laws of the Applicant, subject
to the provisions herein.
<PAGE>
NOTICE OF MEETING
4. THIS COURT ORDERS that the only persons entitled to the notice of the
Meeting shall be the registered Shareholders as they may appear on the records
of the Applicant as at the close of business on a date as the Applicant in its
sole discretion may determine, but in any event not later than, May 30, 1998,
the directors and auditors of the Applicant, and the Director under the CBCA and
the only persons entitled to be represented and to vote at the Meeting, either
in person or by proxy, shall be such Shareholders, subject to the provisions of
the CBCA with respect to persons who become registered holders of the securities
after that date.
5. THIS COURT ORDERS that the Notice of Application herein, the Notice of
Special Meeting and the Joint Proxy Statement/Prospectus shall be distributed to
the Shareholders, to the Applicant's directors and auditors, and to the Director
under the CBCA, by mailing same by prepaid ordinary mail, at least twenty-one
(21) days prior to the date of the Meeting, excluding the date of mailing and
excluding the date of the Meeting. Such mailing shall constitute good and
sufficient service of the Notice of Application, Notice of Meeting and the date
for the hearing of the Application.
6. THIS COURT ORDERS that the Joint Proxy Statement / Prospectus shall be
filed with the Court upon receiving final approval from the appropriate
regulatory authorities before the date for mailing the materials contemplated
herein. The Joint Proxy Statement/Prospectus shall contain: (i) a copy of the
Notice of Special Meeting; (ii) a copy of the Notice of Application herein;
(iii) a copy of this order; (iv) a copy of the Plan of Arrangement; (v) the
materials prescribed by the CBCA and the SECURITIES ACT (Ontario); and (vi) such
further and other materials as the Applicant may provide.
7. THIS COURT ORDERS that the accidental omission to give notice of the
Meeting, or the non-receipt of notice of the Meeting by any of the persons in
paragraph 5 above, shall not invalidate any resolutions passed or proceedings
taken at the Meeting.
8. THIS COURT ORDERS that notice of the record date be published in
accordance with the provisions of the CBCA.
THE MEETING
9. THIS COURT ORDERS that the Meeting shall be conducted at the location
specified in the Notice of Special Meeting.
10. THIS COURT ORDERS that George Whitton, the Chairman of the Applicant, or
such person as he may appoint, shall preside as the chair of the Meeting, and,
subject to the provisions of the CBCA, shall decide all matters relating to the
conduct of the Meeting.
11. THIS COURT ORDERS that the quorum required at the Meeting shall be two
persons present in person, each being a Shareholder entitled to vote thereat or
a duly appointed proxyholder for a Shareholder so entitled representing not less
than 20 percent of issued and outstanding shares of IVI.
12. THIS COURT ORDERS that the Chair shall direct a vote, by poll, at the
Meeting and the vote required to pass the aforesaid resolution at the Meeting
shall be the affirmative vote of at least two-thirds of the votes cast in person
or by proxy by the Shareholders in respect of the special resolution at the
Meeting.
RIGHT OF DISSENT
13. THIS COURT ORDERS that the Shareholders be granted a right of and be
entitled to dissent in respect of approving the proposed plan of arrangement
pursuant to Section 190 of the CBCA provided that the exercise of the right of
dissent is made in accordance with the provisions of the CBCA.
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<PAGE>
APPROVAL OF ARRANGEMENT
14. THIS COURT ORDERS that upon approval of the proposed plan of arrangement
by the Shareholders of the Applicant in the manner set forth in this Order, the
Applicant may apply before this Court for approval of the Arrangement (the
"Approval Application") and that service of the Notice of Application herein, in
accordance with paragraph 15 of this Order, shall constitute good and sufficient
service of such Notice of Application upon all persons who are entitled to
receive such Notice of Application pursuant to this Order and no other form of
service need be made and no other material need be served on such persons in
respect of the Approval Application, unless a Notice of Appearance is served on
the Applicant's solicitors. The date of the Approval Application shall be set
out in the Joint Proxy Statement/ Prospectus.
15. THIS COURT ORDERS that any Shareholder or other interested person may
appear at the Approval Application provided such person or holder serves a
Notice of Intention to Appear on the Applicant's counsel and files it with the
Court no later than 2 days prior to the Approval Application, and the Notice of
Intention to Appear shall set out the address for service in respect of such
holder or person and indicate whether such holder or person intends to support
or oppose the Approval Application or make submissions thereat together with any
evidence or materials which are to be presented to this Court.
16. THIS COURT ORDERS that all notices and communications shall be deemed to
have been received, in the case of notice by telecopier or by delivery prior to
5:00 p.m. (local time), on the business day received or if received after 5:00
p.m. (local time) on a business day or at any time on a non-business day, on the
next following business day and, in the case of notice mailed as aforesaid, on
the fifth business day following the date on which such notice or other
communication is mailed. In the event of any strike, lock-out or other event
which interrupts postal service in any part of Canada, all notices and
communications during such interruption may only be given or made by personal
delivery, courier or by telecopier and any notice or other communication given
or made by prepaid mail within the five business day period immediately
preceding the commencement of such interruption, unless actually received, shall
be deemed not to have been given or made. Notice on the Applicant's solicitors
may be made at the address set out below:
MEIGHEN DEMERS
200 King Street West
Suite 1100
Toronto, Ontario M5H 3T4
Fax: (416) 977-5239
Attention: John T. Porter
17. THIS COURT ORDERS that the Applicant may, at any time, seek leave to
vary this Order.
/s/ Deputy Local Registrar
3
<PAGE>
ANNEX D
CERTAIN PROVISIONS OF CANADIAN LAW
<PAGE>
SECTION 190 OF THE CANADA BUSINESS CORPORATIONS ACT
190. (1) Subject to sections 191 and 241, a holder of shares of any class of a
corporation may dissent if the corporation is subject to an order under
paragraph 192(4)(d) that affects the holder or if the corporation resolves to
(a) amend its articles under section 173 or 174 to add, change or remove
any provisions restricting or constraining the issue, transfer or ownership
of shares of that class;
(b) amend its articles under section 173 to add, change or remove any
restriction on the business or businesses that the corporation may carry on;
(c) amalgamate otherwise than under section 184;
(d) be continued under section 188; or
(e) sell, lease or exchange all or substantially all its property under
subsection 189(3).
FURTHER RIGHT--S. 190(2)
(2) A holder of shares of any class or series of shares entitled to vote
under section 176 may dissent if the corporation resolves to amend its articles
in a manner described in that section.
PAYMENT FOR SHARES--S. 190(3)
(3) In addition to any other right he may have, but subject to subsection
(26), a shareholder who complies with this section is entitled, when the action
approved by the resolution from which he dissents or an order made under
subsection 192(4) becomes effective, to be paid by the corporation the fair
value of the shares held by him in respect of which he dissents, determined as
of the close of business on the day before the resolution was adopted or the
order was made.
NO PARTIAL DISSENT--S. 190(4)
(4) A dissenting shareholder may only claim under this section with respect
to all the shares of a class held by him on behalf of any one beneficial owner
and registered in the name of the dissenting shareholder.
OBJECTION--S. 190(5)
(5) A dissenting shareholder shall send to the corporation, at or before any
meeting of shareholders at which a resolution referred to in subsection (1) or
(2) is to be voted on, a written objection to the resolution, unless the
corporation did not give notice to the shareholder of the purpose of the meeting
and of his right to dissent.
NOTICE OF RESOLUTION--S. 190(6)
(6) The corporation shall, within ten days after the shareholders adopt the
resolution, send to each shareholder who has filed the objection referred to in
subsection (5) notice that the resolution has been adopted, but such notice is
not required to be sent to any shareholder who voted for the resolution or who
has withdrawn his objection.
DEMAND FOR PAYMENT--S. 190(7)
(7) A dissenting shareholder shall, within twenty days after he receives a
notice under subsection (6) or, if he does not receive such notice, within
twenty days after he learns that the resolution has been adopted, send to the
corporation a written notice containing
<PAGE>
(a) his name and address;
(b) the number and class of shares in respect of which he dissents; and
(c) a demand for payment of the fair value of such shares.
SHARE CERTIFICATE--S. 190(8)
(8) A dissenting shareholder shall, within thirty days after sending a
notice under subsection (7), send the certificates representing the shares in
respect of which he dissents to the corporation or its transfer agent.
FORFEITURE--S. 190(9)
(9) A dissenting shareholder who fails to comply with subsection (8) has no
right to make a claim under this section.
ENDORSING CERTIFICATE--S. 190(10)
(10) A corporation or its transfer agent shall endorse on any share
certificate received under subsection (8) a notice that the holder is a
dissenting shareholder under this section and shall forthwith return the share
certificates to the dissenting shareholder.
SUSPENSION OF RIGHTS--S. 190(11)
(11) On sending a notice under subsection (7), a dissenting shareholder
ceases to have any rights as a shareholder other than the right to be paid the
fair value of his shares as determined under this section except where
(a) the dissenting shareholder withdraws his notice before the
corporation makes an offer under subsection (12),
(b) the corporation fails to make an offer in accordance with subsection
(12) and the dissenting shareholder withdraws his notice, or
(c) the directors revoke a resolution to amend the articles under
subsection 173(2) or 174(5), terminate an amalgamation agreement under
subsection 183(6) or an application for continuance under subsection 188(6),
or abandon a sale, lease or exchange under subsection 189(9),
in which case his rights as a shareholder are reinstated as of the date he
sent the notice referred to in subsection (7).
OFFER TO PAY--S. 190(12)
(12) A corporation shall, not later than seven days after the later of the
day on which the action approved by the resolution is effective or the day the
corporation received the notice referred to in subsection (7), send to each
dissenting shareholder who has sent such notice
(a) a written offer to pay for his shares in an amount considered by the
directors of the corporation to be the fair value thereof, accompanied by a
statement showing how the fair value was determined; or
(b) if subsection (26) applies, a notification that it is unable
lawfully to pay dissenting shareholders for their shares.
2
<PAGE>
SAME TERMS--S. 190(13)
(13) Every offer made under subsection (12) for shares of the same class or
series shall be on the same terms.
PAYMENT--S. 190(14)
(14) Subject to subsection (26), a corporation shall pay for the shares of a
dissenting shareholder within ten days after an offer made under subsection (12)
has been accepted, but any such offer lapses if the corporation does not receive
an acceptance thereof within thirty days after the offer has been made.
CORPORATION MAY APPLY TO COURT--S. 190(15)
(15) Where a corporation fails to make an offer under subsection (12), or if
a dissenting shareholder fails to accept an offer, the corporation may, within
fifty days after the action approved by the resolution is effective or within
such further period as a court may allow, apply to a court to fix a fair value
for the shares of any dissenting shareholder.
SHAREHOLDER APPLICATION TO COURT--S. 190(16)
(16) If a corporation fails to apply to a court under subsection (15), a
dissenting shareholder may apply to a court for the same purpose within a
further period of twenty days or within such further period as a court may
allow.
VENUE--S. 190(17)
(17) An application under subsection (15) or (16) shall be made to a court
having jurisdiction in the place where the corporation has its registered office
or in the province where the dissenting shareholder resides if the corporation
carries on business in that province.
NO SECURITY FOR COSTS--S. 190(18)
(18) A dissenting shareholder is not required to give security for costs in
an application made under subsection (15) or (16).
PARTIES--S. 190(19)
(19) On an application to a court under subsection (15) or (16),
(a) all dissenting shareholders whose shares have not been purchased by
the corporation shall be joined as parties and are bound by the decision of
the court; and
(b) the corporation shall notify each affected dissenting shareholder of
the date, place and consequences of the application and of his right to
appear and be heard in person or by counsel.
POWERS OF COURT--S. 190(20)
(20) On an application to a court under subsection (15) or (16), the court
may determine whether any other person is a dissenting shareholder who should be
joined as a party, and the court shall then fix a fair value for the shares of
all dissenting shareholders.
3
<PAGE>
APPRAISERS--S. 190(21)
(21) A court may in its discretion appoint one or more appraisers to assist
the court to fix a fair value for the shares of the dissenting shareholders.
FINAL ORDER--S. 190(22)
(22) The final order of a court shall be rendered against the corporation in
favour of each dissenting shareholder and for the amount of the shares as fixed
by the court.
INTEREST--S. 190(23)
(23) A court may in its discretion allow a reasonable rate of interest on
the amount payable to each dissenting shareholder from the date the action
approved by the resolution is effective until the date of payment.
NOTICE THAT SUBSECTION (26) APPLIES--S. 190(24)
(24) If subsection (26) applies, the corporation shall, within ten days
after the pronouncement of an order under subsection (22), notify each
dissenting shareholder that it is unable lawfully to pay dissenting shareholders
for their shares.
EFFECT WHERE SUBSECTION (26) APPLIES--S. 190(25)
(25) If subsection (26) applies, a dissenting shareholder, by written notice
delivered to the corporation within thirty days after receiving a notice under
subsection (24), may
(a) withdraw his notice of dissent, in which case the corporation is
deemed to consent to the withdrawal and the shareholder is reinstated to his
full rights as a shareholder; or
(b) retain a status as a claimant against the corporation, to be paid as
soon as the corporation is lawfully able to do so or, in a liquidation, to
be ranked subordinate to the rights of creditors of the corporation but in
priority to its shareholders.
LIMITATION--S. 190(26)
(26) A corporation shall not make a payment to a dissenting shareholder
under this section if there are reasonable grounds for believing that
(a) the corporation is or would after the payment be unable to pay its
liabilities as they become due; or
(b) the realizable value of the corporation's assets would thereby be
less than the aggregate of its liabilities.
4
<PAGE>
ANNEX E
CERTAIN PROVISIONS OF GEORGIA LAW
<PAGE>
EXCERPTS FROM THE GEORGIA BUSINESS CORPORATION CODE
RELATING TO DISSENTING SHAREHOLDERS
TITLE 14, CHAPTER 2, ARTICLE 13
DISSENTERS' RIGHTS
PART 1
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
14-2-1301. DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14-2-1320 through
14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under
all the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or the articles of incorporation
and the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its parent
under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required on the
sale or exchange pursuant to Code Section 14-2-1202, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by
<PAGE>
which all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of the
class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or share
exchange to accept for their shares anything except shares of the surviving
corporation or another publicly held corporation which at the effective date
of the merger or share exchange are either listed on a national securities
exchange or held of record by more than 2,000 shareholders, except for scrip
or cash payments in lieu of fractional shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter under this Code
section are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
2
<PAGE>
PART 2
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
14-2-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken.
14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action
is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of subsection
(a) of this Code section is not entitled to payment for his shares under this
article.
14-2-1322. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date the
notice required in subsection (a) of this Code section is delivered; and
(4) Be accompanied by a copy of this article.
14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code Section
14-2-1322 must demand payment and deposit his certificates in accordance with
the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
3
<PAGE>
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
14-2-1324. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a payment
demand, the corporation shall by notice to each dissenter who complied with Code
Section 14-2-1323 offer to pay the amount the corporation estimates to be the
fair value of his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within such 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later.
14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest due
is incorrectly calculated; or
4
<PAGE>
(2) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a) of
this Code section within 30 days after the corporation offered payment for his
or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under subsection
(b) of Code Section 14-2-1325, and the corporation shall provide the
information to the shareholder within ten days after receipt of a written
demand for the information; and
(2) The shareholder may at any time, subject to the limitations period
of Code Section 14-2-1332, notify the corporation of his own estimate of the
fair value of his shares and the amount of interest due and demand payment
of his estimate of the fair value of his shares and interest due.
PART 3
JUDICIAL APPRAISAL OF SHARES
14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 60 day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall commence
the proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by publication,
or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this Code section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
5
<PAGE>
14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code Section
14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these attorneys reasonable fees to be paid out of the amounts awarded
the dissenters who were benefited.
14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given by
the corporation in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322.
6
<PAGE>
ANNEX F
OPINION OF BANCAMERICA ROBERTSON STEPHENS
<PAGE>
January 15, 1998
Board of Directors
International Verifact Inc.
79 Torbarrie Road
Toronto, Ontario M3L 1G5
CANADA
Members of the Board:
You have asked our opinion with respect to the fairness to International
Verifact Inc. ("IVI"), from a financial point of view and as of the date hereof,
of the Checkmate Exchange Ratio (as defined below) (in light of the IVI Exchange
Ratio (as defined below)), in the proposed Transaction (as defined below),
pursuant to the Combination Agreement, dated as of January 15, 1998, by and
among Checkmate Electronics, Inc. ("Checkmate"), IVI, Future Merger Corporation
("Merger Sub") and IVI Checkmate Corp. ("Newco") (the "Agreement"). In the
Transaction, Checkmate shall be the surviving corporation of a merger (the
"Merger") of Merger Sub with and into Checkmate and the separate existence of
Merger Sub shall cease. Simultaneously with the Merger, Newco, a newly formed
corporation, will issue common stock (or, at the election of each IVI
shareholder, IVI will issue IVI exchangeable shares, the terms of which will be
such that the exchangeable shares will be economically equivalent to Newco
common shares) on a one-for-one basis (the "IVI Exchange Ratio") to shareholders
of IVI (the "Arrangement") (collectively, the Merger and the Arrangement are
referred to herein as the "Transaction"). Pursuant to the Merger, each
outstanding share of Checkmate common stock will be converted into the right to
receive 1.2775 shares of common stock of Newco (the "Checkmate Exchange Ratio").
The Merger is intended to qualify as a tax-free reorganization and to be
accounted for as a pooling of interests in accordance with U.S. generally
accepted accounting principles ("GAAP"). The terms and conditions of the
Transaction are set out more fully in the Agreement. In connection with the
Agreement, certain principal shareholders of each of IVI and Checkmate have
entered into stockholders agreements restricting the transfer and voting of
their respective shares of IVI and Checkmate (the "Stockholders Agreements").
For purposes of this opinion we have: (i) reviewed financial information on
Checkmate and IVI furnished to us by IVI including certain internal financial
analyses and forecasts prepared by the management of IVI and Checkmate,
respectively; (ii) reviewed publicly available information relating to IVI and
Checkmate, including their respective stock price and trading histories; (iii)
held discussions with the managements of IVI and Checkmate concerning the
businesses, past and current business operations, financial condition and future
prospects of both companies, independently and combined, including certain
information provided by the management of IVI concerning potential cost savings;
(iv) reviewed the Agreement; (v) reviewed the exchange ratio implied by
historical stock prices of the two companies; (vi) reviewed the valuations of
publicly traded companies that we deemed comparable to Checkmate; (vii) prepared
discounted cash flow analyses of Checkmate; (viii) compared the financial terms
of the Transaction with other transactions that we deemed relevant; (ix)
prepared pro-forma merger analyses for the Transaction; (x) prepared a relative
contribution analysis for IVI and Checkmate; and (xi) made such other studies
and inquiries, and reviewed such other data, as we deemed relevant.
In connection with our opinion, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all publicly
available information that we have reviewed and all other information furnished
(or made available) to us by or on behalf of IVI or otherwise used by us in
connection with our opinion. Furthermore, we did not obtain any independent
appraisal of the properties, assets or liabilities (contingent or otherwise) of
IVI or Checkmate or of any of their subsidiaries, nor were we furnished with any
such evaluations or appraisals. With respect to the financial and operating
forecasts (and the assumptions and bases therefor) of IVI and Checkmate that we
have reviewed, we have assumed that such forecasts have been reasonably prepared
in good faith on the basis of reasonable assumptions, reflect the best available
estimates and judgments of IVI's management, and that such projections and
forecasts will be realized in the amounts and in the time periods currently
estimated by the management of IVI. We have also relied upon the estimates by
IVI's management of the anticipated cost savings to be derived from the
Transaction. Further, we have assumed that the historical financial statements
of IVI and
<PAGE>
Checkmate that we have reviewed have been prepared in accordance with GAAP. We
have also assumed that the Transaction will be consummated upon the terms set
forth in the Agreement without material alteration thereof and that the
Transaction will qualify for the tax and accounting treatment described above.
We have relied as to all legal matters relevant to rendering our opinion on the
advice of counsel.
While we believe that our review, as described herein, is an adequate basis
for the opinion that we express, this opinion is necessarily based upon market,
economic and other conditions as in effect on, and information made available to
us as of, the date hereof. It should be understood that subsequent developments
may effect this opinion and that we disclaim any undertaking or obligation to
advise any person of any change in any fact or matter affecting this opinion
which may come or be brought to our attention after the date of this opinion.
Our opinion is limited to the fairness from a financial point of view to IVI of
the Checkmate Exchange Ratio (in light of the IVI Exchange Ratio). We do not
express any opinion as to the value of any employee agreements or arrangements
entered into in connection with the Agreement or the Transaction, nor do we
express any opinion as to the price at which the shares of common stock of Newco
that are to be issued pursuant to the Transaction will be traded in the future.
Our opinion is directed to the Board of Directors of IVI and is not intended
to be and does not constitute a recommendation to any stockholder of IVI as to
how such shareholder should vote on the Transaction. This opinion may be
included in a proxy or registration statement of IVI distributed in connection
with the Transaction, provided that this opinion is reproduced therein in full
and any description of, or reference to, this opinion therein is in a form and
substance acceptable to us and our legal counsel. Except as provided in the
previous sentence, this opinion shall not be reproduced, summarized, described
or referred to, or furnished to any party, without our prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion,
that, as of the date hereof, the Checkmate Exchange Ratio (in light of the IVI
Exchange Ratio) is fair to IVI from a financial point of view.
<TABLE>
<S> <C> <C>
Very truly yours,
BANCAMERICA ROBERTSON STEPHENS
By /s/ BANCAMERICA ROBERTSON STEPHENS
------------------------------------------
Authorized Signatory
</TABLE>
2
<PAGE>
ANNEX G
OPINION OF BT ALEX. BROWN INCORPORATED
<PAGE>
BT Alex. Brown Incorporated
Board of Directors January 16, 1998
Checkmate Electronics, Inc.
1003 Mansell Road
Roswell, GA 30076
Dear Sirs:
Checkmate Electronics, Inc. (the "Company"), International Verifact, Inc.
("IVI") and IVI Checkmate Corporation, ("Newco") and a wholly-owned subsidiary
of Newco (the "Merger Sub"), have entered into a Combination Agreement dated as
of January 16, 1998 (the "Agreement"). Pursuant to the Agreement, the
implementation of which is contingent on shareholder approval by Company
shareholders and IVI shareholders and certain other terms and conditions set
forth in the Agreement, Merger Sub will be merged with an into the Company (the
"Merger"), and each share of Company common stock issued and outstanding
immediately prior to the effective time of the Merger will be converted into
1.2775 shares (the "Exchange Ratio") of common stock of Newco. In addition, each
share of common stock of IVI will be converted into one share of common stock of
Newco or one exchangeable share of IVI which ultimately will be converted into
one share of common stock of Newco. We have assumed, with your consent, that the
Merger will qualify for pooling-of-interests accounting treatment and as a tax
free transaction for the shareholders of the Company. You have requested our
opinion as to whether the Exchange Ratio is fair, from a financial point of
view, to the Company's shareholders.
BT Alex. Brown Incorporated ("BT Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuation for estate, corporate and other
purposes. We have acted as financial advisor to the Board of Directors of the
Company in connection with the transaction described above and will receive a
fee for our services, a portion of which is contingent upon the consummation of
the Merger. We have also advised the Company on the implementation of a
Shareholder Rights Plan. BT Alex. Brown regularly publishes research reports
regarding the technology industry and the businesses and securities of publicly
owned companies in the technology industry. In the ordinary course of business,
BT Alex. Brown may actively trade the securities of both the Company and IVI for
our own account and the account of our customers and, accordingly, may at any
time hold a long or short position in securities of the Company and IVI.
In connection with this opinion, we have reviewed certain publicly available
financial information and other information concerning the Company and IVI and
certain internal analyses and other information furnished to us by the Company
and IVI. We have also held discussions with the members of the senior
managements of the Company and IVI regarding the businesses and prospects of
their respective companies and the joint prospects of a combined company. In
addition, we have (i) reviewed the reported prices and trading activity for the
common stock of both the Company and IVI, (ii) compared certain financial and
stock market information for the Company and IVI with similar information for
certain other companies whose securities are publicly traded and which we deemed
similar to the Company and IVI, (iii) reviewed the financial terms of certain
recent business combinations which we deemed comparable in whole or in part,
(iv) reviewed the terms of the Agreement and certain related documents, and (v)
performed such other studies and analyses and considered such other factors as
we deemed appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to the information relating to the prospects of the
Company and IVI, we have assumed that such information reflects the best
currently available judgments and estimates of the managements of the Company
and IVI as to the likely future financial performances of their respective
companies and of the combined entity. In addition, we have not made nor been
provided with an independent evaluation or appraisal of the assets of the
Company and
<PAGE>
IVI. Our opinion is based on market, economic and other conditions as they exist
and can be evaluated as of the date of this letter.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company
of any of its assets, or any strategic business combination involving the
Company.
Our advisory services and the opinion expressed herein were prepared for the
use of the Board of Directors of the Company and do not constitute a
recommendation to the Company's shareholders as to how they should vote at the
shareholders' meeting in connection with the Merger. We hereby consent, however,
to the inclusion of this opinion as an exhibit to any proxy or registration
statement distributed in connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Exchange Ratio is fair, from a financial point of view,
to the Company's shareholders.
Very truly yours,
/s/ BT Alex. Brown Incorporated
-----------------------------------------------------------------------------
BT ALEX. BROWN INCORPORATED
2
<PAGE>
ANNEX H
FORM OF VOTING AND EXCHANGE TRUST AGREEMENT
<PAGE>
FORM OF VOTING AND EXCHANGE TRUST AGREEMENT
MEMORANDUM OF AGREEMENT made as of the day of , 1998, between
IVI Checkmate Corp., a Delaware corporation ("Newco"), International Verifact
Inc., a Canadian corporation (the "Corporation") and Montreal Trust Company of
Canada, a trust company incorporated under the laws of Canada ("Trustee").
WITNESSETH:
WHEREAS pursuant to a combination agreement dated as of January 16, 1998
(the "Combination Agreement") by and between Newco, the Corporation, Merger Sub
and Checkmate Electronics Inc. ("Checkmate") the parties agreed that on the
Effective Date (as defined in the Combination Agreement), Newco and the
Corporation would execute and deliver a Voting and Exchange Trust Agreement
containing the terms and conditions set forth in Exhibit E to the Combination
Agreement together with such other terms and conditions as may be agreed to by
the parties to the Combination Agreement acting reasonably;
AND WHEREAS pursuant to an arrangement (the "Arrangement") effected by
articles of arrangement to be filed pursuant to the CANADA BUSINESS CORPORATIONS
ACT (the "CBCA"), all of the issued and outstanding common shares in the capital
of the Corporation are to be exchanged, at the option of the holder, for either
common stock in the capital of Newco or exchangeable non-voting shares in the
capital of the Corporation (the "Exchangeable Shares");
AND WHEREAS the aforesaid articles of arrangement set forth the rights,
privileges, restrictions and conditions (collectively the "Exchangeable Share
Provisions") attaching to the Exchangeable Shares;
AND WHEREAS Newco is to provide voting rights in Newco directly to each
holder (other than Newco) from time to time of Exchangeable Shares, such voting
rights per Exchangeable Share to be equivalent to the voting rights per share of
the common stock, par value U.S. $.0l per share, of Newco (the "Newco Common
Stock");
AND WHEREAS Newco is to grant directly to and in favour of the holders
(other than Newco) from time to time of Exchangeable Shares the right, in the
circumstances set forth herein, to require Newco to purchase from each such
holder all or any part of the Exchangeable Shares held by the holder;
AND WHEREAS the parties desire to make appropriate provision and to
establish a procedure whereby voting rights in Newco shall be exercisable by
holders (other than Newco) from time to time of Exchangeable Shares by and
through the Trustee, which will hold legal title to one share of Newco Special
Voting Preferred Stock, U.S. $.0l par value (the "Newco Special Voting Stock"),
to which voting rights attach for the benefit of such holders and whereby the
rights to require Newco to purchase Exchangeable Shares from the holders thereof
shall be exercisable by such holders from time to time of Exchangeable Shares by
and through the Trustee, which will hold legal title to such rights for the
benefit of such holders;
AND WHEREAS these recitals and any statements of fact in this Agreement are
made by Newco and the Corporation and not by the Trustee;
NOW THEREFORE in consideration of the respective covenants and agreements
provided in this Agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties agree as
follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS. In this Agreement the following terms shall have the
following meanings:
"AFFILIATE" 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; including, without limitation, any
partnership or joint venture in which Checkmate, the Corporation or Newco,
<PAGE>
as the case may be, (either alone, or through or together with any other
subsidiary) has, directly or indirectly, an equity interest of 10 percent or
more.
"ARRANGEMENT" has the meaning ascribed thereto in the recitals hereto.
"AUTOMATIC EXCHANGE RIGHTS" means the benefit of the obligation of Newco
to effect the automatic exchange of shares of Newco Common Stock for
Exchangeable Shares pursuant to section 5.12 hereof.
"BOARD OF DIRECTORS" means the Board of Directors of the Corporation.
"BUSINESS DAY" means a day other than a Saturday, a Sunday or a day when
banks are not open for business in one or both of Toronto, Ontario and
Atlanta, Georgia.
"CALL RIGHTS" means collectively the Liquidation Call Right, the
Redemption Call Right and the Retraction Call Right.
"CANADIAN DOLLAR EQUIVALENT" means in respect of an amount expressed in
a foreign currency (the "Foreign Currency Amount") at any date the product
obtained by multiplying (a) the Foreign Currency Amount by (b) the noon spot
exchange rate on such date for such foreign currency expressed in Canadian
dollars as reported by the Bank of Canada or, in the event such spot
exchange rate is not available, such exchange rate on such date for such
foreign currency expressed in Canadian dollars as may be deemed by the Board
of Directors to be appropriate for such purpose.
"CBCA" means the CANADA BUSINESS CORPORATIONS ACT, as amended.
"CURRENT MARKET PRICE" has the meaning ascribed thereto in the
Exchangeable Share Provisions.
"CURRENT NEWCO COMMON STOCK EQUIVALENT" has the meaning ascribed thereto
in the Exchangeable Share Provisions.
"DEFAULT EVENT" means any failure, other than by reason of an Insolvency
Event, of the Corporation to perform any of its obligations pursuant to the
Exchangeable Share Provisions, including without limitation its obligation
to redeem any Retracted Shares.
"EXCHANGE RIGHT" has the meaning ascribed thereto in section 5.1 hereof.
"EXCHANGEABLE SHARE PROVISIONS" has the meaning ascribed thereto in the
recitals hereto.
"EXCHANGEABLE SHARES" has the meaning ascribed thereto in the recitals
hereto.
"HOLDER VOTES" has the meaning ascribed thereto in section 4.2 hereof.
"HOLDERS" means the registered holders from time to time of Exchangeable
Shares, other than Newco.
"INSOLVENCY EVENT" means the institution by the Corporation of any
proceeding to be adjudicated a bankrupt or insolvent or to be dissolved or
wound up, or the consent of the Corporation to the institution of
bankruptcy, insolvency, dissolution or winding up proceedings against it, or
the filing of a petition, answer or consent seeking dissolution or winding
up under any bankruptcy, insolvency or analogous laws, including without
limitation the COMPANIES CREDITORS' ARRANGEMENT ACT (Canada) and the
BANKRUPTCY AND INSOLVENCY ACT (Canada), and the failure by the Corporation
to contest in good faith any such proceedings commenced in respect of the
Corporation within 15 days of becoming aware thereof, or the consent by the
Corporation to the filing of any such petition or to the appointment of a
receiver, or the making by the Corporation of a general assignment for the
benefit of creditors, or the admission in writing by the Corporation of its
inability to pay its debts generally as they become due, or the Corporation
not being permitted, pursuant to solvency requirements of applicable law, to
redeem any Retracted Shares pursuant to section 5.1 of the Exchangeable
Share Provisions.
2
<PAGE>
"LIEN" has the meaning ascribed thereto in the Combination Agreement.
"LIQUIDATION CALL RIGHT" has the meaning ascribed thereto in the Plan of
Arrangement.
"LIQUIDATION EVENT" has the meaning ascribed thereto in subsection
5.12(a) hereof.
"LIQUIDATION EVENT EFFECTIVE DATE" has the meaning ascribed thereto in
subsection 5.12(c) hereof.
"LIST" has the meaning ascribed thereto in section 4.6 hereof.
"NEWCO COMMON STOCK" has the meaning ascribed thereto in the recitals
hereto.
"NEWCO CONSENT" has the meaning ascribed thereto in section 4.2 hereof
"NEWCO MEETING" has the meaning ascribed thereto in section 4.2 hereof.
"NEWCO SPECIAL VOTING STOCK" has the meaning ascribed thereto in the
recitals hereto.
"NEWCO SUCCESSOR" has the meaning ascribed thereto in subsection
10.1(a).
"OFFICER'S CERTIFICATE" means, with respect to Newco or the Corporation,
as the case may be, a certificate signed by any one of the Chairman of the
Board, the Chief Executive Officer, the President, any Vice-President or any
other senior officer of Newco or the Corporation, as the case may be.
"PERSON" includes an individual, partnership, corporation, company,
unincorporated syndicate or organization, trust, trustee, executor,
administrator and other legal representative.
"PLAN OF ARRANGEMENT" means the plan of arrangement of the Corporation
providing for the Arrangement.
"REDEMPTION CALL RIGHT" has the meaning ascribed thereto in the Plan of
Arrangement.
"RETRACTED SHARES" has the meaning ascribed thereto in section 5.7
hereof.
"RETRACTION CALL RIGHT" has the meaning ascribed thereto in the Plan of
Arrangement.
"SUPPORT AGREEMENT" means that certain support agreement made as of even
date herewith between the Corporation and Newco.
"TRUST" means the trust created by this Agreement.
"TRUST ESTATE" means the Voting Share, any other securities, the
Exchange Right, the Automatic Exchange Rights and any money or other
property that may be held by the Trustee from time to time pursuant to this
Agreement.
"VOTING RIGHTS" means the voting rights attached to the Voting Share.
"VOTING SHARE" means the one share of Newco Special Voting Stock, issued
by Newco, for the benefit of the holders of Exchangeable Shares, to be
deposited with the Trustee, which entitles the holder of record to a number
of votes at meetings of holders of Newco Common Stock as set forth in
section 4.2 hereof.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this
Agreement into articles, sections and paragraphs and the insertion of headings
are for convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
1.3 NUMBER, GENDER, ETC. Words importing the singular number only shall
include the plural and vice versa. Words importing the use of any gender shall
include all genders.
1.4 DATE FOR ANY ACTION. If any date on which any action is required to be
taken under this Agreement is not a Business Day, such action shall be required
to be taken on the next succeeding Business Day.
3
<PAGE>
1.5 WITHHOLDING OF TAX. All amounts required to be paid, deposited or
delivered hereunder shall be paid, deposited or delivered after deduction of any
amount required by applicable law to be deducted or withheld on account of tax
and the deduction of such amounts and remittance to the applicable tax
authorities shall, to the extent thereof, satisfy such requirement to pay,
deposit or deliver hereunder.
ARTICLE II
PURPOSE OF AGREEMENT
2.1 ESTABLISHMENT OF TRUST. The purpose of this Agreement is to create the
Trust for the benefit of the Holders, as herein provided. The Trustee will hold
the Voting Share in order to enable the Trustee to exercise the Voting Rights
and will hold the Exchange Right and the Automatic Exchange Rights in order to
enable the Trustee to exercise such rights, in each case as trustee for and on
behalf of the Holders as provided in this Agreement.
ARTICLE III
VOTING SHARE
3.1 ISSUE AND OWNERSHIP OF THE VOTING SHARE. In consideration of the
granting and transfer of the Call Rights to Newco by the Holders, which grant
and transfer is hereby ratified and confirmed by the Trustee for and on behalf
of the Holders, Newco hereby issues to and deposits with the Trustee the Voting
Share to be hereafter held of record by the Trustee as trustee for and on behalf
of, and for the use and benefit of, the Holders and in accordance with the
provisions of this Agreement. Newco hereby acknowledges receipt from the Trustee
as trustee for and on behalf of the Holders of good and valuable consideration
(and the adequacy thereof) for the issuance of the Voting Share by Newco to the
Trustee. During the term of the Trust and subject to the terms and conditions of
this Agreement, the Trustee shall possess and be vested with full legal
ownership of the Voting Share and shall be entitled to exercise all of the
rights and powers of an owner with respect to the Voting Share, provided that
the Trustee shall:
(a) hold the Voting Share and the legal title thereto as trustee solely
for the use and benefit of the Holders in accordance with the provisions of
this Agreement; and
(b) except as specifically authorized by this Agreement, have no power
or authority to sell, transfer, vote or otherwise deal in or with the Voting
Share and the Voting Share shall not be used or disposed of by the Trustee
for any purpose other than the purposes for which this Trust is created
pursuant to this Agreement.
3.2 LEGENDED SHARE CERTIFICATES. The Corporation shall cause each
certificate representing Exchangeable Shares to bear an appropriate legend
notifying the Holders of their right to instruct the Trustee with respect to the
exercise of the Voting Rights with respect to the Exchangeable Shares held by
Holders. Newco will cause the certificate representing the Voting Share to bear
a legend stating that such Voting Share is non-transferrable except as set forth
herein.
3.3 SAFE KEEPING OF CERTIFICATE. The certificate representing the Voting
Share shall at all times be held in safe keeping by the Trustee.
ARTICLE IV
VOTING RIGHTS
4.1 VOTING RIGHTS. The Trustee, as the holder of record of the Voting
Share, shall be entitled to all of the Voting Rights, including the right to
consent to or to vote in person or by proxy the Voting Share, on any matter,
question or proposition whatsoever that may properly come before the
stockholders of Newco for their vote at a Newco Meeting or in connection with a
Newco Consent. The Voting Rights shall be and remain vested in and exercised by
the Trustee. Subject to section 6.15 hereof, the Trustee shall exercise the
4
<PAGE>
Voting Rights only on the basis of instructions received pursuant to this
Article 4 from Holders entitled to instruct the Trustee as to the voting thereof
at the time at which a Newco Consent is sought or a Newco Meeting is held. To
the extent that no instructions are received from a Holder with respect to the
Voting Rights to which such Holder is entitled to instruct the Trustee
hereunder, the Trustee shall not exercise or permit the exercise of such Voting
Rights.
4.2 NUMBER OF VOTES. With respect to all meetings of stockholders of Newco
at which holders of Newco Common Stock are entitled to vote (a "Newco Meeting")
and with respect to all written consents sought from the holders of Newco Common
Stock (a "Newco Consent"), each Holder shall be entitled to instruct the Trustee
to cast and exercise, in the manner instructed, such number of votes comprised
in the Voting Rights as is equal to the Current Newco Common Stock Equivalent on
the record date established by Newco or by applicable law for such Newco Meeting
or Newco Consent, as the case may be, for each Exchangeable Share owned of
record by such Holder on such record date (the "Holder Votes") in respect of
each matter, question or proposition to be voted on at such Newco Meeting or to
be consented to in connection with such Newco Consent.
4.3 MAILINGS TO SHAREHOLDERS. With respect to each Newco Meeting and Newco
Consent, the Trustee shall mail or cause to be mailed (or otherwise communicate
in the same manner as Newco utilizes in communications to holders of Newco
Common Stock), to each of the Holders named in the List, on the same day as the
initial mailing of notice (or other communication) with respect thereto is given
by Newco to its stockholders:
(a) a copy of such notice, together with any proxy or information
statement and related materials to be provided to stockholders of Newco;
(b) a statement that such Holder is entitled to instruct the Trustee as
to the exercise of the Holder Votes with respect to such Newco Meeting or
Newco Consent, as the case may be, or, pursuant to section 4.7 hereof, to
attend such Newco Meeting and to exercise personally the Holder Votes
thereat;
(c) a statement as to the manner in which such instructions may be given
to the Trustee, including an express indication that instructions may be
given to the Trustee to give:
(i) a proxy to such Holder or his designee to exercise personally the
Holder Votes; or
(ii) a proxy to a designated agent or other representative of the
management of Newco to exercise such Holder Votes;
(d) a statement that if no such instructions are received from the
Holder, the Holder Votes to which such Holder is entitled will not be
exercised;
(e) a form of direction whereby the Holder may so direct and instruct
the Trustee as contemplated herein; and
(f) a statement of (i) the time and date by which such instructions must
be received by the Trustee in order to be binding upon it, which in the case
of a Newco Meeting shall not be earlier than the close of business on the
second Business Day prior to such meeting, and (ii) the method for revoking
or amending such instructions.
For the purpose of determining Holder Votes to which a Holder is entitled in
respect of any such Newco Meeting or Newco Consent, the number of Exchangeable
Shares owned of record by the Holder shall be determined at the close of
business on the record date established by Newco or by applicable law for
purposes of determining stockholders entitled to vote at such Newco Meeting or
to give written consent in connection with such Newco Consent. Newco shall
notify the Trustee of any decision of the board of directors of Newco with
respect to the calling of any such Newco Meeting or the seeking by Newco of any
such Newco Consent and shall provide all necessary information and materials to
the Trustee in each case promptly and in any event in sufficient time to enable
the Trustee to perform its obligations contemplated by this section 4.3.
5
<PAGE>
4.4 COPIES OF STOCKHOLDER INFORMATION. Newco shall deliver to the Trustee
copies of all proxy materials (including notices of Newco Meetings but excluding
proxies to vote Newco Common Stock), information statements, reports (including
without limitation all interim and annual financial statements) and other
written communications that are to be distributed by Newco from time to time to
holders of Newco Common Stock in sufficient quantities and in sufficient time so
as to enable the Trustee to send those materials to each Holder at the same time
as such materials are first sent to holders of Newco Common Stock. The Trustee
shall mail or otherwise send to each Holder, at the expense of Newco, copies of
all such materials (and all materials specifically directed to the Holders or to
the Trustee for the benefit of the Holders by Newco) received by the Trustee
from Newco at the same time as such materials are first sent to holders of Newco
Common Stock. The Trustee shall make copies of all such materials available for
inspection by any Holder at the Trustee's principal office.
4.5 OTHER MATERIALS. Immediately after receipt by Newco of any material
sent or given generally to the holders of Newco Common Stock by or on behalf of
a third party, including without limitation dissident proxy and information
circulars (and related information and material) and tender and exchange offer
circulars (and related information and material), Newco shall use all
commercially reasonable efforts to obtain and deliver to the Trustee copies
thereof in sufficient quantities so as to enable the Trustee to forward such
material (unless the same has been provided directly to Holders by such third
party) to each Holder as soon as possible thereafter. As soon as practicable
after receipt thereof, the Trustee shall mail or otherwise send to each Holder
at the expense of Newco, copies of all such materials received by the Trustee
from Newco. The Trustee shall also make copies of all such materials available
for inspection by any Holder at the Trustee's principal office.
4.6 LIST OF PERSONS ENTITLED TO VOTE. The Corporation shall, (a) prior to
each annual, general and special Newco Meeting or the seeking of any Newco
Consent and (b) forthwith upon each request made at any time by the Trustee in
writing, prepare or cause to be prepared a list (a "List") of the names and
addresses of the Holders arranged in alphabetical order and showing the number
of Exchangeable Shares held of record by each such Holder, in each case at the
close of business on the date specified by the Trustee in such request or, in
the case of a List prepared in connection with a Newco Meeting or a Newco
Consent, at the close of business on the record date established by Newco or
pursuant to applicable law for determining the holders of Newco Common Stock
entitled to receive notice of and/or to vote at such Newco Meeting or to give
consent in connection with such Newco Consent. Each such List shall be delivered
to the Trustee promptly after receipt by the Corporation of such request or the
record date for such meeting or seeking of consent, as the case may be, and in
any event within sufficient time as to enable the Trustee to perform its
obligations under this Agreement. Newco agrees to give the Corporation notice
(with a copy to the Trustee) of the calling of any Newco Meeting or the seeking
of any Newco Consent, together with the record dates therefor, sufficiently
prior to the date of the calling of such meeting or seeking of such consent so
as to enable the Corporation to perform its obligations under this section 4.6.
4.7 ENTITLEMENT TO DIRECT VOTES. Any Holder named in a List prepared in
connection with any Newco Meeting or a Newco Consent shall be entitled (a) to
instruct the Trustee in the manner described in section 4.3 hereof with respect
to the exercise of the Holder Votes to which such Holder is entitled or (b) to
attend such meeting and personally to exercise thereat or to exercise (with
respect to any written consent), as the proxy of the Trustee, the Holder Votes
to which such Holder is entitled pursuant to the procedure set forth in section
4.8 hereof.
4.8 VOTING BY TRUSTEE, AND ATTENDANCE OF TRUSTEE REPRESENTATIVE, AT MEETING.
(a) In connection with each Newco Meeting and Newco Consent, the Trustee
shall exercise, either in person or by proxy, in accordance with the
instructions received from a Holder pursuant to section 4.3 hereof, the
Holder Votes as to which such Holder is entitled to direct the vote (or any
lesser number thereof as may be set forth in the instructions); provided,
however, that such written instructions are received by the Trustee from the
Holder prior to the time and date fixed by it for
6
<PAGE>
receipt of such instructions in the notice given by the Trustee to the
Holder pursuant to section 4.3 hereof.
(b) The Trustee shall cause such representatives as are empowered by it
to sign and deliver, on behalf of the Trustee, proxies for Voting Rights to
attend each Newco Meeting. Upon submission by a Holder (or its designee) of
identification satisfactory to the Trustee's representatives, at the
Holder's request, such Trustee representatives shall sign and deliver to
such Holder (or its designee) a proxy to exercise personally the Holder
Votes as to which such Holder is otherwise entitled hereunder to direct the
vote, if such Holder either (i) has not previously given the Trustee
instructions pursuant to section 4.3 hereof in respect of such meeting, or
(ii) submits to the Trustee's representatives written revocation of any such
previous instructions. At such meeting, the Holder exercising such Holder
Votes as provided in the immediately preceding sentence shall have the same
rights as the Trustee to speak at the meeting in respect of any matter,
question or proposition, to vote by way of ballot at the meeting in respect
of any matter, question or proposition and to vote at such meeting by way of
a show of hands in respect of any matter, question or proposition.
4.9 DISTRIBUTION OF WRITTEN MATERIALS. Any written materials to be
distributed by the Trustee to the Holders pursuant to this Agreement shall be
delivered or sent by mail (or otherwise communicated in the same manner as Newco
utilizes in communications to holders of Newco Common Stock) to each Holder at
its address as shown on the books of the Corporation or the transfer agent, as
applicable. The Corporation shall provide or cause to be provided to the Trustee
for this purpose on a timely basis and without charge or other expense:
(a) a List; and
(b) mailing labels to enable the Trustee to carry out its duties under
this Agreement.
4.10 TERMINATION OF VOTING RIGHTS. Except with respect to a Newco Meeting
or Newco Consent for which the record date has occurred, all of the rights of a
Holder with respect to the Holder Votes exercisable in respect of the
Exchangeable Shares held by such Holder, including the right to instruct the
Trustee as to the voting of or to vote personally such Holder Votes, shall be
deemed to be surrendered by the Holder to Newco and such Holder Votes and the
Voting Rights represented thereby shall cease immediately upon the delivery by
such Holder to the Trustee of the certificates representing such exchangeable
Shares in connection with the exercise by the Holder of the Exchange Right or
the occurrence of the automatic exchange pursuant to the Automatic Exchange
Rights (unless in either case Newco shall not have delivered the requisite Newco
Common Stock issuable in exchange therefor to the Trustee for delivery to the
Holders), or upon the redemption of Exchangeable Shares pursuant to Article 4 or
Article 5 of the Exchangeable Share Provisions, or upon the effective date of
the liquidation, dissolution or winding-up of the Corporation pursuant to
Article 6 of the Exchangeable Share Provisions, or upon the purchase of
Exchangeable Shares from the holder thereof by Newco pursuant to the exercise by
Newco of the Retraction Call Right, the Redemption Call Right or the Liquidation
Call Right.
4.11 ISSUE OF ADDITIONAL SHARES. During the term of this Agreement, Newco
will not issue any shares of Newco Special Voting Stock, in addition to the
Voting Share.
ARTICLE V
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
5.1 GRANT AND OWNERSHIP OF THE EXCHANGE RIGHT. In consideration of the
granting and transfer of the Call Rights to Newco by the Holders, Newco hereby
grants to the Trustee as trustee for and on behalf of, and for the use and
benefit of, the Holders (a) the right (the "Exchange Right"), upon the
occurrence and during the continuance of an Insolvency Event or Default Event,
to require Newco to purchase from each Holder all or any part of the
Exchangeable Shares held by such Holder and (b) the Automatic Exchange
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Rights, all in accordance with the provisions of this Agreement. Newco hereby
acknowledges receipt from the Trustee as trustee for and on behalf of the
Holders of good and valuable consideration (and the adequacy thereof) for the
grant of the Exchange Right and the Automatic Exchange Rights by Newco to the
Trustee for the benefit of the Holders. During the term of the Trust and subject
to the terms and conditions of this Agreement, the Trustee shall possess and be
vested with full legal ownership of the Exchange Right and the Automatic
Exchange Rights and shall be entitled to exercise all of the rights and powers
of an owner with respect to the Exchange Right and the Automatic Exchange
Rights, provided that the Trustee shall:
(a) hold the Exchange Right and the Automatic Exchange Rights and the
legal title thereto as trustee solely for the use and benefit of the Holders
in accordance with the provisions of this Agreement; and
(b) except as specifically authorized by this Agreement, have no power
or authority to exercise or otherwise deal in or with the Exchange Right or
the Automatic Exchange Rights, and the Trustee shall not exercise any such
rights for any purpose other than the purposes for which this Trust is
created pursuant to this Agreement.
5.2 LEGENDED SHARE CERTIFICATES. The Corporation shall cause each
certificate for Exchangeable Shares to bear an appropriate legend notifying the
Holders of:
(a) their right to instruct the Trustee with respect to the exercise of
the Exchange Right in respect of the Exchangeable Shares held by a Holder;
and
(b) the Automatic Exchange Rights.
5.3 GENERAL EXERCISE OF EXCHANGE RIGHT. The Exchange Right shall be and
remain vested in and exercisable by the Trustee. Subject to section 6.15 hereof,
the Trustee shall exercise the Exchange Right only on the basis of instructions
received pursuant to this Article 5 from Holders entitled to instruct the
Trustee as to the exercise thereof. To the extent that no instructions are
received from a Holder with respect to the Exchange Right, the Trustee shall not
exercise or permit the exercise of the Exchange Right.
5.4 PURCHASE PRICE. The purchase price payable by Newco for each
Exchangeable Share to be purchased by Newco under the Exchange Right shall be an
amount per share equal to (a) the Current Market Price multiplied by the Current
Newco Common Stock Equivalent, in each case determined on the day of closing of
the purchase and sale of such Exchangeable Share under the Exchange Right, which
shall be satisfied in full in respect of the Exchangeable Shares in regard to
which a Holder has exercised the Exchange Right by Newco delivering or causing
to be delivered to the Trustee, on behalf of such Holder such whole number of
shares of Newco Common Stock as is equal to the product obtained by multiplying
the number of such Exchangeable Shares by the Current Newco Common Stock
Equivalent, rounded down to the nearest whole number, plus (b) the aggregate of
all dividends declared and unpaid on each such Exchangeable Share (provided that
if the record date for any such declared and unpaid dividends occurs on or after
the day of closing of such purchase and sale the purchase price shall not
include such declared and unpaid dividends). In connection with each exercise of
the Exchange Right, Newco shall provide to the Trustee an Officer's Certificate
setting forth the calculation of the purchase price for each Exchangeable Share.
5.5 EXERCISE INSTRUCTIONS. Subject to the terms and conditions herein set
forth, a Holder shall be entitled, upon the occurrence and during the
continuance of an Insolvency Event or a Default Event, to instruct the Trustee
to exercise the Exchange Right with respect to all or any part of the
Exchangeable Shares registered in the name of such Holder on the books of the
Corporation or the transfer agent, as applicable. To cause the exercise of the
Exchange Right by the Trustee, the Holder shall deliver to the Trustee, in
person or by certified or registered mail, at its principal office or at such
other place as the Trustee may from time to time designate by written notice to
the Holders, the certificates representing the
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Exchangeable Shares that such Holder desires Newco to purchase, duly endorsed in
blank, and accompanied by such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under the CBCA and the
by-laws of the Corporation and such additional documents and instruments as the
Trustee may reasonably require together with (a) a duly completed form of notice
of exercise of the Exchange Right, in the form attached hereto as Schedule A, or
attached to the Exchangeable Share certificates, stating (i) that the Holder
thereby instructs the Trustee to exercise the Exchange Right so as to require
Newco to purchase from the Holder the number of Exchangeable Shares specified
therein, (ii) that such Holder has good title to and owns all such Exchangeable
Shares to be acquired by Newco free and clear of all Liens, (iii) the names in
which the certificates representing Newco Common Stock issuable in connection
with the exercise of the Exchange Right are to be issued and (iv) the names and
addresses of the persons to whom such new certificates should be delivered and
(b) payment (or evidence satisfactory to the Trustee, the Corporation and Newco
of payment) of the taxes (if any) payable as contemplated by section 5.8 of this
Agreement. If only a part of the Exchangeable Shares represented by any
certificate or certificates delivered to the Trustee are to be purchased by
Newco under the Exchange Right, a new certificate for the balance of such
Exchangeable Shares shall be issued to the holder at the expense of the
Corporation.
5.6 DELIVERY OF NEWCO COMMON STOCK: EFFECT OF EXERCISE. Promptly after
receipt of the certificates representing the Exchangeable Shares that the Holder
desires Newco to purchase under the Exchange Right (together with such documents
and instruments of transfer and a duly completed form of notice of exercise of
the Exchange Right (and payment of taxes, if any, or evidence thereof in
accordance with section 5.8)), duly endorsed for transfer to Newco, the Trustee
shall notify Newco of its receipt of the same, by notice in the form of Schedule
B hereto, which notice to Newco shall constitute exercise of the Exchange Right
by the Trustee on behalf of the holder of such Exchangeable Shares and Newco
shall immediately thereafter deliver or cause to be delivered to the Trustee,
for delivery to the Holder of such Exchangeable Shares (or to such other
persons, if any, properly designated by such Holder), the certificates for the
number of shares of Newco Common Stock issuable in connection with the exercise
of the Exchange Right, which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any Liens, and cheques for the
balance, if any, of the total purchase price therefor (or, if part of the
purchase price consists of dividends payable in property, such property or
property the same as or economically equivalent to such property). Immediately
upon the giving of notice by the Trustee to Newco of the exercise of the
Exchange Right, as provided in this section 5.6, the closing of the transaction
of purchase and sale contemplated by the Exchange Right shall be deemed to have
occurred, and the Holder of such Exchangeable Shares shall be deemed to have
transferred to Newco all of its right, title and interest in and to such
Exchangeable Shares and in the related interest in the Trust Estate and shall
cease to be a holder of such Exchangeable Shares and shall not be entitled to
exercise any of the rights of a holder in respect thereof, other than the right
to receive the purchase price therefor, unless the requisite number of shares of
Newco Common Stock (together with a cheque for the balance, if any, of the
purchase price therefor or, if part of the purchase price consists of dividends
payable in property, such property or property the same as or economically
equivalent to such property) is not allotted, issued and delivered by Newco to
the Trustee for delivery to such Holder (or to other persons, if any, properly
designated by such Holder) within five Business Days of the date of the giving
of such notice by the Trustee, in which case the rights of the Holder shall
remain unaffected until such shares of Newco Common Stock are so allotted,
issued and delivered by Newco and any such cheque or property is so delivered
and paid. Concurrently with such Holder ceasing to be a holder of Exchangeable
Shares, the Holder shall be considered and deemed for all purposes to be the
holder of the shares of Newco Common Stock delivered to it pursuant to the
Exchange Right. Newco shall cause the certificates for the Exchangeable Shares
so transferred to be cancelled and new certificates in the name of Newco issued
in respect thereof.
5.7 EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION. In the event that
a Holder has exercised its right under Article 5 of the Exchangeable Share
Provisions to require the Corporation to redeem any or all
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of the Exchangeable Shares held by the Holder (the "Retracted Shares") and is
notified by the Corporation pursuant to section 5.6 of the Exchangeable Share
Provisions that the Corporation is not permitted as a result of solvency
requirements of applicable law to redeem all of such Retracted Shares, and
provided that Newco shall not have exercised the Retraction Call Right with
respect to the Retracted Shares, the retraction request shall constitute and
shall be deemed to constitute notice from the Holder to the Trustee instructing
the Trustee to exercise the Exchange Right with respect to those Retracted
Shares that the Corporation is unable to redeem. In any such event, the
Corporation hereby agrees with the Trustee and in favour of the Holder
immediately to notify the Trustee of such prohibition against the Corporation
redeeming all of the Retracted Shares and immediately to forward or cause to be
forwarded to the Trustee all relevant materials delivered by the Holder to the
Corporation or to the transfer agent of the Exchangeable Shares (including
without limitation a copy of the retraction request delivered pursuant to
section 5.1 of the Exchangeable Share Provisions) in connection with such
proposed redemption of the Retracted Shares and the Trustee shall thereupon
exercise the Exchange Right with respect to the Retracted Shares that the
Corporation is not permitted to redeem and will require Newco to purchase such
shares in accordance with the provisions of this Article. Newco shall cause the
certificates for the Exchangeable Shares so transferred to be cancelled and new
certificates in the name of Newco issued in respect thereof.
5.8 STAMP OR OTHER TRANSFER TAXES. Upon any sale of Exchangeable Shares to
Newco pursuant to the Exchange Right or the Automatic Exchange Rights, the share
certificate or certificates representing Newco Common Stock to be delivered in
connection with the payment of the purchase price therefor shall be issued in
the name of the Holder of the Exchangeable Shares so sold or in such names as
such Holder may otherwise direct in writing without charge to the holder of the
Exchangeable Shares so sold, provided, however, that such Holder (a) shall pay
(and neither Newco, the Corporation nor the Trustee shall be required to pay)
any documentary, stamp, transfer or other similar taxes that may be payable in
respect of any transfer involved in the issuance or delivery of such shares to a
person other than such Holder and (b) shall establish to the satisfaction of the
Trustee, Newco and the Corporation that such taxes, if any, have been paid.
5.9 NOTICE OF INSOLVENCY EVENT OR DEFAULT EVENT. Immediately upon the
occurrence of an Insolvency Event or Default Event or any event that with the
giving of notice or the passage of time or both would be an Insolvency Event or
Default Event, the Corporation and/or Newco shall give written notice thereof to
the Trustee. As soon as practicable after receiving notice from the Corporation
and/or Newco or from any other person of the occurrence of an Insolvency Event
or Default Event, the Trustee shall mail to each Holder, at the expense of
Newco, a notice of such Insolvency Event or Default Event, which notice shall
contain a brief statement of the right of the Holders with respect to the
Exchange Right provided for in subsection 5.5.
5.10 QUALIFICATION OF NEWCO COMMON STOCK. Newco shall use all reasonable
efforts to obtain all orders required from the applicable Canadian securities
authorities to permit the issuance of the shares of Newco Common Stock upon any
such exchange of the Exchangeable Shares without registration or qualification
with or approval of or the filing of any document including any prospectus or
similar document or the taking of any proceeding with or the obtaining of any
order, ruling or consent from any governmental or regulatory authority under any
Canadian federal or provincial law or regulation or pursuant to the rules and
regulations of any regulatory authority or the fulfillment of any other legal
requirement before such shares of Newco Common Stock may be issued by Newco and
delivered by the Corporation or Newco to the holder thereof or in order that
such Newco Common Stock may be freely traded under the laws of Canada and the
United States thereafter (other than any restrictions on transfer by reason of a
holder being a "control person" of the Corporation or Newco for purposes of
Canadian federal or provincial securities law or an "affiliate" for purposes of
the United States Federal or state securities law).
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5.11 RESERVATION OF NEWCO COMMON STOCK. Newco hereby represents and
warrants that it has irrevocably reserved for issuance out of its authorized and
unissued capital stock such number of shares of Newco Common Stock as is equal
to the number of Exchangeable Shares outstanding at the date hereof and
covenants that it will at all times keep available, free from pre-emptive and
other rights, out of its authorized and unissued capital stock such number of
shares of Newco Common Stock (or other shares or securities into which Newco
Common Stock may be reclassified or changed) as is necessary to enable Newco and
the Corporation to perform their respective obligations pursuant to this
Agreement, the Exchangeable Share Provisions and the Support Agreement.
5.12 AUTOMATIC EXCHANGE ON LIQUIDATION OF NEWCO.
(a) Newco shall give the Trustee notice of each of the following events
(a "Liquidation Event") at the time set forth below:
(i) in the event of any determination by the Board of Directors of
Newco to institute voluntary liquidation, dissolution or winding-up
proceedings with respect to Newco or to effect any other distribution of
assets of Newco among its stockholders for the purpose of winding up its
affairs, at least 60 days prior to the proposed effective date of such
liquidation, dissolution, winding-up or other distribution; and
(ii) immediately, upon the earlier of (A) receipt by Newco of notice
of and (B) Newco otherwise becoming aware of, any threatened or
instituted claim, suit, petition or other proceedings with respect to the
involuntary liquidation, dissolution or winding up of Newco or to effect
any other distribution of assets of Newco among its stockholders for the
purpose of winding up its affairs, provided, however, that if, in the
reasonable determination of the Board of Directors of Newco there is no
valid basis for such proceedings, Newco need not provide such notice if
the proceedings are dismissed, withdrawn or otherwise terminated within
30 days of Newco becoming aware thereof.
(b) Immediately following receipt by the Trustee from Newco of notice of
any Liquidation Event, the Trustee, at the expense of Newco, shall give
notice thereof to the Holders. Such notice shall include a brief description
of the automatic exchange of Exchangeable Shares for Newco Common Stock
provided for in subsection 5.12(c) below.
(c) In order that the Holders will be able to participate on a PRO RATA
basis with the holders of Newco Common Stock in the distribution of assets
of Newco in connection with a Liquidation Event, on the fifth Business Day
prior to the effective date of any liquidation, winding up or dissolution
giving rise to a Liquidation Event (the "Liquidation Event Effective Date")
all of the then outstanding Exchangeable Shares shall be automatically
exchanged by the Holders directly with Newco for Newco Common Stock. To
effect such automatic exchange, Newco shall purchase each Exchangeable Share
outstanding on the fifth Business Day prior to the Liquidation Event
Effective Date and held by Holders, and each Holder shall sell to Newco the
Exchangeable Shares held by it at such time, for a purchase price per share
equal to (a) the Current Market Price multiplied by the Current Newco Common
Share Equivalent on such fifth Business Day prior to the Liquidation Event
Effective Date, which shall be satisfied in full in respect of the
Exchangeable Shares held by each Holder by Newco issuing to such Holder such
whole number of shares of Newco Common Stock as is equal to the product
obtained by multiplying the number of such Exchangeable Shares by the
Current Newco Common Share Equivalent, plus (b) an additional amount equal
to the aggregate of all dividends declared and unpaid on each such
Exchangeable Share (provided that if the record date for any such declared
and unpaid dividends occurs on or after the day of closing of such purchase
and sale, the purchase price shall not include such additional amount equal
to such declared and unpaid dividends). No certificates or scrip
representing fractional Newco Common Stock shall be delivered to holders of
Exchangeable Shares pursuant to the provisions hereof. In connection with
such automatic exchange,
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Newco shall provide to the Trustee an Officer's Certificate setting forth
the calculation of the purchase price for each Exchangeable Share.
(d) On the fifth Business Day prior to the Liquidation Event Effective
Date, the closing of the transaction of purchase and sale contemplated by
the automatic exchange of Exchangeable Shares for shares of Newco Common
Stock shall be deemed to have occurred, and each Holder of Exchangeable
Shares shall be deemed to have transferred to Newco all of the Holder's
right, title and interest in and to such Exchangeable Shares and the related
interest in the Trust Estate and shall cease to be a Holder of such
Exchangeable Shares and Newco shall issue to the Holder the Newco Common
Stock issuable upon the automatic exchange of Exchangeable Shares for Newco
Common Stock and shall deliver to the Trustee for delivery to the Holder a
cheque for the balance, if any, of the purchase price for such Exchangeable
Shares (or, if any part of the purchase price consists of dividends payable
in property, such property or property that is the same as or economically
equivalent to such property). Concurrently with such Holder ceasing to be a
holder of Exchangeable Shares, the Holder shall be considered and deemed for
all purposes to be the holder of the Newco Common Stock issued to it
pursuant to the automatic exchange of Exchangeable Shares for Newco Common
Stock and the certificates held by the Holder previously representing the
Exchangeable Shares exchanged by the Holder with Newco pursuant to such
automatic exchange shall thereafter be deemed to represent the Newco Common
Stock issued to the Holder by Newco pursuant to such automatic exchange.
Upon the request of a Holder and the surrender by the Holder of Exchangeable
Share certificates deemed to represent Newco Common Stock, duly endorsed in
blank and accompanied by such instruments of transfer as Newco may
reasonably require, Newco shall deliver or cause to be delivered to the
Holder certificates representing the Newco Common Stock of which the Holder
is the holder. Newco shall cause the certificates for the Exchangeable
Shares so transferred to be cancelled and new certificates in the name of
Newco issued in respect thereof.
5.13 WITHHOLDING RIGHTS. Newco and the Trustee shall be entitled to deduct
and withhold from the consideration otherwise payable pursuant to this Agreement
to any holder of Exchangeable Shares such amounts as Newco or the Trustee is
required or permitted to deduct and withhold with respect to the making of such
payment under the United States Internal Revenue Code of 1986, as amended, THE
INCOME TAX ACT (Canada) or any provision of state, local or provincial tax law.
To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the Exchangeable Shares in respect of which such deduction and withholding was
made, provided that such withheld amounts are actually remitted to the
appropriate taxing authority. To the extent that the amount so required or
permitted to be deducted or withheld from any payment to a holder exceeds the
cash portion of the consideration otherwise payable to the holder, Newco or the
Trustee is hereby authorized to sell or otherwise dispose of at fair market
value such portion of the consideration as is necessary to provide sufficient
funds to Newco or the Trustee, as the case may be, in order to enable it to
comply with such deduction or withholding requirement and shall account to the
relevant Holder for any balance of any such sale proceeds.
If upon the occurrence of an Insolvency Event, a non-Canadian resident
Holder instructs the Trustee to exercise the Exchange Right, Newco shall provide
the Trustee, in cash, with sufficient funds to satisfy any withholding taxes
applicable in connection with the sale of such Holder's Exchangeable Shares to
Newco, otherwise such exchange shall not have occurred or be deemed to have
occurred. The "fair market value" of a share of Newco Common Stock at a
particular date shall, for the purposes of calculating any applicable
withholding taxes, be the Current Market Price or shall be determined by such
other method of valuation which has been recommended or suggested by Revenue
Canada as providing a satisfactory assessment of such fair market value. Prior
to making any distribution to Holders of Exchangeable Shares, Newco or the
Corporation, as the case may be, shall ensure that the Trustee has access to
sufficient funds (by directly providing, if necessary, such funds to the
Trustee) to enable the Trustee to comply with any applicable withholding taxes
in connection with such distribution.
ARTICLE VI
CONCERNING THE TRUSTEE
6.1 POWERS AND DUTIES OF THE TRUSTEE. The rights, powers and authorities of
the Trustee under this Agreement, in its capacity as trustee of the Trust, shall
include:
(a) purchasing the Voting Share from Newco as trustee for and on behalf
of the Holders in accordance with the provisions of this Agreement;
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(b) granting proxies and distributing materials to Holders as provided
in this Agreement;
(c) voting the Holder Votes in accordance with the provisions of this
Agreement;
(d) receiving the grant of the Exchange Right and the Automatic Exchange
Rights from Newco as trustee for and on behalf of the Holders in accordance
with the provisions of this Agreement;
(e) exercising the Exchange Right and enforcing the benefit of the
Automatic Exchange Rights, in each case in accordance with the provisions of
this Agreement and in connection therewith receiving from Holders
Exchangeable Shares and other requisite documents and distributing to such
Holders the Newco Common Stock and cheques, if any, to which such Holders
are entitled upon the exercise of the Exchange Right or pursuant to the
Automatic Exchange Rights, as the case may be;
(f) holding title to the Trust Estate;
(g) investing any moneys forming, from time to time, a part of the Trust
Estate as provided in this Agreement;
(h) taking action on its own initiative or at the direction of a Holder
or Holders to enforce the obligations of Newco and the Corporation under
this Agreement; and
(i) taking such other actions and doing such other things as are
specifically provided in this Agreement.
In the exercise of such rights, powers and authorities the Trustee shall
have (and is granted) such incidental and additional rights, powers and
authority not in conflict with any of the provisions of this Agreement as the
Trustee, acting in good faith and in the reasonable exercise of its discretion,
may deem necessary, appropriate or desirable to effect the purpose of the Trust.
Any exercise of such discretionary rights, powers and authorities by the Trustee
shall be final, conclusive and binding upon all persons. For greater certainty,
the Trustee shall have only those duties as are set out specifically in this
Agreement.
The Trustee in exercising its rights, powers, duties and authorities
hereunder shall act honestly and in good faith with a view to the best interests
of the Holders and shall exercise the care, diligence and skill that a
reasonably prudent trustee would exercise in comparable circumstances.
6.2 NO CONFLICT OF INTEREST. The Trustee represents to the Corporation and
Newco that at the date of execution and delivery of this Agreement there exists
no material conflict of interest in the role of the Trustee as a fiduciary
hereunder and the role of the Trustee in any other capacity. The Trustee shall,
within 30 days after it becomes aware that such a material conflict of interest
exists, either eliminate such material conflict of interest or resign in the
manner and with the effect specified in Article 9 hereof. If, notwithstanding
the foregoing provisions of this section 6.2, the Trustee has such a material
conflict of interest, the validity and enforceability of this Agreement shall
not be affected in any manner whatsoever by reason only of the existence of such
material conflict of interest. If the Trustee contravenes the foregoing
provisions of this section 6.2, any interested party may apply to the Ontario
Court (General Division) for an order that the Trustee be replaced as trustee
hereunder.
6.3 DEALINGS WITH TRANSFER AGENTS, REGISTRARS, ETC. The Corporation and
Newco irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the respective
registrars and transfer agents, and with any such subsequent registrar or
transfer agent, of the Exchangeable Shares and Newco Common Stock; and
(b) requisition, from time to time, (i) from any such registrar or
transfer agent any information readily available from the records maintained
by it which the Trustee may reasonably require for the discharge of its
duties and responsibilities under this Agreement and (ii) from the transfer
agent of Newco Common Stock, and any subsequent transfer agent of such
shares, the share certificates
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issuable upon the exercise from time to time of the Exchange Right and
pursuant to the Automatic Exchange Rights in the manner specified in Article
5 hereof.
The Corporation and Newco irrevocably authorize their respective registrars
and transfer agents to comply with all such requests. Newco covenants that it
will supply its transfer agent with duly executed share certificates for the
purpose of completing the exercise from time to time of the Exchange Right and
the Automatic Exchange Rights, in each case pursuant to Article 5 hereof.
6.4 BOOKS AND RECORDS. The Trustee shall keep available for inspection by
Newco and the Corporation, at the Trustee's principal office, correct and
complete books and records of account relating to the Trustee's actions under
this Agreement, including without limitation all information relating to
mailings and instructions to and from Holders and all transactions pursuant to
the Voting Rights, the Exchange Right and the Automatic Exchange Rights for the
term of this Agreement. On or before March 31, 1999, and on or before March 31
in every year thereafter, so long as the Voting Share is on deposit with the
Trustee, the Trustee shall transmit to Newco and the Corporation a brief report,
dated as of the preceding December 31, with respect to:
(a) the property and funds comprising the Trust Estate as of that date;
(b) the number of exercises of the Exchange Right, if any, and the
aggregate number of Exchangeable Shares received by the Trustee on behalf of
Holders in consideration of the issue and delivery by Newco of Newco Common
Stock in connection with the Exchange Right, during the calendar year ended
on such date; and
(c) all other actions taken by the Trustee in the performance of its
duties under this Agreement that it had not previously reported.
6.5 INCOME TAX RETURNS AND REPORTS. The Trustee shall, to the extent
necessary, prepare and file on behalf of the Trust applicable United States and
Canadian income tax returns, if any, and any other returns or reports as may be
required by applicable law or pursuant to the rules and regulations of any
securities exchange or other trading system through which the Exchangeable
Shares are traded and, in connection therewith, may obtain the advice and
assistance of such experts as the Trustee may consider necessary or desirable.
If requested by the Trustee, Newco shall retain such experts for purposes of
providing such advice and assistance.
6.6 INDEMNIFICATION PRIOR TO CERTAIN ACTIONS BY TRUSTEE. The Trustee shall
exercise any or all of the rights, duties, powers or authorities vested in it by
this Agreement at the request, order or direction of any Holder upon such Holder
furnishing to the Trustee reasonable funding, security and indemnity against the
costs, expenses and liabilities that may be incurred by the Trustee therein or
thereby, provided that no Holder shall be obligated to furnish to the Trustee
any such funding, security or indemnity in connection with the exercise by the
Trustee of any of its rights, duties, powers and authorities with respect to (i)
the Voting Share pursuant to Article 4 hereof, subject to section 6.15 hereof,
(ii) the Exchange Right pursuant to Article 5 hereof, subject to section 6.15
hereof, and (iii) the Automatic Exchange Rights pursuant to Article 5 hereof
None of the provisions contained in this Agreement shall require the Trustee
to expend or risk its own funds or otherwise incur financial liability in the
exercise of any of its rights, powers, duties or authorities unless funded and
given security and indemnity as aforesaid.
6.7 ACTIONS BY HOLDERS. No Holder shall have the right to institute any
action, suit or proceeding or to exercise any other remedy authorized by this
Agreement for the purpose of enforcing any of its rights or for the execution of
any trust or power hereunder unless the Holder has requested the Trustee to take
or institute such action, suit or proceeding and furnished the Trustee with the
funding, security and indemnity referred to in section 6.6 hereof and the
Trustee shall have failed to act within a reasonable time thereafter. In such
case, but not otherwise, the Holder shall be entitled to take proceedings in any
court of competent
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jurisdiction such as the Trustee might have taken, it being understood and
intended that no one or more Holders shall have any right in any manner
whatsoever to affect, disturb or prejudice the rights hereby created by any such
action, or to enforce any right hereunder or under the Voting Rights, the
Exchange Right or the Automatic Exchange Rights except subject to the conditions
and in the manner herein provided, and that all powers and trusts hereunder
shall be exercised and all proceedings at law shall be instituted, had and
maintained by the Trustee, except only as herein provided, and in any event for
the benefit of all Holders.
6.8 RELIANCE UPON DECLARATIONS. The Trustee shall not be considered to be
in contravention of any of its rights, powers, duties and authorities hereunder
if, when required, it acts and relies in good faith upon lists, mailing labels,
notices, statutory declarations, certificates, opinions, reports or other papers
or documents furnished pursuant to the provisions hereof or required by the
Trustee to be furnished to it in the exercise of its rights, powers, duties and
authorities hereunder and such lists, mailing labels, notices, statutory
declarations, certificates, opinions, reports or other papers or documents
comply with the provisions of section 6.8 hereof, if applicable, and with any
other applicable provisions of this Agreement.
6.9 EVIDENCE AND AUTHORITY TO TRUSTEE. The Corporation and/or Newco shall
furnished to the Trustee evidence of compliance with the conditions provided for
in this Agreement relating to any action or step required or permitted to be
taken by the Corporation and/or Newco or the Trustee under this Agreement or as
a result of any obligation imposed under this Agreement, including, without
limitation, in respect of the Voting Rights, the Exchange Right or the Automatic
Exchange Rights and the taking of any other action to be taken by the Trustee at
the request of or on the application of the Corporation and/or Newco forthwith
if and when:
(a) such evidence is required by any other section of this Agreement to
be furnished to the Trustee in accordance with the terms of this section
6.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this Agreement, gives the Corporation and/or Newco written
notice requiring it to furnished such evidence in relation to any particular
action or obligation specified in such notice.
Such evidence shall consist of an Officer's Certificate of the Corporation
and/or Newco or a statutory declaration or a certificate made by persons
entitled to sign an Officer's Certificate stating that any such condition has
been complied with in accordance with the terms of this Agreement.
Whenever such evidence relates to a matter other than the Voting Rights, the
Exchange Right or the Automatic Exchange Rights, and except as otherwise
specifically provided herein, such evidence may consist of a report or opinion
of any solicitor, auditor, accountant, appraiser, valuer, engineer or other
expert or any other person whose qualifications give authority to a statement
made by him, provided that if such report or opinion is furnished by a director,
officer or employee of the Corporation and/or Newco it shall be in the form of
an Officer's Certificate or a statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to the
Trustee as evidence of compliance with a condition provided for in this
Agreement shall include a statement by the person giving the evidence:
(a) declaring that he has read and understands the provisions of this
Agreement relating to the condition in question;
(b) describing the nature and scope of the examination or investigation
upon which he based the statutory declaration, certificate, statement or
opinion; and
(c) declaring that he has made such examination or investigation as he
believes is necessary to enable him to make the statements or give the
opinions contained or expressed therein.
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6.10 EXPERTS, ADVISERS AND AGENTS. The Trustee may:
(a) in relation to this Agreement act and rely on the opinion or advice
of or information obtained from any solicitor, auditor, accountant,
appraiser, valuer, engineer or other expert, whether retained by the Trustee
or by the Corporation and/or Newco or otherwise, and may employ such
assistants as may be necessary to the proper discharge of its powers and
duties and determination of its rights hereunder and may pay proper and
reasonable compensation for all such legal and other advice or assistance as
aforesaid; and
(b) employ such agents and other assistants as it may reasonably require
for the proper discharge of its powers and duties hereunder, and may pay
reasonable remuneration for all services performed for it in the discharge
of the trusts hereof and compensation for all disbursements, costs and
expenses made or incurred by it in the discharge of its duties hereunder and
in the management of the Trust.
6.11 INVESTMENT OF MONEYS HELD BY TRUSTEE. Unless otherwise provided in
this Agreement, any moneys held by or on behalf of the Trustee that under the
terms of this Agreement may or ought to be invested or which may be on deposit
with the Trustee or that may be in the hands of the Trustee may be invested and
reinvested in the name or under the control of the Trustee in securities in
which, under the laws of Canada, trustees are authorized to invest trust moneys,
provided that such securities are stated to mature within two years after their
purchase by the Trustee, and are invested in such specific securities as
directed in writing by the Corporation and Newco. Pending the receipt of any
direction and investment of any moneys as hereinbefore provided, such moneys may
be deposited in the name of the Trustee in an interest-bearing account at
or, with the consent of the Corporation, in the deposit department of the
Trustee at the rate of interest then current on similar deposits.
6.12 TRUSTEE NOT REQUIRED TO GIVE SECURITY. The Trustee shall not be
required to give any bond or security in respect of the execution of the trusts,
rights, duties, powers and authorities of this Agreement.
6.13 TRUSTEE NOT BOUND TO ACT ON CORPORATION'S OR NEWCO'S REQUEST. Except
as in this Agreement otherwise specifically provided, the Trustee shall not be
bound to act in accordance with any direction or request of the Corporation
and/or Newco or of the directors thereof until a duly authenticated copy of the
instrument or resolution containing such direction or request shall have been
delivered to the Trustee, and the Trustee shall be empowered to act and rely
upon any such copy purporting to be authenticated and believed by the Trustee in
good faith to be genuine.
6.14 AUTHORITY TO CARRY ON BUSINESS. The Trustee represents to the
Corporation and Newco that at the date of execution and delivery by it of this
Agreement it is authorized to perform its obligations pursuant to this Agreement
under all applicable laws but if, notwithstanding the provisions of this section
6.14, it ceases to be so authorized, the validity and enforceability of this
Agreement and the Voting Rights, the Exchange Right and the Automatic Exchange
Rights shall not be affected in any manner whatsoever by reason only of such
event but the Trustee shall, within 30 days after ceasing to be so authorized,
either become so authorized or resign in the manner and with the effect
specified in Article 9 hereof.
6.15 CONFLICTING CLAIMS. If conflicting claims or demands are made or
asserted with respect to any interest of any Holder in any Exchangeable Shares,
including any disagreement between the heirs, representatives, successors or
assigns succeeding to all or any part of the interest of any Holder in any
Exchangeable Shares resulting in conflicting claims or demands being made in
connection with such interest, then the Trustee shall be entitled, at its sole
discretion, to refuse to recognize or to comply with any such claim or demand.
In so refusing, the Trustee may elect not to exercise any Voting Rights,
Exchange Rights or Automatic Exchange Rights subject to such conflicting claims
or demands and, in so doing, the Trustee shall not be or become liable to any
person on account of such election or its failure or refusal to comply with any
such conflicting claims or demands. The Trustee shall be entitled to continue to
refrain from acting and to refuse to act until:
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(a) the rights of all adverse claimants with respect to the Voting
Rights, Exchange Rights or Automatic Exchange Rights subject to such
conflicting claims or demands have been adjudicated by a final judgment of a
court of competent jurisdiction; or
(b) all differences with respect to the Voting Rights, Exchange Right or
Automatic Exchange Rights subject to such conflicting claims or demands have
been conclusively settled by a valid written agreement binding on all such
adverse claimants, and the Trustee shall have been furnished with an
executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand made
by any such adverse claimant, it may in its discretion require such claimant to
furnish such surety bond or other security satisfactory to the Trustee as it
shall deem appropriate fully to indemnify it as between all conflicting claims
or demands.
6.16 ACCEPTANCE OF TRUST. The Trustee hereby accepts the Trust created and
provided for by and in this Agreement and agrees to perform the same upon the
terms and conditions herein set forth and to hold all rights, privileges and
benefits conferred hereby and by law in trust for the various persons who shall
from time to time be Holders, subject to all the terms and conditions herein set
forth.
6.17 NOTICE TO TRUSTEE. The Trustee shall not be bound to give any notice
or do or take any act, action or proceeding by virtue of the powers conferred on
it hereby unless and until it shall have been required to do so under the terms
of this Agreement; nor shall the Trustee be required to take notice of, be
deemed to have actual or constructive notice or knowledge of any matter under
this Agreement, or take any action in connection with any notice of any Newco
Meeting or the seeking of any Newco Consent or any prohibition of the
Corporation against redeeming any Retracted Shares as set out in section 5.6 of
the Exchangeable Share Provisions or of any Insolvency Event, Default Event or
Liquidation Event as set out in Article 5 of this Agreement, respectively
(collectively, a "Notice Event"), unless and until notified in writing of such
Notice Event in accordance with this Agreement, which notice shall distinctly
specify the Notice Event desired to be brought to the attention of the Trustee
and in the absence of any such notice the Trustee may for all purposes of this
Agreement conclusively assume that no such Notice Event has occurred.
6.18 MERGER OR CONSOLIDATION OF TRUSTEE. Any corporation into or which the
Trustee may be merged or consolidated or amalgamated, or any corporation
resulting therefrom to which the Trustee may be a party, or any corporation
succeeding to the trust business of the Trustee shall be the successor to the
Trustee under this Agreement without any further act on its part or any of the
parties hereto, provided that such corporation would be eligible for appointment
as a successor trustee under the provisions of this Agreement.
6.19 NO PERSONAL LIABILITY. In the exercise of the powers, authorities or
discretion conferred upon the Trustee under this Agreement, the Trustee is and
shall be conclusively deemed to be acting as trustee of the Trust and shall not
be subject to any personal liability for any of the liabilities, obligations,
claims, demands, judgments, costs or expenses against or with respect to the
Trust.
6.20 INCUMBENCY CERTIFICATE. Each of the Corporation and Newco shall file
with the Trustee a certificate of incumbency setting forth the names of the
individuals authorized to give instructions, directions or other instruments to
the Trustee ("Authorized Persons"), together with specimen signatures of such
persons, and the Trustee shall be entitled to rely on the latest certificate of
incumbency filed with it unless it receives notice, in accordance with Section
13.3, of a change in Authorized Persons with updated specimen signatures.
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ARTICLE VII
COMPENSATION
7.1 FEES AND EXPENSES OF THE TRUSTEE. Newco and the Corporation jointly and
severally agree to pay to the Trustee reasonable compensation for all of the
services rendered by it under this Agreement and will reimburse the Trustee for
all reasonable expenses and disbursements, including the cost and expense of any
suit or litigation of any character and any proceedings before any governmental
agency reasonably incurred by the Trustee in connection with its rights and
duties under this Agreement; provided that Newco and the Corporation shall have
no obligation to reimburse the Trustee for any expenses or disbursements paid,
incurred or suffered by the Trustee in any suit or litigation in which the
Trustee is determined to have acted fraudulently, in bad faith or with gross
negligence or wilful misconduct. Any amount owing under this Section and unpaid
30 days after request for such payment, will bear interest from the expiration
of such 30 days at a rate per annum equal to the then current rate charged by
the Trustee, payable on demand. The obligation in this Section 7.1 shall survive
the resignation or removal of the Trustee.
ARTICLE VIII
INDEMNIFICATION AND LIMITATION OF LIABILITY
8.1 INDEMNIFICATION OF THE TRUSTEE. Newco and the Corporation jointly and
severally agree to indemnify and hold harmless the Trustee and each of its
directors, officers, employees and agents appointed and acting in accordance
with this Agreement (collectively the "Indemnified Parties") against all claims,
losses, damages, costs, penalties, fines and reasonable expenses (including
reasonable expenses of the Trustee's legal counsel) which, without fraud,
negligence, willful misconduct or bad faith on the part of such Indemnified
Party, may be paid, incurred or suffered by the Indemnified Party by reason of
or as a result of the Trustee's acceptance or administration of the Trust, its
compliance with its duties set forth in this Agreement, or any written or oral
instructions delivered to the Trustee by Newco or the Corporation pursuant
hereto. In no case shall Newco or the Corporation be liable under this indemnity
for any claim against any of the Indemnified Parties unless Newco and the
Corporation shall be notified by the Trustee of the written assertion of a claim
or of any action commenced against the Indemnified Parties, promptly after any
of the Indemnified Parties shall have received any such written assertion of a
claim or shall have been served with a summons or other first legal process
giving information as to the nature and basis of the claim. Subject to (ii),
below, Newco and the Corporation shall be entitled to participate at their own
expense in the defense and, if Newco or the Corporation so elect at any time
after receipt of such notice, either of them may assume the defense of any suit
brought to enforce any such claim. The Trustee shall have the right to employ
separate counsel in any such suit and participate in the defense thereof but the
fees and expenses of such counsel shall be at the expense of the Trustee unless:
(i) the employment of such counsel has been authorized by Newco or the
Corporation or (ii) the named parties to any such suit include both the Trustee
and Newco or the Corporation and the Trustee shall have been advised by counsel
acceptable to Newco or the Corporation that there may be one or more legal
defenses available to the Trustee that are different from or in addition to
those available to Newco or the Corporation and that an actual or potential
conflict of interest exists (in which case Newco and the Corporation shall not
have the right to assume the defense of such suit on behalf of the Trustee but
shall be liable to pay the reasonable fees and expenses of counsel for the
Trustee). The obligation of this Section 8.1 shall survive the resignation or
removal of the Trustee.
8.2 LIMITATION OF LIABILITY. The Trustee shall not be held liable for any
loss that may occur by reason of depreciation of the value of any part of the
Trust Estate or any loss incurred on any investment of funds pursuant to this
Agreement, except to the extent that such loss is attributable to fraud,
negligence, willful misconduct or bad faith on the part of the Trustee.
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ARTICLE IX
CHANGE OF TRUSTEE
9.1 RESIGNATION. The Trustee, or any trustee hereafter appointed, may at
any time resign by giving written notice of such resignation to Newco and the
Corporation specifying the date on which it desires to resign, provided that
such notice shall never be given less than 60 days before such desired
resignation date unless Newco and the Corporation otherwise agree and provided
further that such resignation shall not take effect until the date of the
appointment of a successor trustee and the acceptance of such appointment by the
successor trustee. Upon receiving such notice of resignation, Newco and the
Corporation shall promptly appoint a successor trustee by written instrument in
duplicate, one copy of which shall be delivered to the resigning trustee and one
copy to the successor trustee. Failing acceptance by a successor trustee, a
successor trustee may be appointed by an order of the Ontario Court (General
Division) upon application of one or more of the parties hereto at Newco and the
Corporation's expense.
9.2 REMOVAL. The Trustee, or any trustee hereafter appointed, may be
removed with or without cause, at any time on 60 days' prior notice by written
instrument executed by Newco and the Corporation, in duplicate, one copy of
which shall be delivered to the trustee so removed and one copy to the successor
trustee.
9.3 SUCCESSOR TRUSTEE. Any successor trustee appointed as provided under
this Agreement shall execute, acknowledge and deliver to Newco and the
Corporation and to its predecessor trustee an instrument accepting such
appointment. Thereupon the resignation or removal of the predecessor trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, duties and
obligations of its predecessor under this Agreement, with like effect as if
originally named as trustee in this Agreement. However, on the written request
of Newco and the Corporation or of the successor trustee, the trustee ceasing to
act shall, upon payment of any amounts then due it pursuant to the provisions of
this Agreement, execute and deliver an instrument transferring to such successor
trustee all the rights and powers of the trustee so ceasing to act. Upon the
request of any such successor trustee, Newco, the Corporation and such
predecessor trustee shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor trustee all such
rights and powers.
9.4 NOTICE OF SUCCESSOR TRUSTEE. Upon acceptance of appointment by a
successor trustee as provided herein, Newco and the Corporation shall cause to
be mailed notice of the succession of such trustee hereunder to each Holder
specified in a List. If Newco or the Corporation shall fail to cause such notice
to be mailed within 10 days after acceptance of appointment by the successor
trustee, the successor trustee shall cause such notice to be mailed at the
expense of Newco and the Corporation.
ARTICLE X
NEWCO SUCCESSORS
10.1 CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC. Newco shall not
enter into any transaction (whether by way of reconstruction, reorganization,
consolidation, merger, transfer, sale, lease or otherwise) whereby all or
substantially all of its undertaking, property and assets would become the
property of any other person or, in the case of a merger, of the continuing
corporation resulting therefrom, unless:
(a) such other person or continuing corporation is a corporation (herein
called the "Newco Successor") incorporated under the laws of any state of
the United States or the laws of Canada or any province thereof; and
(b) Newco Successor, by operation of law, becomes, without more, bound
by the terms and provisions of this Agreement or, if not so bound, executes,
prior to or contemporaneously with the
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consummation of such transaction an agreement supplemental hereto and such
other instruments (if any) as are satisfactory to the Trustee acting
reasonably to evidence the assumption by Newco Successor of liability for
all moneys payable and property deliverable hereunder and the covenant of
such Newco Successor to pay and deliver or cause to be delivered the same
and its agreement to observe and perform all the covenants and obligations
of Newco under this Agreement.
10.2 VESTING OF POWERS IN SUCCESSOR. Whenever the conditions of section
10.1 hereof have been duly observed and performed, the Trustee, if required, by
section 10.1 hereof, Newco Successor and the Corporation shall execute and
deliver the supplemental agreement provided for in Article 11 hereof and
thereupon Newco Successor shall possess and from time to time may exercise each
and every right and power of Newco under this Agreement in the name of Newco or
otherwise and any act or proceeding by any provision of this Agreement required
to be done or performed by the board of directors of Newco or any officers of
Newco may be done and performed with like force and effect by the directors or
officers of such Newco Successor.
10.3 WHOLLY-OWNED SUBSIDIARIES. Nothing herein shall be construed as
preventing the amalgamation or merger of any wholly-owned subsidiary of Newco
with or into Newco.
ARTICLE XI
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
11.1 AMENDMENTS, MODIFICATIONS, ETC. This Agreement may not be amended or
modified except by an agreement in writing executed by the Corporation, Newco
and the Trustee and approved by the Holders in accordance with section 10.2 of
the Exchangeable Share Provisions.
11.2 MINISTERIAL AMENDMENTS. Notwithstanding the provisions of section 11.1
hereof, the parties to this Agreement may in writing, at any time and from time
to time, without the approval of the Holders, amend or modify this Agreement for
the purposes of:
(a) adding to the covenants of any or all of the parties hereto for the
protection of the Holders hereunder;
(b) making such amendments or modifications not inconsistent with this
Agreement as may be necessary or desirable with respect to matters or
questions that, in the opinion of the Board of Directors of each of Newco
and the Corporation and in the opinion of the Trustee, on the advice of
counsel having in mind the best interests of the Holders as a whole, such
amendments and modifications will not be prejudicial to the interests of the
Holders as a whole; or
(c) making such changes or corrections required for the purpose of
curing or correcting any ambiguity or defect or inconsistent provision or
clerical omission or mistake or manifest error, provided that the Trustee
and the Board of Directors of each of the Corporation and Newco shall be of
the opinion, on the advice of counsel, that such changes or corrections will
not be prejudicial to the interests of the Holders as a whole.
11.3 MEETING TO CONSIDER AMENDMENTS. The Corporation, at the request of
Newco, shall call a meeting or meetings of the Holders for the purpose of
considering any proposed amendment or modification requiring approval pursuant
hereto. Any such meeting or meetings shall be called and held in accordance with
the by-laws of the Corporation, the Exchangeable Share Provisions and all
applicable laws.
11.4 CHANGES IN CAPITAL OF NEWCO AND THE CORPORATION. Notwithstanding
section 11.1, at all times after the occurrence of any Newco Common Stock
Reorganization or Capital Reorganization (as such terms are respectively defined
in the Exchangeable Share Provisions) or other change in either the Newco Common
Stock or the Exchangeable Shares or both, this Agreement shall forthwith be
amended and modified as necessary in order that it shall apply with full force
and effect, MUTATIS MUTANDIS, to all new
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securities into which Newco Common Stock or the Exchangeable Shares or both are
so changed and the parties hereto shall execute and deliver a supplemental
agreement giving effect to and evidencing such necessary amendments and
modifications.
11.5 EXECUTION OF SUPPLEMENTAL TRUST AGREEMENTS. Notwithstanding section
11.1, from time to time the Corporation (when authorized by a resolution of the
Board of Directors), Newco (when authorized by a resolution of its board of
directors) and the Trustee may, subject to the provisions hereof, and they
shall, when so directed by these presents, execute and deliver by their proper
officers, agreements or other instruments supplemental hereto, which thereafter
shall form part hereof, for any one or more of the following purposes:
(a) evidencing the succession of Newco Successors to Newco and the
covenants of and obligations assumed by each such Newco Successor in
accordance with the provisions of Article 10 and the succession of any
successor trustee in accordance with the provisions of Article 9;
(b) making any additions to, deletions from or alterations of the
provisions of this Agreement or the Voting Rights, the Exchange Right or the
Automatic Exchange Rights that, in the opinion of counsel to the Trustee are
necessary or advisable in order to incorporate, reflect or comply with any
legislation the provisions of which apply to Newco, the Corporation, the
Trustee or this Agreement; and
(c) for any other purposes not inconsistent with the provisions of this
Agreement including, without limitation, to make or evidence any amendment
or modification to this Agreement as contemplated hereby, provided that, in
the opinion of the Trustee, on the advice of counsel, the rights of the
Trustee and the Holders as a whole will not be prejudiced thereby.
ARTICLE XII
TERMINATION
12.1 TERM. The Trust created by this Agreement shall continue until the
earliest to occur of the following events:
(a) no outstanding Exchangeable Shares are held by any Holder;
(b) each of the Corporation and Newco elects in writing to terminate the
Trust and such termination is approved by the Holders of the Exchangeable
Shares in accordance with Section 10.2 of the Exchangeable Share Provisions;
and
(c) 21 years after the death of the last survivor of the descendants of
His Majesty King George VI of the United Kingdom of Great Britain and
Northern Ireland living on the date of the creation of the Trust.
12.2 SURVIVAL. The provisions of Article 7 and 8 hereof shall survive any
termination of the Trust pursuant to section 12.1.
ARTICLE XIII
GENERAL
13.1 SEVERABILITY. If any provision of this Agreement is held to be
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remainder of this Agreement shall not in any way be affected or impaired
thereby and this Agreement shall he carried out as nearly as possible in
accordance with its original terms and conditions; provided, however, that if
the provision or provisions so held to be invalid, in the reasonable judgment of
the parties, is or are so fundamental to the intent of the parties and the
operation of this Agreement that the enforcement of the other provisions hereof,
in the absence of such invalid provision or provisions, would damage irreparably
the intent of the parties in entering into this Agreement, the parties shall
agree (i) to terminate this Agreement, or (ii) to amend or otherwise modify
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this Agreement so as to carry out the intent and purposes hereof and the
transactions contemplated hereby.
13.2 ENUREMENT. This Agreement shall be binding upon and enure to the
benefit of the parties hereto and their respective successors and permitted
assigns and to the benefit of the Holders.
13.3 NOTICES TO PARTIES. All notices and other communications between the
parties hereunder shall be in writing and shall be deemed to have been given if
delivered personally or by confirmed telecopy to the parties at the following
addresses (or at such other address for such party as shall be specified in like
notice):
(a) if to Newco at:
1003 Mansell Road
Roswell, Georgia 30076
(b) if to the Corporation at:
79 Torbarrie Road
Toronto, Ontario M3L1G5
(c) if to the Trustee at:
Montreal Trust Company of Canada
Corporate Trust Services
151 Front Street West, Suite 605
Toronto, Ontario
M5J 2N1
Attention: Manager, Client Services
Telecopier number: (416)981-9777
Any notice or other communication given personally shall be deemed to have
been given and received upon delivery thereof or, if mailed, on the fifth
business day following the date of postmark on such notice, and if given by
telecopy shall be deemed to have been given and received on the date of receipt
thereof unless such day is not a Business Day in which case it shall be deemed
to have been given and received upon the immediately following Business Day.
13.4 NOTICE TO HOLDERS. Any and all notices to be given and any documents
to be sent to any Holders may be given or sent to the address of such Holder
shown on the register of Holders in any manner permitted by the by-laws of the
Corporation from time to time in force in respect of notices to shareholders and
shall be deemed to be received (if given or sent in such manner) at the time
specified in such by-laws, the provisions of which by-laws shall apply MUTATIS
MUTANDIS to notices or documents as aforesaid sent to such Holders.
13.5 RISK OF PAYMENTS BY POST. Whenever payments are to be made or
documents are to be sent to any Holder by the Trustee or by the Corporation, or
by such Holder to the Trustee or to Newco or the Corporation, the making of such
payment or sending of such document sent through the post shall be at the risk
of the Corporation, in the case of payments made or documents sent by the
Trustee or the Corporation, and the Holder, in the case of payments made or
documents sent by the Holder.
13.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
13.7 JURISDICTION. This Agreement shall be construed and enforced in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
13.8 ATTORNMENT. Newco agrees that any action or proceeding arising out of
or relating to this Agreement may be instituted in the courts of Ontario, waives
any objection which it may have now or hereafter to the venue of any such action
or proceeding, irrevocably submits to the jurisdiction of the said court in any
such action or proceeding, agrees to be bound by any judgment of the said courts
and agrees
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not to seek, and hereby waives, any review of the merits of any such judgment by
the courts of any other jurisdiction and hereby appoints the Corporation at its
registered office in the Province of Ontario as Newco's attorney for service of
process.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed the day and year first above written.
IVI CHECKMATE CORP.
Per: _______________________________
Name: ______________________________
Title: _____________________________
INTERNATIONAL VERIFACT INC.
Per: _______________________________
Name: ______________________________
Title: _____________________________
MONTREAL TRUST COMPANY OF CANADA
Per: _______________________________
Name: ______________________________
Title: _____________________________
Per: _______________________________
Name: ______________________________
Title: _____________________________
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SCHEDULE A
NOTICE OF EXERCISE OF EXCHANGE RIGHT
TO: Montreal Trust Company of Canada
RE: VOTING AND EXCHANGE TRUST AGREEMENT BETWEEN IVI CHECKMATE CORP. ("NEWCO"),
INTERNATIONAL VERIFACT INC. (THE "CORPORATION"), AND MONTREAL TRUST COMPANY
OF CANADA AS TRUSTEE (THE "TRUST AGREEMENT").
The undersigned holder of Exchangeable Shares instructs Montreal Trust
Company of Canada (the "Trustee") to exercise the Exchange Right in accordance
with Section 5.5 of the Trust Agreement so as to require Newco to purchase from
the undersigned Exchangeable Shares and to issue and deliver certificates
representing shares of Newco Common Stock as follows:
Name in full: __________________________________________________
(PLEASE STATE FULL NAMES IN WHICH CERTIFICATES ARE TO BE ISSUED)
Address in full: __________________________________________________
__________________________________________________
__________________________________________________
Number of
Exchangeable Shares:__________________________________________________
The undersigned hereby represents and warrants as follows:
(i) the undersigned has good title to and owns all such Exchangeable Shares
to be acquired by Newco free and clear of all Liens.
(ii) the undersigned shall pay any documentary, stamp, transfer or other
taxes that may be payable in respect of any transfer involved in the
issuance or delivery of shares.
All capitalized terms not defined herein shall have the meanings ascribed to
them in the Voting and Exchange Trust Agreement.
DATED this day of ____________________, 19 .
____________________________________
Name of holder
____________________________________
Signature
____________________________________
Witness
In the event that this Notice is surrendered to receive shares of Newco
Common Stock other than by the holder, a transfer form must be completed and
shall be effective to transfer the holder's right, title and entitlement in and
to the Newco Common Stock to the transferee.
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<PAGE>
SCHEDULE B
NOTICE OF EXERCISE OF EXCHANGE RIGHT
TO: IVI Checkmate Corp. ("Newco")
This notice is given pursuant to Section 5.6 of the Voting and Exchange
Trust Agreement (the "Trust Agreement") between IVI Checkmate Corp. ("Newco"),
International Verifact Inc. and Montreal Trust Company of Canada as Trustee (the
"Trust Agreement"). All capitalized words and expressions used in this notice
that are defined in the Trust Agreement have the meanings ascribed to such words
and expressions in such Trust Agreement.
The Trustee hereby notifies Newco that it is exercising the Exchange Right
on behalf of the Holder of the Exchangeable Shares referred to in the notice
received from such Holder, a copy of which is attached hereto (the "Holder
Notice"). Please issue the Newco Common Stock issuable in connection with the
exercise of the Exchange Right in accordance with the instructions set forth in
the attached Holder Notice.
By: __________________________________
Name:
Title:
Date: ________________________________
26
<PAGE>
SCHEDULE C
TRANSFER FORM
FOR VALUE RECEIVED THE UNDERSIGNED HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO:
NAME OF TRANSFEREE --------------------------------------------------
ADDRESS
--------------------------------------------------
QUANTITY OR AMOUNT SHARES
--------------------------------------------------
NAME OF COMPANY
--------------------------------------------------
DESCRIPTION OF
STOCKS/BONDS
--------------------------------------------------
-AND HEREBY IRREVOCABLY
CONSTITUTES AND APPOINTS
--------------------------------------------------
--------------------------------------------------
THE ATTORNEY OF THE UNDERSIGNED TO TRANSFER THE
SAID SHARES ON THE BOOKS OF THE SAID CORPORATION
WITH FULL POWER OF SUBSTITUTION IN THE PREMISES
DATED
--------------------------------------------------
----------------------------------------
SIGNATURE OF HOLDER
----------------------------------------
SIGNATURE GUARANTEE
THE SIGNATURE MUST BE GUARANTEED BY AN
AUTHORIZED OFFICER OF A CANADIAN
CHARTERED BANK OR OF A MAJOR CANADIAN
TRUST COMPANY, OR BY A MEDALLION
SIGNATURE GUARANTEE FROM A MEMBER OF A
RECOGNIZED SIGNATURE MEDALLION GUARANTEE
PROGRAM.
<PAGE>
ANNEX I
FORM OF SUPPORT AGREEMENT
<PAGE>
SUPPORT AGREEMENT
MEMORANDUM OF AGREEMENT made as of the day of , 1998, between
IVI Checkmate Corp., a Delaware corporation ("Newco"), and International
Verifact Inc., a Canadian corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS pursuant to a combination agreement dated as of January 16, 1998
(the "Combination Agreement") by and between Newco, the Corporation, Checkmate
Electronics Inc. ("Checkmate") and Merger Sub the parties agreed that on the
Effective Date (as defined in the Combination Agreement), Newco and the
Corporation would execute and deliver a Support Agreement containing the terms
and conditions set forth in Exhibit F to the Combination Agreement together with
such other terms and conditions as may be agreed to by the parties to the
Combination Agreement acting reasonably;
AND WHEREAS pursuant to an arrangement (the "Arrangement") effected by
articles of arrangement to be filed pursuant to the CANADA BUSINESS CORPORATIONS
ACT (the "CBCA"), all of the issued and outstanding common shares in the capital
of the Corporation are to be exchanged, at the option of the holder, for either
common stock in the capital of Newco or exchangeable non-voting shares in the
capital of the Corporation (the "Exchangeable Shares");
AND WHEREAS the aforesaid articles of arrangement set forth the rights,
privileges, restrictions and conditions (collectively the "Exchangeable Share
Provisions") attaching to the Exchangeable Shares;
AND WHEREAS the parties hereto desire to make appropriate provisions and to
establish a procedure whereby Newco will take certain actions and make certain
payments and deliveries necessary to ensure that the Corporation will be able to
make certain payments and to deliver or cause to be delivered shares of Newco
Common Stock in satisfaction of the obligations of the Corporation under the
Exchangeable Share Provisions with respect to the payment and satisfaction of
dividends, Liquidation Amounts, Retraction Prices and Redemption Prices all in
accordance with the Exchangeable Share Provisions;
NOW THEREFORE in consideration of the respective covenants in this agreement
and for other good and valuable consideration (the receipt and sufficiency of
which are hereby acknowledged), the parties agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINED TERMS. Each term denoted herein by initial capital letters and
not otherwise defined herein shall have the meaning ascribed thereto in the
Exchangeable Share Provisions, unless the context requires otherwise.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this
agreement into articles, sections and paragraphs and the insertion of headings
are for convenience of reference only and shall not affect the construction or
interpretation of this agreement.
1.3 NUMBER, GENDER, ETC. Words importing the singular number only shall
include the plural and vice versa. Words importing the use of any gender shall
include all genders.
1.4 DATE FOR ANY ACTION. If any date on which any action is required to be
taken under this agreement is not a Business Day, such action shall be required
to be taken on the next succeeding Business Day.
<PAGE>
ARTICLE 2
COVENANTS OF NEWCO AND THE CORPORATION
2.1 COVENANTS OF NEWCO REGARDING EXCHANGEABLE SHARES. So long as any
Exchangeable Shares are outstanding, Newco shall:
(a) not declare or pay any dividend on Newco Common Stock unless (i) the
Corporation shall have sufficient assets, funds and other property
(including, where applicable, shares of Newco Common Stock or other
securities of Newco) available to enable the due declaration and the due and
punctual payment in accordance with applicable law, of a dividend on the
Exchangeable Shares in accordance with the Exchangeable Share Provisions and
(ii) the Corporation shall simultaneously declare or pay, as the case may
be, a dividend on the Exchangeable Shares in accordance with the
Exchangeable Share Provisions;
(b) cause the Corporation to declare simultaneously with the declaration
of any dividend on shares of Newco Common Stock a dividend on the
Exchangeable Shares and, when such dividend is paid on Newco Common Stock,
cause the Corporation to pay simultaneously therewith such dividend on the
Exchangeable Shares, in each case in accordance with the Exchangeable Share
Provisions;
(c) advise the Corporation sufficiently in advance of the declaration by
Newco of any dividend on shares of Newco Common Stock and take all such
other actions as are necessary, in cooperation with the Corporation, to
ensure that the declaration date, record date and payment date for any
dividend on the Exchangeable Shares shall be the same as the declaration
date, record date, and payment date for the corresponding dividend on shares
of Newco Common Stock and such dates in respect of dividends on the
Exchangeable Shares shall be in accordance with any requirement of the
Exchangeable Share Provisions and the stock exchange(s) on which the
Exchangeable Shares are listed;
(d) ensure that the record date for any dividend declared on shares of
Newco Common Stock, Newco Common Stock Reorganization, Rights Offering,
Special Distribution or Capital Reorganization is not less than 10 Business
Days after the declaration date for such dividend or effective date of such
Newco Common Stock Reorganization, Rights Offering, Special Distribution or
Capital Reorganization;
(e) take all such actions and do all such things as are necessary or
desirable to enable and permit the Corporation, in accordance with
applicable law, to pay and otherwise perform its obligations with respect to
the satisfaction of the Liquidation Amount in respect of each issued and
outstanding Exchangeable Share upon the liquidation, dissolution or
winding-up of the Corporation, including without limitation all such actions
and all such things as are necessary or desirable to enable and permit the
Corporation to cause to be delivered shares of Newco Common Stock to the
holders of Exchangeable Shares in satisfaction of the Liquidation Amount for
each such Exchangeable Share, in accordance with the provisions of Article 4
of the Exchangeable Share Provisions;
(f) take all such actions and do all such things as are necessary or
desirable to enable and permit the Corporation, in accordance with
applicable law, to pay and otherwise perform its obligations with respect to
the satisfaction of the Retraction Price and the Redemption Price, including
without limitation all such actions and all such things as are necessary or
desirable to enable and permit the Corporation to cause to be delivered
shares of Newco Common Stock to the holders of Exchangeable Shares, upon the
retraction or redemption of the Exchangeable Shares in accordance with the
provisions of Article 5 or Article 6 of the Exchangeable Share Provisions,
as the case may be;
(g) not exercise its vote as a shareholder of the Corporation to
initiate, consent to or approve the voluntary liquidation, dissolution or
winding-up of the Corporation nor take any action or omit to
2
<PAGE>
take any action that is designed to result in the liquidation, dissolution
or winding-up of the Corporation; and
(h) not exercise its vote as a shareholder of the Corporation to
authorize the continuance or other transfer of the corporate existence of
the Corporation to any jurisdiction outside Canada.
2.2 SEGREGATION OF FUNDS. Newco will cause the Corporation to deposit a
sufficient amount of funds in a separate account and segregate a sufficient
amount of such assets and other property as is necessary to enable the
Corporation to pay or otherwise satisfy the applicable dividends, Liquidation
Amount, Retraction Price or Redemption Price, in each case for the benefit of
holders from time to time of the Exchangeable Shares, and will cause the
Corporation to use such funds, assets and other property so segregated
exclusively for the payment of dividends and the payment or other satisfaction
of the Liquidation Amount, the Retraction Price or the Redemption Price, as
applicable, in each case in accordance with the Exchangeable Share Provisions.
2.3 RESERVATION OF SHARES OF NEWCO COMMON STOCK. Newco hereby represents
and warrants that it has irrevocably reserved for issuance out of its authorized
and unissued capital stock such number of shares of Newco Common Stock as is
equal to the number of Exchangeable Shares outstanding immediately following the
Effective Date and covenants that at all times in the future while any
Exchangeable Shares are outstanding it will keep reserved and available, free
from pre-emptive and other rights, out of its authorized and unissued capital
stock such number of shares of Newco Common Stock (or other shares or securities
into which Newco Common Stock may be reclassified or changed) as is necessary to
enable Newco and the Corporation to perform their respective obligations
pursuant to this agreement, the Exchangeable Share Provisions and the Voting and
Exchange Trust Agreement.
2.4 NOTIFICATION OF CERTAIN EVENTS. In order to assist Newco to comply
with its obligations hereunder, the Corporation will give, or cause the Transfer
Agent to give, Newco notice of each of the following events at the time set
forth below:
(a) in the event of any determination by the Board of Directors of the
Corporation to institute voluntary liquidation, dissolution or winding up
proceedings with respect to the Corporation or to effect any other
distribution of the assets of the Corporation among its shareholders for the
purpose of winding up its affairs at least 60 days prior to the proposed
effective date of such liquidation dissolution, winding up or other
distribution;
(b) immediately, upon the earlier of (i) receipt by the Corporation of
notice of, and (ii) the Corporation otherwise becoming aware of, any
threatened or instituted claim, suit, petition or other proceedings with
respect to the involuntary liquidation, dissolution or winding up of the
Corporation or to effect any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding up its
affairs;
(c) immediately, upon receipt by the Transfer Agent of a Retraction
Request;
(d) at least 130 days prior to any accelerated automatic redemption date
determined by the Board of Directors of the Corporation in accordance with
the Exchangeable Share Provisions; and
(e) as soon as practicable upon the issuance by the Corporation of any
Exchangeable Shares or rights to acquire Exchangeable Shares.
2.5 DELIVERY OF NEWCO COMMON STOCK. In furtherance of its obligations
under subsections 2.1(e) and (f) hereof, upon notice of any event that requires
the Corporation to cause to be delivered Newco Common Stock to any holder of
Exchangeable Shares, Newco shall forthwith issue and deliver the requisite
shares of Newco Common Stock to or to the order of the former holder of the
surrendered Exchangeable Shares, as the Corporation shall direct. All such
shares of Newco Common Stock shall be duly issued as fully paid and
non-assessable and shall be free and clear of any Liens. In consideration of the
issuance of each such shares of Newco Common Stock by Newco, the Corporation
shall issue to Newco, or
3
<PAGE>
as Newco shall direct, such number of common shares of the Corporation as is
equal to the fair value of such Newco Common Stock.
2.6 QUALIFICATION OF NEWCO COMMON STOCK. Newco shall use all reasonable
efforts to obtain and comply with all orders required from the applicable
Canadian securities authorities to permit the issuance of the Newco Common Stock
upon any such exchange of the Exchangeable Shares without registration or
qualification with or approval of or the filing of any document including any
prospectus or similar document or the taking of any proceeding with or the
obtaining of any order, ruling or consent from any governmental or regulatory
authority under any Canadian federal or provincial law or regulation or pursuant
to the rules and regulations of any regulatory authority or the fulfillment of
any other legal requirement before such Newco Common Stock may be issued by
Newco and delivered by the Corporation or Newco to the holder thereof or in
order that such Newco Common Stock may be freely traded under the laws of Canada
and the United States thereafter (other than any restrictions on transfer by
reason of a holder being a "control person" of the Corporation or Newco for
purposes of Canadian federal or provincial securities law or an "affiliate" for
purposes of United States Federal or state securities law).
2.7 TENDER OFFERS, ETC. In the event that a tender offer, share exchange
offer, issuer bid, take-over bid or similar transaction with respect to Newco
Common Stock (an "Offer") is proposed by Newco or is proposed to Newco or its
stockholders and is recommended by the Board of Directors of Newco, or is
otherwise effected or to be effected with the consent or approval of the Board
of Directors of Newco, Newco will use all commercially reasonable efforts
expeditiously and in good faith to take all such actions and do all such things
as are necessary or desirable to enable and permit holders of Exchangeable
Shares to participate in such Offer to the same extent and on an economically
equivalent basis as the holders of Newco Common Stock, without discrimination.
Without limiting the generality of the foregoing, Newco will use all
commercially reasonable efforts expeditiously and in good faith to ensure that
holders of Exchangeable Shares may participate in all such Offers without being
required to retract Exchangeable Shares as against the Corporation (or, if so
required, to ensure that any such retraction shall be effective only upon, and
shall be conditional upon, the closing of the Offer and only to the extent
necessary to tender or deposit to the Offer).
2.8 OWNERSHIP OF OUTSTANDING SHARES. Newco covenants and agrees in favour
of the Corporation that, as long as any outstanding Exchangeable Shares are
owned by any person or entity other than Newco or any of its Affiliates, Newco
will be and remain the direct or indirect beneficial owner of all issued and
outstanding shares in the capital of the Corporation (other than Exchangeable
Shares) and all outstanding securities of the Corporation carrying or otherwise
entitled to voting rights in any circumstances (other than Exchangeable Shares),
unless Newco shall have obtained the prior approval of the Corporation and the
holders of the Exchangeable Shares given in accordance with section 10.2 of the
Exchangeable Share Provisions.
2.9 NEWCO NOT TO VOTE EXCHANGEABLE SHARES. Newco covenants and agrees that
it will appoint and cause to be appointed proxyholders with respect to all
Exchangeable Shares held by Newco and its Affiliates for the sole purpose of
attending each meeting of holders of Exchangeable Shares in order to be counted
as part of the quorum for each such meeting. Newco further covenants and agrees
that it will not, and will cause its Affiliates not to, exercise any voting
rights that may be exercisable by holders of Exchangeable Shares from time to
time pursuant to the Exchangeable Share Provisions or pursuant to the provisions
of the CBCA with respect to any Exchangeable Shares held by it or by its
Affiliates in respect of any matter considered at any meeting of holders of
Exchangeable Shares, including without limitation any approval to be given by
holders of Exchangeable Shares pursuant to section 10.2 of the Exchangeable
Share Provision.
2.10 DUE PERFORMANCE. On and after the Effective Date, Newco shall duly
and timely perform all of its obligations provided for in the Plan of
Arrangement, including any obligations that may arise upon the exercise of
Newco's rights under the Exchangeable Share Provisions.
4
<PAGE>
2.11 ECONOMIC EQUIVALENCE. Newco hereby acknowledges that it will be bound
by any determination of economic equivalence made by the Board of Directors of
the Corporation pursuant to section 5.5 of the Plan of Arrangement or section
9.1 of the Exchangeable Share Provisions, where applicable.
ARTICLE 3
GENERAL
3.1 TERM. This agreement shall come into force and be effective as of the
date hereof and shall terminate and be of no further force and effect at such
time as there are no Exchangeable Shares (or securities or rights convertible
into or exchangeable for or carrying rights to acquire Exchangeable Shares) held
by any party other than Newco and its Affiliates.
3.2 CHANGES IN CAPITAL OF NEWCO AND THE CORPORATION. Notwithstanding the
provisions of section 3.4 hereof, at all times after the occurrence of any event
effected pursuant to section 2.7 hereof as a result of which either shares of
Newco Common Stock or the Exchangeable Shares or both are in any way changed,
this agreement shall forthwith be amended and modified as necessary in order
that it shall apply with full force and effect, MUTATIS MUTANDIS, to all new
securities into which shares of Newco Common Stock or the Exchangeable Shares or
both are so changed and the parties hereto shall execute and deliver an
agreement in writing giving effect to and evidencing such necessary amendments
and modifications.
3.3 SEVERABILITY. If any provision of this agreement is held to be
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remainder of this agreement shall not in any way be affected or impaired
thereby and this agreement shall be carried out as nearly as possible in
accordance with its original terms and conditions.
3.4 AMENDMENTS, MODIFICATIONS, ETC. This agreement may not be amended or
modified except by an agreement in writing executed by the Corporation and Newco
and approved by the holders of the Exchangeable Shares in accordance with
section 10.2 of the Exchangeable Share Provisions.
3.5 MINISTERIAL AMENDMENTS. Notwithstanding the provisions of section 3.4,
the parties to this agreement may without the approval of the holders of the
Exchangeable Shares, at any time and from time to time, amend or modify this
agreement in writing for the purposes of:
(a) adding to the covenants of either or both parties for the protection
of the holders of the Exchangeable Shares;
(b) making such amendments or modifications not inconsistent with this
agreement as may be necessary or desirable with respect to matters or
questions which, in the opinion of the Board of Directors of each of the
Corporation and Newco, it may be expedient to make, provided that each such
board of directors shall be of the opinion that such amendments or
modifications will not be prejudicial to the interests of the holders of the
Exchangeable Shares; or
(c) making such changes or corrections which, on the advice of counsel
to the Corporation and Newco, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent provision or clerical
omission or mistake or manifest error herein, provided that the boards of
directors of each of the Corporation and Newco shall be of the opinion that
such changes or corrections will not be prejudicial to the interests of the
holders of the Exchangeable Shares.
3.6 MEETING TO CONSIDER AMENDMENTS. The Corporation, at the request of
Newco, shall call a meeting or meetings of the holders of the Exchangeable
Shares for the purpose of considering any proposed amendment or modification
requiring approval pursuant to section 3.4 hereof. Any such meeting or meetings
shall be called and held in accordance with the by-laws of the Corporation and
the Exchangeable Share Provisions and applicable law.
5
<PAGE>
3.7 WAIVERS ONLY IN WRITING. No waiver of any of the provisions of this
agreement otherwise permitted hereunder shall be effective unless made in
writing and signed by both of the parties hereto.
3.8 ENUREMENT. This agreement shall be binding upon and enure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
3.9 NEWCO SUCCESSORS. Newco shall not enter into any transaction (whether
by way of reconstruction, reorganization, consolidation, merger, transfer, sale,
lease or otherwise) whereby all or substantially all its undertaking, property
and assets would become the property of any other person or in the case of a
merger, of the continuing corporation resulting therefrom, unless:
(a) such other person or continuing corporation is a corporation (the
"Newco Successor") incorporated under the laws of any state of the United
States or the laws of Canada or any province thereof; and
(b) the Newco Successor, by operation of law, becomes, without more,
bound by the terms and provisions of this agreement or, if not so bound,
executes, prior to or contemporaneously with the consummation of such
transaction, an agreement to be bound by the provisions hereof as if it were
an original party hereto and to observe and perform all of the covenants and
obligations of Newco pursuant to this agreement, in form satisfactory to the
Corporation, acting reasonably.
Nothing herein shall be construed as preventing the amalgamation or merger of
any wholly-owned subsidiary of Newco with or into Newco.
3.10 NOTICES TO PARTIES. All notices and other communications between the
parties shall be in writing and shall be deemed to have been given if delivered
personally or by confirmed telecopy to the parties at the following addresses
(or at such other address for either such party as shall be specified in like
notice):
(a) if to Newco at:
(b) if to the Corporation at:
Any notice or other communication given personally shall be deemed to have
been given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of confirmed receipt thereof
unless such day is not a Business Day in which case it shall be deemed to have
been given and received upon the immediately following Business Day.
3.11 COUNTERPARTS. This agreement may be executed in counterparts, each of
which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
3.12 JURISDICTION. This agreement shall be construed and enforced in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
3.13 ATTORNMENT. Newco agrees that any action or proceeding arising out of
or relating to this agreement may be instituted in the courts of Ontario, waives
any objection which it may have now or hereafter to the venue of any such action
or proceeding, irrevocably submits to the jurisdiction of the said courts in any
such action or proceeding, agrees to be bound by any judgment of the said courts
and not to seek, and hereby waives, any review of the merits of any such
judgment by the courts of any other jurisdiction and hereby appoints the
Corporation at its registered office as Newco's attorney for service of process.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be duly
executed as of the date first above written.
IVI CHECKMATE CORP.
By: ________________________________
INTERNATIONAL VERIFACT INC.
By: ________________________________
6
<PAGE>
ANNEX J
SPECIAL PREFERRED VOTING STOCK PROVISIONS
<PAGE>
CERTIFICATE OF THE POWERS, DESIGNATIONS, PREFERENCES
AND RIGHTS OF
THE SERIES B PREFERRED STOCK
OF
IVI CHECKMATE CORP.
THE UNDERSIGNED, being respectively, the [Title] of IVI Checkmate Corp. (the
"Corporation"), DOES HEREBY CERTIFY that, pursuant to the provisions of Section
151(g) of the General Corporation Law of the State of Delaware the following
resolutions were duly adopted by the Board of Directors of the Corporation and
that, pursuant to authority conferred upon the Board of Directors by the
provisions of the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), the Board of Directors of the Corporation, at a
meeting duly held on , 1998, adopted resolutions providing for the
issuance of a series of its preferred stock and fixing the relative powers,
preferences, rights and qualifications, limitations and restrictions of such
stock. Such resolutions are as follows: "RESOLVED, that pursuant to authority
expressly granted to and vested in the Board of Directors of the Company by the
provisions of the Certificate of Incorporation, the issuance of a series of
preferred stock, par value $.01 per share, which shall consist of one of the
1,000,000 shares of preferred stock which the Corporation now has authority to
issue, be, and the same hereby is, authorized, and the Board hereby fixes the
powers, designations, preferences and relative, participating, optional and
other special rights, and the qualifications, limitations and restrictions
thereof, as follows:
1. AUTHORIZED NUMBER AND DESIGNATION. One share of the preferred stock,
par value $.01 per share, of the Corporation is hereby constituted as a series
of the preferred stock designated Series B Special Voting Preferred Stock, par
value $.01 per share (the "Series B Special Voting Stock").
2. DIVIDENDS. The holder of the Series B Special Voting Stock shall not be
entitled to receive any dividends declared and paid by the Corporation.
3. VOTING RIGHTS. Except as otherwise required by law or the Certificate
of Incorporation, (a) the holder of the share of Series B Special Voting Stock
shall have that number of votes equal to the number of Exchangeable Shares (as
defined in the Voting and Exchange Trust Agreement, dated as of ,
1998 (the "Voting Agreement") among the Corporation, International Verifact
Inc., a Canadian corporation ("IVI"), and the trustee party thereto, for the
benefit of the holders from time to time of the Exchangeable Shares) of IVI from
time to time outstanding which are not owned by the Corporation, any of its
subsidiaries or any person directly controlled by or under common control of the
Corporation, in each case for the election of directors and on all matters
submitted to a vote of the stockholders of the Corporation, subject to
adjustment to reflect the Current Newco Common Stock Equivalent (as defined in
the Voting Trust Agreement) and (b) in respect of all matters concerning the
voting of shares, the Series B Special Voting Stock and the Common Stock of the
Corporation shall vote as a single class, except as required by applicable law.
A copy of the Voting Trust Agreement is on file at the offices of the
Corporation, and may be inspected during normal business hours by any
stockholder of the Corporation upon written request.
4. LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, and subject to the prior
rights of any holders of shares of preferred stock ranking senior to the Series
B Special Voting Stock, the holder of the share of Series B Special Voting Stock
shall be paid an amount equal to $1.00, before payment shall be made to holders
of any stock ranking on liquidation junior to the Series B Special Voting Stock
(such amount payable with respect to the Series B Special Voting Stock being
referred to as the "Series B Liquidatio Preference Amount").
5. RANKING. The Series B Special Voting Stock shall rank junior to any
other outstanding series of preferred stock of the Corporation in all respects.
6. OTHER PROVISIONS. (a) Pursuant to the terms of the Combination
Agreement dated as of January , 1998 by and among the Corporation, IVI,
Checkmate Electronics, Inc., a Georgia corporation,
<PAGE>
and Future Merger Corporation, a Georgia corporation, one share of the Series B
Special Voting Stock is being issued to the trustee under the Voting Trust
Agreement.
(b) The holder of the share of Series B Special Voting Stock shall
exercise the voting rights attendant thereto in accordance with Section 3 of
this Certificate of Designations.
(c) At such time as the Series B Special Voting Stock has no votes
attached to it because there are no Exchangeable Shares outstanding which
are not owned by the Corporation, any of its subsidiaries or any person
directly or indirectly controlled by or udner common controlled by or under
common control of the Corporation, and there are no shares of stock, debt,
options or other agreements of IVI which could give rise to the issuance of
and Exchangeable Shares to any person (other than the Corporation, any of
its subsidiaries or any person directly or indirectly controlled by or under
common control of the Corporation), the Series B Special Voting Stock shall
be redeemable at the election of the Corporation for an amount equal to the
Series B Liquidation Preference Amount."
IN WITNESS WHEREOF, this Certificate has been signed by [Title] of the
Corporation, as of the day of , 1998.
<PAGE>
ANNEX K
PLAN OF ARRANGEMENT
<PAGE>
INTERNATIONAL VERIFACT INC.
PLAN OF ARRANGEMENT AND
SHARE PROVISIONS
PLAN OF ARRANGEMENT
UNDER SECTION 192
OF THE CANADA BUSINESS CORPORATIONS ACT
ARTICLE 1--INTERPRETATION
1.1 DEFINITIONS. In this Plan of Arrangement unless there is something in
the subject matter or context inconsistent therewith, the following terms shall
have the respective meanings set out below and grammatical variations of such
terms shall have corresponding meanings:
(a) "AFFILIATE" 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; including, without limitation, any
partnership or joint venture in which Checkmate Electronics Inc., IVI or
Newco, as the case may be, (either alone, or through or together with any
other subsidiary) has, directly or indirectly, an equity interest of 10
percent or more;
(b) "ARRANGEMENT" means the arrangement under section 192 of the CBCA on
the terms and subject to the conditions set out in this Plan of Arrangement,
subject to any amendments thereto made in accordance with Section 6.1 hereof
or made at the direction of the Court in the Final Order;
(c) "ARRANGEMENT RESOLUTION" means the special resolution passed by the
holders of the IVI Common Shares at the Meeting;
(d) "AUTOMATIC REDEMPTION DATE" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
(e) "BUSINESS DAY" means any day other than a Saturday, Sunday or a day
when banks are not open for business in either or both of Atlanta, Georgia
and Toronto, Ontario;
(f) "CALL RIGHTS" has the meaning ascribed thereto in the Voting and
Exchange Trust Agreement;
(g) "CANADIAN DOLLAR EQUIVALENT" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
(h) "CAPITAL REORGANIZATION" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
(i) "CBCA" means the Canada Business Corporations Act, as amended;
(j) "CHECKMATE" means Checkmate Electronics Inc., a corporation
incorporated under the laws of the State of Georgia;
(k) "COMBINATION AGREEMENT" means the agreement by and among IVI,
Checkmate Electronics Inc., Newco and Merger Sub, dated as of January 16,
1998, as the same may be amended and restated, providing for, among other
things, the Arrangement;
(l) "CORPORATION" means International Verifact Inc.;
(m) "COURT" means the Ontario Court of Justice (General Division);
(n) "CURRENT MARKET PRICE" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
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(o) "CURRENT NEWCO COMMON STOCK EQUIVALENT" has the meaning ascribed
thereto in the Exchangeable Share Provisions;
(p) "DEPOSITARY" means Montreal Trust Company of Canada at its principal
office in Toronto, Ontario;
(q) "DISSENT PROCEDURES" has the meaning set out in section 3.1 hereof;
(r) "EFFECTIVE DATE" means the date shown on the certificate of
arrangement issued by the Director under the CBCA giving effect to the
Arrangement;
(s) "EFFECTIVE TIME" means 12:01 a.m. on the Effective Date;
(t) "EXCHANGE RATIO" is equal to 1.0000 (subject to adjustment as
provided in Section 5.5 of the Combination Agreement);
(u) "EXCHANGE RIGHT" has the meaning ascribed thereto in the Voting and
Exchange Trust Agreement;
(v) "EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges,
restrictions and conditions attaching to the Exchangeable Shares, which are
set forth in Appendix A hereto;
(w) "EXCHANGEABLE SHARES" means the exchangeable shares in the capital
of IVI;
(x) "FINAL ORDER" means the final order of the Court approving the
Arrangement as such order may be amended by the Court at any time prior to
the Effective Time;
(y) "IVI COMMON SHARES" means the common shares in the capital of IVI;
(z) "IVI" means International Verifact Inc., a corporation existing
under the CBCA;
(aa) "LIQUIDATION CALL RIGHT" has the meaning ascribed thereto in section
5.1 hereof;
(bb) "LIQUIDATION DATE" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
(cc) "MEETING" means the Special Meeting of the shareholders of IVI to be
held to consider the Arrangement;
(dd) "NASDAQ" means the Nasdaq National Market;
(ee) "NEWCO" means IVI Checkmate Corp., a corporation existing under the
laws of the State of Delaware;
(ff) "NEWCO CALL NOTICE" has the meaning ascribed thereto in section
5.3(b) hereof;
(gg) "NEWCO COMMON STOCK" means the common stock in the capital of Newco;
(hh) "NEWCO PREFERRED STOCK" means the preferred stock, $.01 par value in
the capital of Newco;
(ii) "PROXY STATEMENT" means the Joint Management Information Circular
and Proxy Statement of IVI and Checkmate Electronics, Inc. dated May 26,
1998;
(jj) "REDEMPTION CALL PURCHASE PRICE" has the meaning ascribed thereto
in Section 5.2 hereof;
(kk) "REDEMPTION CALL RIGHT" has the meaning ascribed thereto in Section
5.2 hereof;
(ll) "RETRACTED SHARES" has the meaning ascribed thereto in Section 5.1
of the Exchangeable Share Provisions;
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(mm) "RETRACTION CALL PURCHASE PRICE" has the meaning ascribed thereto in
Section 5.3 hereof;
(nn) "RETRACTION CALL RIGHT" has the meaning ascribed thereto in Section
5.3 hereof;
(oo) "RETRACTION DATE" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
(pp) "RETRACTION REQUEST" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
(qq) "SERIES A PREFERRED SHARES" means the Series A Preferred Shares of
IVI having the rights, privileges, restrictions and conditions set out in
the Exchangeable Share Provisions;
(rr) "TRANSFER AGENT" means Montreal Trust Company of Canada or such
other person as may from time to time be the Registrar and Transfer Agent
for the Exchangeable Shares;
(ss) "VOTING AND EXCHANGE TRUST AGREEMENT" means the Voting and Exchange
Trust Agreement made between the Corporation, Newco and Montreal Trust
Company of Canada to be dated as of the Effective Date; and
(tt) "VOTING RIGHTS" has the meaning ascribed thereto in the Voting and
Exchange Trust Agreement.
Any capitalized terms that have not been otherwise defined above shall have
the meanings ascribed to them in the Combination Agreement.
1.2 SECTIONS AND HEADINGS
The division of this Plan of Arrangement into sections and the insertion of
headings are for reference purposes only and shall not affect the interpretation
of this Plan of Arrangement. Unless otherwise indicated, any reference in this
Plan of Arrangement to a section or an Appendix refers to the specified section
of or Appendix to this Plan of Arrangement.
1.3 NUMBER, GENDER AND PERSONS
In this Plan of Arrangement, unless the context otherwise requires, words
importing the singular number include the plural and vice versa, words importing
any gender include all genders and words importing persons include individuals,
corporations, partnerships, associations, trusts, unincorporated organizations,
governmental bodies and other legal or business entities of any kind.
1.4 WITHHOLDING TAX
All amounts required to be paid, deposited or delivered under this Plan of
Arrangement shall be paid, deposited or delivered after deduction of any amount
required by applicable law to be deducted or withheld on account of tax and the
deduction of such amounts and remittance to the applicable tax authorities
shall, to the extent thereof, satisfy such requirements to pay, deposit or
deliver hereunder.
ARTICLE II--ARRANGEMENT
2.1 ARRANGEMENT
At the Effective Time on the Effective Date, the following reorganization of
capital shall occur and shall be deemed to occur in the following order without
any further act or formality:
(a) The articles of continuation of IVI shall be amended to include the
provisions set forth in Appendix "A" hereto which authorize an unlimited
number of Exchangeable Shares and one Series A Preferred Share.
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(b) IVI shall issue to Newco one Series A Preferred Share in
consideration of the issuance to IVI of one share of Newco Preferred Stock.
The stated capital of the Series A Preferred Share shall be equal to the
fair market value, as determined by the Board of Directors of IVI, of a
share of Newco Preferred Stock. No certificate shall be issued in respect of
the Series A Preferred Share.
(c) Each of the outstanding IVI Common Shares (other than IVI Common
Shares held by holders who have exercised their rights of dissent in
accordance with section 3.1 hereof and who are ultimately entitled to be
paid full value for such shares) will be exchanged either (i) with IVI for a
number of Exchangeable Shares at the Exchange Ratio or (ii) with Newco for a
number of shares of Newco Common Stock at the Exchange Ratio, at the
holder's election. Each holder of IVI Common Shares (other than holders of
IVI Common Shares who have exercised their rights of dissent in accordance
with section 3.1 hereof and who are ultimately entitled to be paid full
value for such shares) will receive that whole number of Exchangeable Shares
or shares of Newco Common Stock resulting from the exchange of all such
holder's IVI Common Shares. No fractional shares of Newco Common Stock or
fractional Exchangeable Shares will be issued and no certificate therefor
will be issued. Any holder of IVI Common Shares who would otherwise be
entitled to receive a fraction of an Exchangeable Share or fraction of a
share of Newco Common Stock, as the case may be, shall, upon surrender of
his certificate or certificates representing IVI Common Shares, receive a
certificate adjusted to the next lower whole number of Exchangeable Shares
or shares of Newco Common Stock, as the case may be.
(d) Upon the exchange referred to in subsection (c) above, each such
holder of an IVI Common Share shall cease to be such a holder, shall have
his name removed from the register of holders of IVI Common Shares and shall
be entitled to receive either (i) the number of fully paid Exchangeable
Shares to which he is entitled as a result of the exchange referred to in
paragraph (c) or (ii) the number of fully paid shares of Newco Common Stock
to which he is entitled as a result of the exchange referred to in paragraph
(c) and upon such exchange such holder's name shall be added to the Register
of Holders of Exchangeable Shares or shares of Newco Common Stock
accordingly.
(e) The stated capital of the Exchangeable Shares will be equal to the
stated capital of the IVI Common Shares actually exchanged for Exchangeable
Shares immediately prior to the Arrangement.
(f) Holders of IVI Common Shares that did elect to receive Exchangeable
Shares (i) will grant and transfer directly to Newco the Call Rights and
(ii) will receive directly from Newco the Voting Rights and the Exchange
Rights.
(g) The one outstanding Series A Preferred Share held by Newco will be
exchanged for one IVI Common Share and Newco shall cease to be a holder of
the Series A Preferred Share, shall have its name removed from the register
of holders of Series A Preferred Shares and Newco's name shall be added to
the register of holders of IVI Common Shares accordingly, and the one Series
A Preferred Share shall be cancelled by IVI.
(h) The stated capital of the one IVI Common Share shall be equal to the
stated capital of the one Series A Preferred Share immediately prior to the
exchange of such Series A Preferred Share pursuant to subsection (g).
(i) The Newco Preferred Stock will be purchased from IVI for the fair
market value thereof determined by the Board of Directors of IVI in
accordance with Section 2.1(b) hereof and immediately thereafter shall be
cancelled by Newco.
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ARTICLE III--RIGHTS OF DISSENT
3.1 RIGHTS OF DISSENT
Holders of IVI Common Shares may exercise rights of dissent with respect to
such shares pursuant to and in the manner set forth in section 190 of the CBCA
and this section 3.1 (the "Dissent Procedures") in connection with the
Arrangement and holders who duly exercise such rights of dissent and who:
(a) are ultimately entitled to be paid fair value for their IVI Common
Shares shall be deemed to have transferred such IVI Common Shares to IVI for
cancellation on the Effective Date; or
(b) are ultimately not entitled, for any reason, to be paid fair value
for their IVI Common Shares or who shall, with the written approval of IVI
if required by Section 190 of the CBCA , withdraw his demand for value,
shall be deemed to have participated in the Arrangement on the same basis as
any non-dissenting holder of IVI Common Shares, and shall receive
Exchangeable Shares on the basis determined in accordance with subsection
2.1(c) of this Plan of Arrangement, but in no case shall IVI be required to
recognize such holders as holders of IVI Common Shares on and after the
Effective Date, and the names of such holders of IVI Common Shares shall be
deleted from the register of holders of IVI Common Shares on the Effective
Date.
ARTICLE IV--CERTIFICATES AND FRACTIONAL SHARES
4.1 ISSUANCE OF CERTIFICATES REPRESENTING EXCHANGEABLE SHARES
At or promptly after the Effective Time, the Corporation shall deposit with
the Depositary, for the benefit of the holders of IVI Common Shares exchanged
for Exchangeable Shares pursuant to subsection 2.1(c), certificates representing
the Exchangeable Shares issued pursuant to subsection 2.1(c) upon the exchange
of outstanding IVI Common Shares. Upon surrender to the Depositary of a
certificate which immediately prior to the Effective Time represented
outstanding IVI Common Shares that were exchanged for Exchangeable Shares,
together with such other documents and instruments as would have been required
to effect the transfer of the shares formerly represented by such certificate
under the CBCA and the by-laws of IVI and such additional documents and
instruments as the Depositary may reasonably require, the holder of such
surrendered certificate shall be entitled to receive in exchange therefor, and
the Depositary shall deliver to such holder, a certificate representing that
number (rounded down to the nearest whole number) of Exchangeable Shares which
such holder has the right to receive (together with any dividends or
distributions with respect thereto pursuant to section 4.3) and the certificate
so surrendered and the IVI Common Shares represented thereby shall forthwith be
cancelled. In the event of a transfer of ownership of IVI Common Shares which is
not registered in the transfer records of IVI, a certificate representing the
proper number of Exchangeable Shares may be issued to a transferee if the
certificate representing such IVI Common Shares is presented to the Depositary,
accompanied by all documents required to evidence and effect such transfer.
Until surrendered as contemplated by this section 4.1, each certificate which
immediately prior to the Effective Time represented outstanding IVI Common
Shares that were exchanged for Exchangeable Shares shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender (i) the certificate representing Exchangeable Shares as contemplated
by this section 4.1, and (ii) any dividends or distributions with a record date
after the Effective Time theretofore paid or payable with respect to
Exchangeable Shares as contemplated by section 4.3.
4.2 ISSUANCE OF CERTIFICATES REPRESENTING NEWCO COMMON STOCK
At or promptly after the Effective Time, Newco shall deposit with the
Depositary, for the benefit of the holders of IVI Common Shares exchanged
pursuant to subsection 2.1(c), and who have elected to receive Newco Common
Stock, certificates representing Newco Common Stock issued pursuant to
subsection 2.1(c) upon the exchange of outstanding IVI Common Shares. Upon
surrender to the
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<PAGE>
Depositary of a certificate which immediately prior to the Effective Time
represented outstanding IVI Common Shares that were exchanged for Newco Common
Stock, together with such other documents and instruments as would have been
required to effect the transfer of the shares formerly represented by such
certificate under the CBCA and the by-laws of IVI and such additional documents
and instruments as the Depositary may reasonably require, the holder of such
surrendered certificate shall be entitled to receive in exchange therefor, and
the Depositary shall deliver to such holder, a certificate representing that
number (rounded down to the nearest whole number) of shares of Newco Common
Stock which such holder has the right to receive (together with any dividends or
distributions with respect thereto pursuant to section 4.3), the certificate so
surrendered shall forthwith be cancelled, and a new certificate representing the
IVI Common Shares so transferred shall be issued in the name of Newco. In the
event of a transfer of ownership of IVI Common Shares which is not registered in
the transfer records of IVI, a certificate representing the proper number of
Newco Common Stock may be issued to a transferee if the certificate representing
such IVI Common Shares is presented to the Depositary, accompanied by all
documents required to evidence and effect such transfer. Until surrendered as
contemplated by this section 4.2, each certificate which immediately prior to
the Effective Time represented outstanding IVI Common Shares that were exchanged
for Newco Common Stock shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender (i) the certificate
representing Newco Common Stock as contemplated by this section 4.2, and (ii)
any dividends or distributions with a record date after the Effective Time
theretofore paid or payable with respect to Newco Common Stock as contemplated
by section 4.3.
4.3 DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES.
No dividends or other distributions declared or made after the Effective
Time with respect to Exchangeable Shares or Newco Common Stock with a record
date after the Effective Time shall be paid to the holder of any unsurrendered
certificate which, immediately prior to the Effective Time, represented
outstanding IVI Common Shares that were exchanged pursuant to section 2.1 and no
interest will be earned or payable on these proceeds unless and until such
certificate shall be surrendered in accordance with section 4.1 or 4.2. Subject
to applicable law and to Section 4.5, at the time of such surrender of any such
certificate (or, in the case of clause (ii) below, at the appropriate payment
date), there shall be paid to the record holder of the certificates representing
whole Exchangeable Shares or Newco Common Stock without interest, (i) the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole Exchangeable Share or Newco Common
Stock, and (ii) the amount of dividends or other distributions with a record
date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole Exchangeable Share or
share of Newco Common Stock.
4.4 LOST CERTIFICATES
If any certificate which immediately prior to the Effective Time represented
outstanding IVI Common Shares that were exchanged pursuant to section 2.1 has
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such certificate to be lost, stolen or destroyed, the
Depositary will issue in exchange for such lost, stolen or destroyed
certificate, certificates representing Exchangeable Shares or shares of Newco
Common Stock (and any dividends or distributions with respect thereto)
deliverable in respect thereof as determined in accordance with section 2.1.
When authorizing such payment in exchange for any lost, stolen or destroyed
certificate, the person to whom certificates representing Exchangeable Shares or
shares of Newco Common Stock are to be issued shall, as a condition precedent to
the issuance thereof, give a bond satisfactory to the Corporation, Newco and the
Transfer Agent, as the case may be, in such sum as the Corporation may direct or
otherwise indemnify the Corporation, or Newco and the Transfer Agent in a manner
satisfactory to the Corporation, Newco and the Transfer Agent against any claim
that may be made against the Corporation, Newco or the Transfer Agent with
respect to the certificate alleged to have been lost, stolen or destroyed.
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4.5 EXTINGUISHMENT OF RIGHTS
Any certificate which immediately prior to the Effective Time represented
outstanding IVI Common Shares that were exchanged pursuant to section 2.1 and
has not been deposited, with all other instruments required by section 4.1 or
4.2, on or prior to the tenth anniversary of the Effective Date shall cease to
represent a claim or interest of any kind or nature as a shareholder of the
Corporation. On such date, the Exchangeable Shares or shares of Newco Common
Stock to which the former registered holder of the certificate referred to in
the preceding sentence was ultimately entitled shall be deemed to have been
surrendered to the Corporation or Newco, as applicable, together with all
entitlements to dividends, distributions and interests thereon held for such
former registered holder for no consideration.
4.6 ELECTIONS
(a) In accordance with the terms hereof, each record holder, immediately
prior to the Effective Date, of IVI Common Shares will be entitled to elect
to receive either Exchangeable Shares or Newco Common Stock for all of such
shares (an "Election"). All such elections shall be made on a letter of
transmittal and election form to be prepared by the Corporation (the "Letter
of Transmittal and Election Form"). Each Letter of Transmittal and Election
Form shall provide for the ratification, by each person who elects to
receive Exchangeable Shares, of the grant and transfer to Newco of the Call
Rights. Record holders of IVI Common Shares who hold IVI Common Shares as
nominees, trustees or in other representative capacities (a
"Representative") may submit multiple Letters of Transmittal and Election
Forms; PROVIDED, THAT, such Representative certifies that each such Letter
of Transmittal and Election Form covers all the IVI Common Shares held by
each Representative for a particular beneficial owner.
(b) Timely Elections, Etc. Elections shall be made by holders of IVI
Common Shares by mailing to the Depositary a Letter of Transmittal and
Election Form. To be effective, a Letter of Transmittal and Election Form
must be properly completed, signed and submitted to the Depositary. IVI will
have the discretion, which it may delegate in whole or in part to the
Depositary, to determine whether Letters of Transmittal and Election Forms
have been properly completed, signed and submitted or revoked and to
disregard immaterial defects in Letters of Transmittal and Election Forms.
The decision of IVI (or the Depositary) in such matters shall be conclusive
and binding. Neither IVI nor the Depositary will be under any obligation to
notify any person of any defect in a Letter of Transmittal and Election Form
submitted to the Depositary.
(c) Deemed Non-Election. For the purposes hereof, a holder of IVI Common
Shares who does not submit a Letter of Transmittal and Election Form within
such time limits as may be established by IVI, the Depositary or the Court
shall be deemed not to have made an election, and shall receive Exchangeable
Shares. If IVI or the Depositary shall determine that any purported election
was not properly made, such purported election shall be deemed to be of no
force and effect.
ARTICLE V--CERTAIN RIGHTS OF
NEWCO TO ACQUIRE EXCHANGEABLE SHARES
5.1 NEWCO LIQUIDATION CALL RIGHT
(a) Newco shall have the overriding right (the "Liquidation Call
Right"), in the event of and notwithstanding the proposed liquidation,
dissolution or winding-up of IVI, to purchase from all but not less than all
of the holders (other than Newco) of Exchangeable Shares on the Liquidation
Date all but not less than all of the Exchangeable Shares held by each such
holder on payment by Newco of an amount, for each Exchangeable Share held,
equal to the Current Market Price of a share of Newco Common Stock on the
last Business Day prior to the Liquidation Date multiplied by the Current
Newco Common Stock Equivalent. The payment shall be satisfied in full by
causing to be delivered to such holder (a) such whole number of shares of
Newco Common Stock (rounded down to the nearest
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whole number) as is equal to the amount obtained by multiplying the number
of such Exchangeable Shares to be transferred by the Current Newco Common
Stock Equivalent, plus (b) an additional amount in cash equivalent to the
full amount of all dividends declared and unpaid on such Exchangeable Shares
(collectively the "Liquidation Call Purchase Price") without interest. In
the event of the exercise of the Liquidation Call Right by Newco, each
holder of Exchangeable Shares shall be obligated to sell all the
Exchangeable Shares held by such holder to Newco on the Liquidation Date on
payment by Newco to such holder of the Liquidation Call Purchase Price.
(b) To exercise the Liquidation Call Right, Newco must notify the
Transfer Agent in writing, as agent for the holders of Exchangeable Shares,
and the Corporation of Newco's intention to exercise such right at least 55
days before the Liquidation Date in the case of a voluntary liquidation,
dissolution or winding up of the Corporation and at least five Business Days
before the Liquidation Date in the case of an involuntary liquidation,
dissolution or winding up of the Corporation. The Transfer Agent will notify
the holders of Exchangeable Shares as to whether or not Newco has exercised
the Liquidation Call Right forthwith after the expiry of the date by which
the same may be exercised by Newco. If Newco exercises the Liquidation Call
Right, on the Liquidation Date Newco will purchase and the holders will sell
all of the Exchangeable Shares then outstanding for a price equal to the
Liquidation Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable
Shares pursuant to the Liquidation Call Right, Newco shall deposit with the
Transfer Agent, on or before the Liquidation Date, certificates representing
the aggregate number of shares of Newco Common Stock deliverable by Newco
(which shares shall be duly issued as fully paid and non-assessable and
shall be free and clear of any lien, claim, encumbrance, security interest
or adverse claim) in payment of the total Liquidation Call Purchase Price
for all outstanding Exchangeable Shares and a cheque or cheques in the
amount of the remaining portion, if any, of the total Liquidation Call
Purchase Price for all outstanding Exchangeable Shares without interest.
Provided that the total Liquidation Call Purchase Price for all outstanding
Exchangeable Shares has been so deposited with the Transfer Agent, on and
after the Liquidation Date the rights of each holder of Exchangeable Shares
will be limited to receiving such holder's proportionate part of the total
Liquidation Call Purchase Price payable for all outstanding Exchangeable
Shares (other than shares held by Newco) by Newco without interest upon
presentation and surrender by the holder of certificates representing all of
the Exchangeable Shares held by such holder and the holder shall on and
after the Liquidation Date be considered and deemed for all purposes to be
the holder of the Newco Common Stock delivered to it. Upon surrender to the
Transfer Agent of a certificate or certificates representing Exchangeable
Shares, together with such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under the CBCA and the
by-laws of the Corporation and such additional documents and instruments as
the Transfer Agent may reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in exchange
therefor, and the Transfer Agent on behalf of Newco shall deliver to such
holder, certificates representing the Newco Common Stock to which the holder
is entitled and a cheque or cheques of Newco payable at par and in Canadian
dollars at any branch of the bankers of Newco or of the Corporation in
Canada in payment of the remaining portion, if any, of the total Liquidation
Call Purchase Price for such holder's Exchangeable Shares. If Newco does not
exercise the Liquidation Call Right in the manner described above, on the
Liquidation Date the holders of the Exchangeable Shares will be entitled to
receive in exchange therefor the liquidation price otherwise payable by the
Corporation in connection with the liquidation, dissolution or winding-up of
the Corporation pursuant to Article 4 of the Exchangeable Share Provisions.
5.2 NEWCO REDEMPTION CALL RIGHT
(a) Newco shall have the overriding right (the "Redemption Call Right"),
notwithstanding the proposed redemption of the Exchangeable Shares by the
Corporation pursuant to Article 6 of the Exchangeable Share Provisions, to
purchase from all but not less than all of the holders (other than
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Newco) of Exchangeable Shares on the Automatic Redemption Date all but not less
than all of the Exchangeable Shares held by each such holder on payment by Newco
to the holder of an amount, for each Exchangeable Share held, equal to the
Current Market Price of a share of Newco Common Stock on the last Business Day
prior to the Automatic Redemption Date multiplied by the Current Newco Common
Stock Equivalent. The payment shall be satisfied in full by causing to be
delivered to such holder (a) such whole number of shares of Newco Common Stock
(rounded down to the nearest whole number) as is equal to the amount obtained by
multiplying the number of such Exchangeable Shares to be redeemed by the Current
Newco Common Stock Equivalent, plus (b) an additional amount in cash equivalent
to the full amount of all dividends declared and unpaid on such Exchangeable
Shares (collectively the "Redemption Call Purchase Price") without interest. In
the event of the exercise of the Redemption Call Right by Newco, each holder of
Exchangeable Shares shall be obligated to sell all the Exchangeable Shares held
by such holder to Newco on the Automatic Redemption Date on payment by Newco to
the holder of the Redemption Call Purchase Price.
(b) To exercise the Redemption Call Right, Newco must notify the Transfer
Agent in writing, as agent for the holders of Exchangeable Shares, and the
Corporation of Newco's intention to exercise such right at least 125 days before
the Automatic Redemption Date. The Transfer Agent will notify the holders of the
Exchangeable Shares as to whether or not Newco has exercised the Redemption Call
Right forthwith after the date by which the same may be exercised by Newco. If
Newco exercises the Redemption Call Right, on the Automatic Redemption Date
Newco will purchase and the holders will sell all of the Exchangeable Shares
then outstanding (other than shares held by Newco) for the Redemption Call
Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Redemption Call Right, Newco shall deposit with the Transfer
Agent, on or before the Automatic Redemption Date, certificates representing the
aggregate number of shares of Newco Common Stock deliverable by Newco (which
shares shall be duly issued as fully paid and non-assessable and shall be free
and clear of any Liens) in payment of the total Redemption Call Purchase Price
for all outstanding Exchangeable Shares and a cheque or cheques in the amount of
the remaining portion, if any, of the total Redemption Call Purchase Price for
all outstanding Exchangeable Shares. Provided that the total Redemption Call
Purchase Price for all outstanding Exchangeable Shares has been so deposited
with the Transfer Agent, on and after the Automatic Redemption Date the rights
of each holder of Exchangeable Shares will be limited to receiving such holder's
proportionate part of the total Redemption Call Purchase Price for all
outstanding Exchangeable Shares (other than shares held by Newco) payable by
Newco upon presentation and surrender by the holder of certificates representing
the Exchangeable Shares held by such holder and the holder shall on and after
the Automatic Redemption Date be considered and deemed for all purposes to be
the holder of the Newco Common Stock to be delivered to such holder without
interest. Upon surrender to the Transfer Agent of a certificate or certificates
representing Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
the CBCA and the by-laws of the Corporation and such additional documents and
instruments as the Transfer Agent may reasonably require, the holder of such
surrendered certificate or certificates shall be entitled to receive in exchange
therefor, and the Transfer Agent on behalf of Newco shall deliver to such
holder, certificates representing the shares of Newco Common Stock to which the
holder is entitled and a cheque or cheques of Newco payable at par and in
Canadian dollars at any branch of the bankers of Newco or of the Corporation in
payment of the remaining portion, if any, of the total Redemption Call Purchase
Price for such holder's Exchangeable Shares. If Newco does not exercise the
Redemption Call Right in the manner described above, on the Automatic Redemption
Date the holders of the Exchangeable Shares will be entitled to receive in
exchange therefor the redemption price otherwise payable by the Corporation in
connection with the redemption of the Exchangeable Shares pursuant to Article 6
of the Exchangeable Share Provisions.
5.3 NEWCO RETRACTION CALL RIGHT
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(a) Newco shall have the overriding right (the "Retraction Call Right")
notwithstanding the proposed redemption of Retracted Shares by the Corporation
on the Retraction Date, to purchase from the holder of the Retracted Shares on
the Retraction Date the Retracted Shares upon payment by Newco to the holder of
a Retracted Share an amount for each Retracted Share, equal to the Current
Market Price multiplied by the Current Newco Common Stock Equivalent, in each
case determined on the Retraction Date. The payment shall be satisfied in full
in respect to such Retracted Shares by causing to be delivered to the holder
such whole number of shares of Newco Common Stock (rounded down to the nearest
whole number) as is equal to the amount obtained by multiplying the number of
Retracted Shares by the Current Newco Common Stock Equivalent plus the aggregate
plus (b) an additional amount in cash equivalent to the full amount of all
dividends declared and unpaid on such Retracted Shares (collectively, the
"Retraction Call Purchase Price") without interest. In the event of the exercise
of the Retraction Call Right by Newco, the holder of the Retracted Shares shall
be obligated to sell to Newco, and Newco shall be obligated to purchase, the
Retracted Shares on the Retraction Date upon payment by Newco to such holder of
the Retraction Call Purchase Price.
b) In order to exercise the Retraction Call Right, Newco shall advise the
Transfer Agent in writing of its determination to do so (the "Newco Call
Notice") on or prior to the expiry of the fifth Business Day after the receipt
by the Transfer Agent of the Retraction Request. If Newco does not so notify the
Transfer Agent, the Transfer Agent will notify the holder as soon as possible
thereafter that Newco has waived the Retraction Call Right. If Newco delivers
the Newco Call Notice before the expiry of such five Business Day period, the
Retraction Request shall thereupon be deemed only to be an offer by the holder
to sell the Retracted Shares to Newco. In such event, the Corporation shall not
redeem the Retracted Shares and Newco shall purchase from such holder and such
holder shall sell to Newco on the Retraction Date the Retracted Shares for the
Retraction Call Purchase Price.
c) For the purposes of completing a purchase of the Retracted Shares
pursuant to the Retraction Call Right, Newco shall deposit with the Transfer
Agent, on or before the Retraction Date, certificates representing the shares of
Newco Common Stock to be delivered to each holder of the Retracted Shares in
payment of the total Retraction Call Purchase Price for all of the Retracted
Shares (or the portion thereof payable in Newco Common Stock, as the case may
be) and a cheque in the amount of the remaining portion, if any, of the total
Retraction Call Purchase Price (or, if any portion of the Retraction Call
Purchase Price consists of dividends payable in property, such property or
property that is the same as or economically equivalent to such property).
Provided that such total Retraction Call Purchase Price for all of the Retracted
Shares has been so deposited with the Transfer Agent, the closing of the
purchase and sale of the Retracted Shares pursuant to the Retraction Call Right
shall be deemed to have occurred as of the close of business on the Retraction
Date and, for greater certainty, no redemption by the Corporation of such
Retracted Shares shall take place on the Retraction Date. Newco shall cause the
Transfer Agent to deliver to the holder of the Retracted Shares, at the address
of such holder recorded in the securities register of the Corporation for the
Exchangeable Shares or at the address specified in the holder's Retraction
Request or by holding for pick-up by the holder at the office of the Transfer
Agent to which the Retraction Request was delivered, in payment of such total
Retraction Purchase Price for all of the Retracted Shares, certificates
representing the shares of Newco Common Stock to be delivered in respect of such
payment (which shares shall be duly issued as fully paid and non-assessable and
shall be free and clear of any Liens) registered in the name of the holder or in
such other name as the holder may request in payment of such and, if applicable,
a cheque of Newco payable at par and in Canadian dollars at any branch of the
bankers of Newco or the Corporation in Canada (or, if any part of the Retraction
Call Purchase Price consists of dividends payable in property, such property or
property that is the same as or economically equivalent to such property), and
such delivery of such certificates and cheque (and property, if any) to the
holder on behalf of Newco by the Transfer Agent shall be deemed to be payment of
and shall satisfy and discharge all liability for the total Retraction Call
Purchase Price for all of the Retracted Shares to the extent that the same is
represented by such share certificates and cheque (and property, if any), unless
such cheque is not paid on due presentation. On and after the close of business
on the Retraction
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Date, the holder of the Retracted Shares shall cease to be a holder of such
Retracted Shares and shall not be entitled to exercise any of the rights of a
holder in respect thereof, other than the right to receive the Retraction Call
Purchase Price, unless upon presentation and surrender of certificates in
accordance with the foregoing provisions, payment of the total Retraction Call
Price shall not be made, in which case the rights of such holder shall remain
unaffected until the total Retraction Call Purchase Price has been paid in the
manner hereinbefore provided. On and after the close of business on the
Retraction Date, provided that presentation and surrender of certificates and
payment of the total Retraction Call Purchase Price has been made in accordance
with the foregoing provisions, the holder of the Retracted Shares so purchased
by Newco shall thereafter be considered and deemed for all purposes to be a
holder of the Newco Common Stock delivered to such holder.
5.4 CONSIDERATION FOR CALL RIGHTS OF NEWCO
The Retraction Call Right, the Liquidation Call Right and the Redemption
Call Right are granted to Newco by the holders of Exchangeable Shares in
consideration of the grant to such holders by Newco of the Voting Rights and the
Exchange Rights.
5.5 ECONOMIC EQUIVALENCE
The Board of Directors of the Corporation shall determine, in good faith and
in its sole discretion (with the assistance of such reputable and qualified
independent financial advisors and/or other experts as the Board of Directors
may require) economic equivalence for the purposes of any provision herein that
requires such a determination and each such determination shall be conclusive
and binding on Newco and the holders of Exchangeable Shares, where applicable.
5.6 CAPITAL REORGANIZATION OF NEWCO
If at any time there is a Capital Reorganization that is not a Newco Common
Stock Reorganization, Rights Offering or a Special Distribution (as such terms
are defined in the Exchangeable Share Provisions), any holder of Exchangeable
Shares whose Exchangeable Shares have not been exchanged for Newco Common Stock
in accordance with the provisions hereof prior to the record date for such
Capital Reorganization shall be entitled to receive and shall accept, upon any
such exchange occurring pursuant to the provisions hereof or the provisions of
the Voting and Exchange Trust Agreement at any time after the record date for
such Capital Reorganization, in lieu of the Newco Common Stock that he would
otherwise have been entitled to receive pursuant to the provisions hereof or
thereof, the number of shares or other securities of Newco or of the body
corporate resulting, surviving or continuing from the Capital Reorganization, or
other property, that such holder would have been entitled to receive as a result
of such Capital Reorganization if, on the record date, he had been the
registered holder of the number of shares of Newco Common Stock to which he was
then entitled upon any exchange of his Exchangeable Shares into shares of Newco
Common Stock in accordance with the provisions hereof, subject to adjustment
thereafter in the same manner, as nearly as may be possible, as is provided for
in the definition of Current Newco Common Stock Equivalent provided that no such
Capital Reorganization shall be carried into effect unless all necessary steps
shall have been taken so that each holder of Exchangeable Shares shall
thereafter be entitled to receive, upon any exchange of his Exchangeable Shares
pursuant to the provisions hereof, such number of shares or other securities of
Newco or of the body corporate resulting, surviving or continuing from the
Capital Reorganization, or other property.
ARTICLE VI--AMENDMENT
6.1 PLAN OF ARRANGEMENT AMENDMENT
The Corporation reserves the right to amend, modify and/or supplement this
Plan of Arrangement at any time and from time to time provided that any such
amendment, modification, or supplement must be contained in a written document
that is (i) agreed to in writing by Newco and Checkmate, (ii) filed with the
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Court and, if made following the Meeting, approved by the Court and (iii)
communicated to holders of IVI Common Shares in the manner required by the Court
(if so required). Any amendment, modification or supplement to this Plan of
Arrangement may be proposed by the Corporation at any time prior to or at the
Meeting (provided that Newco and Checkmate shall have consented thereto) with or
without any other prior notice or communication, and if so proposed and accepted
by the persons voting at the Meeting (other than as may be required under the
Court's interim order), shall become part of this Plan of Arrangement for all
purposes. Any amendment, modification or supplement to this Plan of Arrangement
that is approved by the Court following the Meeting shall be effective only (i)
if it is consented to by the Corporation, (ii) if it is agreed to, in writing,
by Newco and Checkmate and (iii) if required by applicable law, it is consented
to by the holders of the IVI Common Shares.
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ANNEX L
EXCHANGEABLE SHARE PROVISIONS
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INTERNATIONAL VERIFACT INC.
SHARE PROVISIONS
PROVISIONS ATTACHING TO THE EXCHANGEABLE SHARES
The Exchangeable Shares in the capital of the Corporation shall have the
following rights, privileges, restrictions and conditions.
ARTICLE 1
INTERPRETATION
1.1 For the purposes of these share provisions:
"AFFILIATE" 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; including, without limitation, any partnership or joint
venture in which Checkmate Electronics Inc., International Verifact Inc. or
Newco, as the case may be, (either alone, or through or together with any other
subsidiary) has, directly or indirectly, an equity interest of 10 percent or
more;
"AUTOMATIC REDEMPTION DATE" means the date for the automatic redemption by
the Corporation of Exchangeable Shares pursuant to Article 6 of these share
provisions, which date shall be the first to occur of (a) the 10th anniversary
of the Effective Date of the Arrangement, (b) the date selected by the Board of
Directors at any time when less than 5% of the Exchangeable Shares issued on the
Effective Date are outstanding (other than Exchangeable Shares held by Newco and
its Affiliates) and as such number of shares may be adjusted as deemed
appropriate by the Board of Directors to give effect to any subdivision or
consolidation of or stock dividend on the Exchangeable Shares, any issuance or
distribution of rights to acquire Exchangeable Shares or securities exchangeable
for or convertible into or carrying rights to acquire Exchangeable Shares, any
issue or distribution of other securities or rights or evidences of indebtedness
or assets, or any other capital reorganization or other transactions involving
or affecting the Exchangeable Shares outstanding, (c) the Business Day prior to
the record date for any meeting or vote of the shareholders of the Corporation
to consider any matter on which the holders of Exchangeable Shares would be
entitled to vote as shareholders of the Corporation, but excluding any meeting
or vote as described in clause (d) below or (d) the Business Day following the
day on which the holders of Exchangeable Shares fail to take the necessary
action at a meeting or other vote of holders of Exchangeable Shares, if and to
the extent such action is required, to approve or disapprove, as applicable, any
change to, or in the rights of the holders of, Exchangeable Shares, if the
approval or disapproval, as applicable, of such change would be required to
maintain the economic and legal equivalence of the Exchangeable Shares and the
Newco Common Stock.
"BOARD OF DIRECTORS" means the board of directors of the Corporation.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day when
banks are not open for business in one or both of the State of Delaware and
Toronto, Ontario.
"CANADIAN DOLLAR EQUIVALENT" means in respect of an amount expressed in a
foreign currency (the "Foreign Currency Amount") at any date the product
obtained by multiplying (a) the Foreign Currency Amount by (b) the noon spot
exchange rate on such date for such foreign currency expressed in Canadian
dollars as reported by the Bank of Canada or, in the event such spot exchange
rate is not available, such exchange rate on such date for such foreign currency
expressed in Canadian dollars as may be deemed by the Board of Directors to be
appropriate for such purpose.
"CAPITAL REORGANIZATION" has the meaning ascribed thereto in Section 9.2 of
these share provisions.
"CBCA" means the CANADA BUSINESS CORPORATIONS ACT, as amended from time to
time.
"COMMON SHARES" means the common shares of the Corporation having the
rights, privileges, restrictions and conditions set forth herein.
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"CORPORATION" means International Verifact Inc., a corporation continued
under the CBCA.
"CURRENT MARKET PRICE" means, in respect of a share of Newco Common Stock on
any date, in the discretion of the Board of Directors either (i) the closing
sale price of a share of Newco Common Stock on such date (or, if no trades of
any Newco Common Stock occurred on such date, on the last trading day prior
thereto on which such trades occurred) reported on The Toronto Stock Exchange,
or (ii) the Canadian Dollar Equivalent of the closing sale price of a share of
Newco Common Stock on such date (or, if no trades of any Newco Common Stock
occurred on such date, on the last trading day prior thereto on which such
trades occurred) reported on Nasdaq, or, if shares of Newco Common Stock are not
then quoted on Nasdaq or The Toronto Stock Exchange, on such other stock
exchange or automated quotation system on which shares of Newco Common Stock are
listed or quoted, as the case may be, as may be selected by the Board of
Directors for such purpose; provided, however, that if in the opinion of the
Board of Directors the public distribution or trading activity of Newco Common
Stock during such period does not create a market that reflects the fair market
value of Newco Common Stock, then the Current Market Price of a share of Newco
Common Stock shall be determined by the Board of Directors based upon the advice
of such qualified independent financial advisors as the Board of Directors may
deem to be appropriate, and provided further that any such selection, opinion or
determination by the Board of Directors shall be conclusive and binding.
"CURRENT NEWCO COMMON STOCK EQUIVALENT" means, on any date, the equivalent
as at such date of one share of Newco Common Stock as at the Effective Date,
expressed to four decimal places, (the Current Newco Common Stock Equivalent as
of the Effective Date being 1.0000 [subject to adjustment in accordance with the
Combination Agreement]) determined by applying on a cumulative basis the
following adjustments, to the extent applicable by reason of any transactions
occurring in respect of Newco Common Stock between the Effective Date and such
date:
(i) if Newco shall (A) subdivide, redivide, convert or otherwise amend its then
outstanding shares of Newco Common Stock into a greater number of shares of
Newco Common Stock, unless the Corporation is permitted under applicable law
without a vote of its shareholders to make, and shall simultaneously make,
the same or an economically equivalent change to the rights of the holders
of Exchangeable Shares, (B) combine, consolidate, convert or otherwise amend
its then outstanding shares of Newco Common Stock into a lesser number of
shares of Newco Common Stock, unless the Corporation is permitted under
applicable law without a vote of its shareholders to make, and shall
simultaneously make, the same or an economically equivalent change to the
rights of the holders of Exchangeable Shares, or (C) issue shares of Newco
Common Stock (or securities exchangeable or convertible into Newco Common
Stock, but excluding any securities issued in a Rights Offering or in a
Special Distribution) to the holders of all or substantially all of its then
outstanding shares of Newco Common Stock by way of stock dividend or other
distribution (other than to holders of Newco Common Stock who exercise an
option to receive stock dividends in lieu of receiving cash dividends),
unless the Corporation is permitted under applicable law without a vote of
its shareholders to issue or distribute, and shall simultaneously issue and
distribute, equivalent numbers of shares of Newco Common Stock or other
securities (adjusted if necessary in accordance with the Current Newco
Common Stock Equivalent), or the economic equivalent on a per share basis,
to the holders of the Exchangeable Shares (any of such events being herein
called the "Newco Common Stock Reorganization"), the Current Newco Common
Stock Equivalent shall be adjusted effective immediately after the record
date at which the holders of Newco Common Stock are determined for the
purpose of the Newco Common Stock Reorganization by multiplying the Current
Newco Common Stock Equivalent in effect on such record date by the quotient
obtained when:
(A) the number of shares of Newco Common Stock outstanding after the
completion of such Newco Common Stock Reorganization (but before giving
effect to the issue or cancellation of any shares of Newco Common Stock
issued or cancelled after such record date otherwise than as part of such
Newco Common Stock Reorganization) including, in the case where
securities exchangeable
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or convertible into Newco Common Stock are distributed, the number shares
of Newco Common Stock that would have been outstanding had such
securities been exchanged for or converted into Newco Common Stock on
such record date,
is divided by
(B) the number of shares of Newco Common Stock outstanding on such record
date before giving effect to the Newco Common Stock Reorganization;
(ii) if at any time Newco shall fix a record date for the issuance of rights,
options or warrants to the holders of all or substantially all of the shares
of Newco Common Stock entitling them to subscribe for or to purchase shares
of Newco Common Stock (or securities of Newco convertible into shares of
Newco Common Stock) at a price per share of Newco Common Stock (or having a
conversion price per Newco Common Stock) of less than the Current Market
Price on such record date, unless the Corporation is permitted under
applicable law without a vote of its shareholders to issue, and shall
simultaneously issue, equivalent numbers of such rights, option or warrants,
adjusted if necessary in accordance with the Current Newco Common Stock
Equivalent at such record date, or the economic equivalent thereof on a per
share basis, to the holders of Exchangeable Shares (any such event being
herein referred to as a "Rights Offering"), then the Current Newco Common
Stock Equivalent then in effect shall be adjusted immediately after such
record date by multiplying the Current Newco Common Stock Equivalent in
effect on such record date by the quotient obtained when:
(A) the sum of the number of shares of Newco Common Stock outstanding on
such record date and the number of additional shares of Newco Common
Stock offered for subscription or purchase under the Rights Offering (or
the number of shares of Newco Common Stock into which the securities so
offered are convertible)
is divided by
(B) the sum of the number of shares of Newco Common Stock outstanding on
such record date and the number determined by dividing the aggregate
price of the total number of additional shares of Newco Common Stock
offered for subscription or purchase under the Rights Offering (or the
aggregate conversion price of the convertible securities so offered) by
the Current Market Price on such record date.
Any shares of Newco Common Stock owned by or held for the account of
Newco shall be deemed not to be outstanding for the purpose of any such
computation. If such rights, option or warrants are not so issued or if, at
the date of expiry of the rights, options or warrants subject to the Rights
Offering, less than all the rights, options or warrants have been exercised,
then the Current Newco Common Stock Equivalent shall be readjusted effective
immediately after the date of expiry (or determination by the Board of
Directors of Newco that the issue will not take place) to the Current Newco
Common Stock Equivalent which would have been in effect if such record date
had not been fixed or to the Current Newco Common Stock Equivalent which
would then be in effect on the date of expiry if the only rights, options or
warrants issued had been those that were exercised, as the case may be;
(iii) if Newco shall fix a record date for the making of a distribution
(including a distribution by way of stock dividend) to the holders of all or
substantially all its outstanding shares of Newco Common Stock of
(A) shares of Newco of any class other than Newco Common Stock (excluding
shares convertible into Newco Common Stock referred to in (i) (C) above),
(B) rights, option or warrants (excluding a Rights Offering),
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(C) evidences of its indebtedness (excluding indebtedness convertible into
Newco Common Stock referred to in (i) (C) above) or
(D) any other assets (other than any of the distributions referred to in
(A), (B) or (C), dividends paid in the ordinary course, a Rights Offering
or a Newco Common Stock Reorganization)
unless the Corporation is permitted under applicable law without a vote of
its shareholders to distribute, and shall simultaneously distribute, the
same number of shares, rights, options or warrants, evidences of
indebtedness or other assets, as the case may be, adjusted if necessary in
accordance with the Current Newco Common Stock Equivalent, as at such record
date, or the economic equivalent thereof on a per share basis, to the
holders of Exchangeable Shares (any such event being herein referred to as a
"Special Distribution") then, in each such case, the Current Newco Common
Stock Equivalent shall be adjusted effective immediately after the record
date at which the holders of Newco Common Stock are determined for the
purposes of the Special Distribution by multiplying the Current Newco Common
Stock Equivalent in effect on such record date by the quotient obtained
when:
(I) the product obtained when the number of shares of Newco Common Stock
outstanding on the record date is multiplied by the Current Market
Price on such date,
is divided by
(II) the difference obtained when the amount by which the aggregate fair
market value (as determined by the Board of Directors, which
determination shall be conclusive) of the shares, rights, options,
warrants, evidences of indebtedness or assets, as the case may be,
distributed in the Special Distribution exceeds the fair market value
(as determined by the Board of Directors, which determination shall
be conclusive) of the consideration, if any, received therefore by
Newco, is subtracted from the product obtained when the number of
shares of Newco Common Stock outstanding on the record date is
multiplied by the Current Market Price on such date,
provided that no such adjustment shall be made if the result of such
adjustment would be to decrease the Current Newco Common Stock Equivalent in
effect immediately before such record date. Any share of Newco Common Stock
owned by or held for the account of Newco shall be deemed not to be
outstanding for the purpose of any such computation. Such adjustment shall
be made successively whenever such a record date is fixed. To the extent
that such distribution is not so made, the Current Newco Common Stock
Equivalent shall be readjusted effective immediately to the Current Newco
Common Stock Equivalent which would then be in effect based upon such shares
or rights, options or warrants or evidences of indebtedness or assets
actually distributed.
Notwithstanding any of the foregoing definition of "Current Newco Common
Stock Equivalent", in no event may any one distribution, issuance of securities
or other event be deemed to be more than one of a Newco Common Stock
Reorganization, Rights Offering or Special Distribution.
"EFFECTIVE DATE" has the meaning ascribed thereto in the Plan of
Arrangement.
"EXCHANGEABLE SHARES" means the Exchangeable Non-Voting Shares of the
Corporation having the rights, privileges, restrictions and conditions set forth
herein.
"LIEN" has the meaning ascribed thereto in the Combination Agreement.
"LIQUIDATION AMOUNT" has the meaning ascribed thereto in Section 4.1 of
these share provisions.
"LIQUIDATION CALL RIGHT" has the meaning ascribed thereto in the Plan of
Arrangement.
"LIQUIDATION DATE" has the meaning ascribed thereto in Section 4.1 of these
share provisions.
"NASDAQ" means the National Market System.
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"NEWCO" means IVI Checkmate Corp., a corporation organized and existing
under the laws of the State of Delaware, and any successor corporation.
"NEWCO CALL NOTICE" has the meaning ascribed thereto in the Plan of
Arrangement.
"NEWCO COMMON STOCK REORGANIZATION" has the meaning ascribed thereto in the
definition of "Current Newco Common Stock Equivalent" in Section 1.1 of these
share provisions.
"NEWCO COMMON STOCK" means the common stock of Newco, with a par value of
U.S.$.01 per share and having one vote per share, and any other securities into
which such shares may be changed.
"NEWCO DIVIDEND DECLARATION DATE" means the date on which the Board of
Directors of Newco declares any dividend on the Newco Common Stock.
"NEWCO SPECIAL SHARE" means the one share of the Special Voting Preferred
Stock of Newco with a par value of U.S.$.01 and having voting rights at meetings
of holders of shares of Newco Common Stock equal to the number of Exchangeable
Shares outstanding from time to time (other than Exchangeable Shares held by
Newco) to be issued to, and voted by, the Trustee pursuant to the Voting and
Exchange Trust Agreement.
"PLAN OF ARRANGEMENT" means the plan of arrangement relating to the
arrangement of the Corporation under section 192 of the CBCA, to which plan
these share provisions are attached.
"REDEMPTION CALL RIGHT" has the meaning ascribed thereto in the Plan of
Arrangement.
"REDEMPTION PRICE" has the meaning ascribed thereto in section 6.1 of these
share provisions.
"RETRACTED SHARES" has the meaning ascribed thereto in section 5.1 of these
share provisions.
"RETRACTION CALL RIGHT" has the meaning ascribed thereto in the Plan of
Arrangement.
"RETRACTION DATE" has the meaning ascribed thereto in section 5.2 of these
share provisions.
"RETRACTION PERIOD" means the period (and including the beginning and ending
dates) from the Effective Date until the date which is , 2008 [10 YEARS
FROM EFFECTIVE DATE].
"RETRACTION PRICE" has the meaning ascribed thereto in section 5.1 of these
share provisions.
"RETRACTION REQUEST" has the meaning ascribed thereto in section 5.1 of
these share provisions.
"RIGHTS OFFERING" has the meaning ascribed thereto in the definition of
"Current Newco Common Stock Equivalent" in Section 1.1 of these share
provisions.
"SPECIAL DISTRIBUTION" has the meaning ascribed thereto in the definition of
"Current Newco Common Stock Equivalent" in Section 1.1 of these share
provisions.
"SUPPORT AGREEMENT" means the Support Agreement between Newco and the
Corporation, made as of , 1998.
"TRANSFER AGENT" means Montreal Trust Company of Canada or such other person
as may from time to time be the registrar and transfer agent for the
Exchangeable Shares.
"TRUSTEE" means Montreal Trust Company of Canada, a corporation organized
and existing under the laws of Canada and any successor trustee appointed under
the Voting and Exchange Trust Agreement.
"VOTING AND EXCHANGE TRUST AGREEMENT" means the Voting and Exchange Trust
Agreement between the Corporation, Newco and the Trustee, made as of ,
1998.
1.2 All amounts required to be paid, deposited or delivered hereunder shall
be paid, deposited or delivered after deduction of any amount required by
applicable law to be deducted or withheld on account
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of tax and the deduction of such amounts and remittance to the applicable tax
authorities shall, to the extent thereof, satisfy such requirement to pay,
deposit or deliver hereunder.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 The Exchangeable Shares shall rank senior to the Common Shares and any
other shares ranking junior to the Exchangeable Shares, with respect to the
payment of dividends and the distribution of assets in the event of the
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary, or any other distribution of the assets of the Corporation among
its shareholders for the purpose of winding-up its affairs.
ARTICLE 3
DIVIDENDS
3.1 A holder of an Exchangeable Share shall be entitled to receive and the
Board of Directors shall, subject to applicable law, declare a dividend on each
Exchangeable Share (a) in the case of a cash dividend declared on the Newco
Common Stock, in an amount in cash for each Exchangeable Share equal to the
Canadian Dollar Equivalent on the Newco Dividend Declaration Date of the cash
dividend declared on such number of shares of Newco Common Stock as is equal to
the Current Newco Common Stock Equivalent on the Newco Dividend Declaration Date
or (b) in the case of a stock dividend declared on the Newco Common Stock to be
paid in shares of Newco Common Stock, in such whole number of Exchangeable
Shares for the Exchangeable Shares held by each holder as is equal to the number
of whole shares of Newco Common Stock to be paid as a dividend on the equivalent
number of shares of Newco Common Stock divided by the Current Newco Common Stock
Equivalent on the Newco Dividend Declaration Date or (c) in the case of a
dividend declared on the shares of Newco Common Stock to be paid in property
other than cash or Newco Common Stock (including without limitation other
securities of Newco), in such type and amount of property for each Exchangeable
Share as is the same as or economically equivalent (as determined by the Board
of Directors in accordance with section 9.1) to the type and amount of property,
to be paid as a dividend on such number of shares of Newco Common Stock as is
equal to the Current Newco Common Stock Equivalent on the Newco Dividend
Declaration Date. Such dividends shall be paid out of money, assets or property
of the Corporation properly applicable to the payment of dividends, or out of
authorized but unissued Exchangeable Shares. To the extent that the Corporation
complies with this section 3.1, any Newco dividend contemplated by this section
3.1 shall in no event be deemed to be a Newco Common Stock Reorganization,
Rights Offering or Special Distribution.
3.2 Cheques of the Corporation payable at par at any branch of the bankers
of the Corporation shall be issued in respect of any cash dividends contemplated
by subsection 3.1(a) hereof or in respect of any cash amount payable in lieu of
a fractional Exchangeable Share in connection with any stock dividends
contemplated by subsection 3.1(b) hereof and the sending of such a cheque to
each holder of an Exchangeable Share shall satisfy the cash dividend represented
thereby unless the cheque is not paid on presentation. Certificates registered
in the name of the registered holder of Exchangeable Shares shall be issued or
transferred in respect of any stock dividends contemplated by subsection 3.1(b)
hereof and the sending of such a certificate to each holder of an Exchangeable
Share shall satisfy the stock dividend represented thereby. Such other type and
amount of property in respect of any dividends contemplated by subsection 3.1(c)
hereof shall be issued, distributed or transferred by the Corporation in such
manner as it shall determine and the issuance, distribution or transfer thereof
by the Corporation to each holder of an Exchangeable Share shall satisfy the
dividend represented thereby. No holder of an Exchangeable Share shall be
entitled to recover by action or other legal process against the Corporation any
dividend that is
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represented by a cheque that has not been duly presented to the Corporation's
bankers for payment or that otherwise remains unclaimed for a period of six
years from the date on which such dividend was payable.
3.3 The record date for the determination of the holders of Exchangeable
Shares entitled to receive payment of, and the payment date for, any dividend
declared on the Exchangeable Shares under section 3.1 hereof shall be the same
dates as the record date and payment date, respectively, for the corresponding
dividend declared on the shares of Newco Common Stock.
3.4 If on any payment date for any dividends declared on the Exchangeable
Shares under section 3.1 hereof the dividends are not paid in full on all of the
Exchangeable Shares then outstanding, any such dividends that remain unpaid
shall be paid on a subsequent date or dates determined by the Board of Directors
on which the Corporation shall have sufficient moneys, assets or property
properly applicable to the payment of such dividends.
3.5 So long as any of the Exchangeable Shares are outstanding, the
Corporation shall not at any time without, but may at any time with, the
approval of the holders of the Exchangeable Shares given as specified in section
8.2 of these share provisions:
(a) pay any dividends on the Common Shares, or any other shares ranking junior
to the Exchangeable Shares, other than stock dividends payable in Common
Shares or any such other shares ranking junior to the Exchangeable Shares,
as the case may be;
(b) redeem or purchase or make any capital distribution in respect of Common
Shares or any other shares ranking junior to the Exchangeable Shares;
(c) redeem or purchase any other shares of the Corporation ranking equally with
the Exchangeable Shares with respect to the payment of dividends or on any
liquidation distribution;
(d) issue any Exchangeable Shares other than (i) by way of stock dividends to
the holders of such Exchangeable Shares, (ii) otherwise PRO RATA to the
holders of Exchangeable Shares, (iii) as contemplated by the Support
Agreement or (iv) pursuant to any agreements or rights in existence at the
Effective Date; or
(e) issue any other shares of the Corporation ranking equally with or senior to
the Exchangeable Shares;
provided that the restrictions in subsections 3.5(a), 3.5(b) and 3.5(c) shall
not apply if all dividends on the outstanding Exchangeable Shares corresponding
to dividends declared to date on the Newco Common Stock shall have been declared
on the Exchangeable Shares and, if paid to holders of Newco Common Stock, paid
in full.
ARTICLE 4
DISTRIBUTION ON LIQUIDATION
4.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs, a holder of Exchangeable
Shares shall be entitled, subject to applicable law, to receive from the assets
of the Corporation in respect of each Exchangeable Share held by such holder on
the effective date (the "Liquidation Date") of such liquidation, dissolution or
winding-up, before any distribution of any part of the assets of the Corporation
among the holders of the Common Shares or any other shares ranking junior to the
Exchangeable Shares, an amount per share equal to (a) the Current Market Price
multiplied by the Current Newco Common Stock Equivalent, in each case determined
on the Liquidation Date, which shall be satisfied in full by the Corporation
causing to be delivered to such holder such number of shares of Newco Common
Stock as is equal to the Current Newco Common Stock Equivalent, plus (b) an
additional amount equal to the aggregate of all declared and unpaid dividends on
each such Exchangeable Share up to the Liquidation Date (collectively the
"Liquidation Amount") without interest.
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4.2 On or promptly after the Liquidation Date, and subject to the exercise
by Newco of the Liquidation Call Right, the Corporation shall cause to be
delivered to the holders of the Exchangeable Shares the Liquidation Amount for
each such Exchangeable Share upon presentation and surrender of the certificates
representing such Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
the CBCA and the by-laws of the Corporation and such additional documents and
instruments as the Transfer Agent may reasonably require, at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation by notice to the holders of the Exchangeable
Shares. Payment of the total Liquidation Amount for all of the Exchangeable
Shares held by a holder thereof shall be made by delivery to each such holder,
at the address of the holder recorded in the securities register of the
Corporation of the Exchangeable Shares or by holding for pick-up by the holder
at the registered office of the Corporation or at any office of the Transfer
Agent as may be specified by the Corporation by notice to the holders of
Exchangeable Shares, on behalf of the Corporation of certificates representing
the shares of Newco Common Stock to be delivered in payment thereof (which
shares shall be duly issued as fully paid and non-assessable and shall be free
and clear of any Liens) and a cheque of the Corporation payable at any branch of
the bankers of the Corporation in respect of all declared and unpaid dividends
comprising part of the total Liquidation Amount for all outstanding Exchangeable
Shares without interest. On and after the Liquidation Date, the holders of the
Exchangeable Shares shall cease to be holders of such Exchangeable Shares and
shall not be entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive the total Liquidation Amount in respect
of their Exchangeable Shares, unless payment of the total Liquidation Amount for
such Exchangeable Shares shall not be made upon presentation and surrender of
share certificates in accordance with the foregoing provisions, in which case
the rights of the holders shall remain unaffected until the total Liquidation
Amount for their Exchangeable Shares has been paid in the manner hereinbefore
provided. The Corporation shall have the right at any time on or after the
Liquidation Date to deposit or cause to be deposited the total Liquidation
Amount in respect of the Exchangeable Shares represented by certificates that
have not at the Liquidation Date been surrendered by the holders thereof in a
custodial account with any chartered bank or trust company in Canada. Upon such
deposit being made, the rights of the holders of such Exchangeable Shares after
such deposit shall be limited to receiving the total Liquidation Amount (without
interest) for such Exchangeable Shares so deposited, against presentation and
surrender of the said certificates held by them, respectively, in accordance
with the foregoing provisions.
4.3 After the Corporation has satisfied its obligations to pay the holders
of the Exchangeable Shares the Liquidation Amount per Exchangeable Share
pursuant to section 4.1 of these share provisions, such holders shall not be
entitled to share in any further distribution of the assets of the Corporation
or have any other rights as holders of Exchangeable Shares.
ARTICLE 5
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
5.1 A holder of Exchangeable Shares shall be entitled during any Retraction
Period, subject to the exercise by Newco of the Retraction Call Right and
otherwise upon compliance with the provisions of this Article 5, to require the
Corporation to redeem any or all of the Exchangeable Shares registered in the
name of such holder (the "Retracted Shares") for an amount for each Retracted
Share equal to (a) the Current Market Price multiplied by the Current Newco
Common Stock Equivalent, in each case determined on the Retraction Date, which
shall be satisfied in full in respect of a Retracted Share by the Corporation
causing to be delivered to such holder such number of shares of Newco Common
Stock as is equal to the Current Newco Common Stock Equivalent, plus (b) the
aggregate of all dividends declared and unpaid on each Retracted Share up to the
Retraction Date (collectively the "Retraction Price", provided that if the
record date for any such declared and unpaid dividend occurs on or after the
Retraction Date the Retraction Price shall not include such declared and unpaid
dividends). To effect such
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redemption, the holder shall present and surrender at any office of the Transfer
Agent the certificate or certificates representing the Exchangeable Shares which
the holder desires to have the Corporation redeem, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the CBCA and the by-laws of the Corporation and such
additional documents and instruments as the Transfer Agent may reasonably
require, and together with a duly executed statement (the "Retraction Request")
in the form of Schedule A hereto or in such other form as may be acceptable (in
their sole discretion) to the Transfer Agent and Newco:
(a) specifying that the holder desires to have the Retracted Shares
represented by such certificate or certificates redeemed by the Corporation;
and
(b) acknowledging the Retraction Call Right of Newco to purchase all
but not less than all the Retracted Shares directly from the holder and that
the Retraction Request shall be deemed to be an irrevocable offer by the
holder to sell the retracted Shares to Newco in accordance with the
Retraction Call Right.
5.2 Subject to the exercise by Newco of the Retraction Call Right, upon
receipt by the Transfer Agent in the manner specified in section 5.1 hereof of a
certificate or certificates representing the number of Exchangeable Shares which
the holder desires to have the Corporation redeem, together with such other
documents and instruments as may be required pursuant to section 5.1 and a
Retraction Request, the Corporation shall redeem the Retracted Shares effective
at the close of business on the sixth Business Day after the Retraction Request
is received (the "Retraction Date") and shall cause to be delivered to such
holder the total Retraction Price with respect of all such Retracted Shares. If
only a part of the Exchangeable Shares represented by any certificate are
redeemed (or purchased by Newco pursuant to the Retraction Call Right), a new
certificate for the balance of such Exchangeable Shares shall be issued to the
holder at the expense of the Corporation.
5.3 Upon receipt by the Transfer Agent of a Retraction Request, the Transfer
Agent shall forthwith notify Newco thereof. In order to exercise the Retraction
Call Right, Newco must deliver a Newco Call Notice to the Transfer Agent prior
to the expiry of the fifth Business Day after the receipt by the Transfer Agent
of the Retraction Request. If Newco does not so notify the Transfer Agent, the
Transfer Agent will notify the holder as soon as possible thereafter that Newco
will not exercise the Retraction Call Right. If Newco delivers the Newco Call
Notice before the end of such five Business Day period, the Retraction Request
shall thereupon be considered only to be an offer by the holder to sell the
Retracted Shares to Newco in accordance with the Retraction Call Right. In such
event, the Corporation shall not redeem the Retracted Shares and Newco shall
purchase from such holder and such holder shall sell to Newco on the Retraction
Date the Retracted Shares pursuant to the Retraction Call Right.
5.4 If a Retraction Request is received by the Transfer Agent pursuant to
section 5.1 and Newco has not exercised the Retraction Call Right, the
Corporation shall cause the Transfer Agent to deliver to the holder of the
Retracted Shares, at the address of the holder recorded in the securities
register of the Corporation for the Exchangeable Shares or at the address
specified in the holder's Retraction Request or by holding for pick-up by the
holder at the office of the Transfer Agent to which the Retraction Request was
delivered, certificates representing the shares of Newco Common Stock to be
delivered to the holder in payment of the total Retraction Price for all of the
Retracted Shares (or the portion thereof payable in Newco Common Stock, as the
case may be) (which shares shall be duly issued as fully paid and non assessable
and shall be free and clear of any Liens) registered in the name of the holder
or in such other name as the holder may request and a cheque of the Corporation
payable at par at any branch of the bankers of the Corporation in payment of the
remaining portion, if any, of the total Retraction Price (or, if any part of the
Retraction Price consists of dividends payable in property, such property or
property that is the same as or economically equivalent to such property), and
such delivery of such certificates and cheque (and property, if any) on behalf
of the Corporation by the Transfer Agent shall be deemed to be payment of and
shall satisfy and discharge all liability for the total Retraction Price for all
of the Retracted Shares,
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to the extent that the same is represented by such share certificates and cheque
(and property, if any), unless such cheque is not paid on due presentation.
5.5 On and after the close of business on the Retraction Date, the holder of
the Retracted Shares shall cease to be a holder of such Retracted Shares and
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive the total Retraction Price for all of
the Retracted Shares, unless upon presentation and surrender of certificates in
accordance with the foregoing provisions, payment of the total Retraction Price
for all of the Retracted Shares shall not be made, in which case the rights of
such holders shall remain unaffected until the total Retraction Price has been
paid in the manner hereinbefore provided. On and after the close of business on
the Retraction Date, provided that presentation and surrender of certificates
and payment of the total Retraction Price for all of the Retracted Shares has
been made in accordance with the foregoing provisions, the holder of the
Retracted Shares so redeemed by the Corporation shall thereafter be considered
and deemed for all purposes to be a holder of the shares of Newco Common Stock
delivered to it.
5.6 Notwithstanding any other provision of this Article 5, the Corporation
shall not be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent that such redemption of Retracted Shares would
be contrary to solvency requirements or other provisions of applicable law. If
the Corporation believes that on any Retraction Date it would not be permitted
by any of such provisions to redeem the Retracted Shares tendered for redemption
on such date, and provided that Newco shall not have exercised the Retraction
Call Right with respect to the Retracted Shares, the Corporation shall be
obligated to redeem Retracted Shares specified by holders in Retraction Requests
only to the extent of the maximum number that may be so redeemed (rounded down
to a whole number of shares) as would not be contrary to such provisions on a
PRO RATA basis and shall notify the relevant holders at least five Business Days
prior to the Retraction Date as to the number of Retracted Shares which will not
be redeemed by the Corporation and the Corporation shall issue to each holder of
Retracted Shares a new certificate, at the expense of the Corporation,
representing the Retracted Shares not redeemed by the Corporation pursuant to
section 5.2 hereof. The holder of any such Retracted Shares not redeemed by the
Corporation pursuant to section 5.2 of these share provisions as a result of
solvency requirements of applicable law shall be deemed by giving the Retraction
Request to require Newco to purchase such Retracted Shares from such holder
pursuant to the Exchange Right (as defined in the Voting and Exchange Trust
Agreement).
ARTICLE 6
REDEMPTION OF EXCHANGEABLE SHARES
6.1 Subject to applicable law and if Newco does not exercise the Redemption
Call Right, the Corporation shall on the Automatic Redemption Date redeem the
whole of the then outstanding Exchangeable Shares for an amount per share equal
to (a) the Current Market Price multiplied by the Current Newco Common Stock
Equivalent, in each case determined on the Automatic Redemption Date, which
shall be satisfied in full in respect of an Exchangeable Share by the
Corporation causing to be delivered to such a holder such number of shares of
Newco Common Stock as is equal to the Current Newco Common Stock Equivalent,
plus (b) the aggregate of all declared and unpaid dividends thereon up to the
Automatic Redemption Date (collectively the "Redemption Price") (provided that
if the record date for any such declared and unpaid dividends occurs on or after
the Automatic Redemption Date, the Redemption Price shall not include such
declared and unpaid dividends).
6.2 On or after the Automatic Redemption Date and subject to the exercise by
Newco of the Redemption Call Right, the Corporation shall cause to be delivered
to the holders of the Exchangeable Shares the Redemption Price for each such
Exchangeable Share upon presentation and surrender at any office of the Transfer
Agent of the certificates representing such Exchangeable Shares, together with
such other documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the CBCA and the by-laws of the Corporation and such
additional documents and instruments as the Transfer
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Agent may reasonably require. Payment of the total Redemption Price for all of
the Exchangeable Shares held by a holder shall be made by delivery to such
holder, at the address of the holder recorded in the securities register of the
Corporation or by holding for pick up by the holder at the registered office of
the Corporation or at any office of the Transfer Agent as may be specified by
the Corporation in such notice, on behalf of the Corporation of certificates
representing the shares of Newco Common Stock to be delivered to the holder in
payment of the Redemption Price for all of the Exchangeable Shares held by such
holder (or the portion thereof payable in Newco Common Stock, as the case may
be) (which shares shall be duly issued as fully paid and non-assessable and
shall be free and clear of any Liens) and a cheque of the Corporation payable at
any branch of the bankers of the Corporation in respect of all declared and
unpaid dividends comprising part of the total Redemption Price for all of the
Exchangeable Shares held by such holder (or, if any of such dividends are
payable in property, such property). On and after the Automatic Redemption Date,
the holders of the Exchangeable Shares called for redemption shall cease to be
holders of such Exchangeable Shares and shall not be entitled to exercise any of
the rights of holders in respect thereof, other than the right to receive the
total Redemption Price for their Exchangeable Shares, unless payment of the
total Redemption Price for such Exchangeable Shares shall not be made upon
presentation and surrender of certificates in accordance with the foregoing
provisions, in which case the rights of the holders shall remain unaffected
until the total Redemption Price for such shares has been paid in the manner
hereinafter provided. The Corporation shall have the right at any time to
deposit or cause to be deposited the total Redemption Price of the Exchangeable
Shares so called for redemption, or of such of the said Exchangeable Shares
represented by certificates that have not at the date of such deposit been
surrendered by the holders thereof in connection with such redemption, in a
custodial account with any chartered bank or trust company in Canada named in
such notice. Upon the later of such deposit being made and the Automatic
Redemption Date, the Exchangeable Shares in respect whereof such deposit shall
have been made shall be redeemed and the rights of the holders thereof after
such deposit or Automatic Redemption Date, as the case may be, shall be limited
to receiving the total Redemption Price for such Exchangeable Shares, against
presentation and surrender of the said certificates held by them, respectively,
in accordance with the foregoing provisions. Upon such payment or deposit of the
total Redemption Price, the holders of the Exchangeable Shares shall thereafter
be considered and deemed for all purposes to be holders of the Newco Common
Stock delivered to them.
ARTICLE 7
VOTING RIGHTS
7.1 Except as required by applicable law, and the provisions of section 3.5,
8.1 and 10.2, the holders of the Exchangeable Shares shall not be entitled as
such to receive notice of or to attend any meeting of the shareholders of the
Corporation or to vote at any such meeting.
ARTICLE 8
AMENDMENT AND APPROVAL
8.1 The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed but only with the
approval of the holders of the Exchangeable Shares given as hereinafter
specified.
8.2 Any approval given by the holders of the Exchangeable Shares to add to,
change or remove any right, privilege, restriction or condition attaching to the
Exchangeable Shares or any other matter requiring the approval or consent of the
holders of the Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable law subject to a
minimum requirement that such approval be evidenced by resolution passed by not
less than two-thirds of the votes cast on such resolution at a meeting of
holders of Exchangeable Shares duly called and held at which the holders of at
least 50% of the outstanding Exchangeable Shares at that time are present or
represented by
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proxy (excluding Exchangeable Shares beneficially owned by Newco or its
Affiliates). If at any such meeting the holders of at least 50% of the
outstanding Exchangeable Shares at that time are not present or represented by
proxy within one half hour after the time appointed for such meeting then the
meeting shall be adjourned to such date not less than 10 days thereafter and to
such time and place as may be designated by the Chairman of such meeting. At
such adjourned meeting the holders of Exchangeable Shares present or represented
by proxy thereat may transact the business for which the meeting was originally
called and a resolution passed thereat by the affirmative vote of not less than
two thirds of the votes cast on such resolution at such meeting shall constitute
the approval or consent of the holders of the Exchangeable Shares.
ARTICLE 9
ECONOMIC EQUIVALENCE; CHANGES RELATING TO NEWCO
9.1 The Board of Directors shall determine, in good faith and in its sole
discretion (with the assistance of such reputable and qualified independent
financial advisors and/or other experts as the Board of Directors may require)
economic equivalence for the purposes of any provision herein that requires such
a determination and each such determination shall be conclusive and binding on
Newco and the holders of Exchangeable Shares, where applicable.
9.2 If at any time there is a capital reorganization of Newco or a
consolidation, merger, arrangement or amalgamation (statutory or otherwise) of
Newco with or into another entity (any such event being called a "Capital
Reorganization") that is not provided for in the definitions of "Newco Common
Stock Reorganization", "Rights Offering" or "Special Distribution", any holder
of Exchangeable Shares whose Exchangeable Shares have not been exchanged for
shares of Newco Common Stock in accordance with the provisions hereof or the
provisions of the Plan of Arrangement of the Voting and Exchange Trust Agreement
prior to the record date for such Capital Reorganization shall be entitled to
receive and shall accept, upon any such exchange occurring pursuant to the
provisions hereof or thereof at any time after the record date for such Capital
Reorganization in lieu of the shares of Newco Common Stock that he would
otherwise have been entitled to receive pursuant to the provisions hereof, the
number of shares or other securities of Newco or of the body corporate
resulting, surviving or continuing from the Capital Reorganization, or other
property, that such holder would have been entitled to receive as a result of
such Capital Reorganization if, on the record date, he had been the registered
holder of the number of shares of Newco Common Stock to which he was then
entitled upon any exchange of his Exchangeable Shares into Newco Common Stock in
accordance with the provisions hereof, subject to adjustment thereafter in the
same manner, as nearly as may be possible, as is provided for in the definition
of "Current Newco Common Stock Equivalent"; provided that no such Capital
Reorganization shall be carried into effect unless all necessary steps shall
have been taken so that each holder of Exchangeable Shares shall thereafter be
entitled to receive, upon any exchange of his Exchangeable Shares pursuant to
the provisions hereof, such number of shares or other securities of Newco or of
the body corporate resulting, surviving or continuing from the Capital
Reorganization, or other property.
9.3 In the case of a reclassification of, or other change in, the
outstanding shares of Newco Common Stock other than a Newco Common Stock
Reorganization, Rights Offering, Special Distribution or a Capital
Reorganization, such changes shall be made in the rights attaching to the
Exchangeable Shares, without any action on the part of the Corporation or the
holders of the Exchangeable Shares to the extent permitted by applicable law,
effective immediately following the record date for such reclassification or
other change, to the extent necessary to ensure that holders of Exchangeable
Shares shall be entitled to receive, upon the occurrence at any time after such
record date of any event whereby they would receive Newco Common Stock pursuant
to the previous provisions hereof or the provisions of the Plan of Arrangement
or the Voting and Exchange Trust Agreement, such shares, securities or rights as
they would have received if their Exchangeable Shares had been exchanged for
Newco Common Stock pursuant to the provisions hereof or thereof immediately
prior to such record date, subject to adjustment thereafter in the
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same manner, as nearly as may be possible, as is provided for in the definition
"Current Newco Common Stock Equivalent".
9.4 No certificates or scrip representing fractional Newco Common Stock
shall be delivered to holders of Exchangeable Shares pursuant to the provisions
hereof.
ARTICLE 10
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
10.1 The Corporation will take all such actions and do all such things as
shall be necessary or advisable to perform and comply with and to ensure
performance and compliance by Newco with all provisions of the Support Agreement
and the Voting and Exchange Trust Agreement applicable to the Corporation and
Newco, respectively, in accordance with the terms thereof including, without
limitation, taking all such actions and doing all such things as shall be
necessary or advisable to enforce to the fullest extent possible for the direct
benefit of the Corporation and the holders of Exchangeable Shares all rights and
benefits in favour of the Corporation under or pursuant to such agreements.
10.2 The Corporation shall not propose, agree to or otherwise give effect to
any amendment to, or waiver or forgiveness of its rights or obligations under,
the Support Agreement and the Voting and Exchange Trust Agreement without the
approval of the holders of the Exchangeable Shares given in accordance with
section 8.2 of these share provisions other than such amendments, waivers and/or
forgiveness as may be necessary or advisable for the purposes of:
(a) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders of
Exchangeable Shares; or
(b) making such provisions or modifications not inconsistent with such
agreements as may be necessary or desirable with respect to matters or
questions arising thereunder which, in the opinion of the Board of
Directors, it may be expedient to make, provided that the Board of Directors
shall be of the opinion, after consultation with counsel, that such
provisions and modifications will not be prejudicial to the interests of the
holders of the Exchangeable Shares; or
(c) making such changes in or corrections to such agreements which, on
the advice of counsel to the Corporation, are required for the purpose of
curing or correcting any ambiguity or defect or inconsistent provision or
clerical omission or mistake or manifest error contained therein, provided
that the Board of Directors shall be of the opinion, after consultation with
counsel, that such changes or corrections will not be prejudicial to the
interests of the holders of the Exchangeable Shares.
ARTICLE 11
LEGEND
11.1 The certificates evidencing the Exchangeable Shares shall contain or
have affixed thereto a legend, in form and on terms approved by the Board of
Directors, with respect to: the Support Agreement; the provisions of the Plan of
Arrangement relating to the Retraction Call Right, the Liquidation Call Right
and the Redemption Call Right, and the Voting and Exchange Trust Agreement
(including the provisions with respect to the Voting Rights, Exchange Rights and
Automatic Exchange Rights thereunder).
ARTICLE 12
NOTICES
12.1 Any notice, request or other communication to be given to the
Corporation by a holder of Exchangeable Shares shall be in writing and shall be
valid and effective if given by mail (postage paid) or by telecopy or by
delivery to the registered office of the Corporation and addressed to the
attention of the
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President. Any such notice, request or other communication, if given by mail,
telecopy or delivery, shall only be deemed to have been given and received upon
actual receipt thereof by the Corporation.
12.2 Any presentation and surrender by a holder of Exchangeable Shares to
the Corporation or the Transfer Agent of certificates representing Exchangeable
Shares in connection with the liquidation, dissolution or winding up of the
Corporation or the retraction or redemption of Exchangeable Shares shall be made
by registered mail (postage prepaid) or by delivery to the registered office of
the Corporation or to such office of the Transfer Agent as may be specified by
the Corporation, in each case addressed to the attention of the President of the
Corporation. Any such presentation and surrender of certificates shall only be
deemed to have been made and to be effective upon actual receipt thereof by the
Corporation or the Transfer Agent, as the case may be. Any such presentation and
surrender of certificates made by registered mail shall be at the sole risk of
the holder mailing the same.
12.3 Any notice, request or other communication to be given to a holder of
Exchangeable Shares by or on behalf of the Corporation shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by delivery
to the address of the holder recorded in the securities register of the
Corporation or, in the event of the address of any such holder not being so
recorded, then at the last known address of such holder. Any such notice,
request or other communication, if given by mail, shall be deemed to have been
given and received on the fifth Business Day following the date of mailing and,
if given by delivery, shall be deemed to have been given and received on the
date of delivery. Accidental failure or omission to give any notice, request or
other communication to one or more holders of Exchangeable Shares shall not
invalidate or otherwise alter or affect any action or proceeding to be taken by
the Corporation pursuant thereto.
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PROVISIONS ATTACHING TO THE PREFERRED SHARES AS A CLASS
The Preferred Shares, as a class, shall have attached thereto the following
rights, privileges, restrictions and conditions:
1. The Preferred Shares may from time to time be issued in one or more
series and subject to the following provisions, and subject to the sending of
articles of amendment in prescribed form, and the endorsement thereon of a
certificate of amendment in respect thereof, the directors may fix from time to
time before such issue the number of shares that is to comprise each series and
the designation, rights, privileges, restrictions and conditions attaching to
each series of Preferred Shares including, without limiting the generality of
the foregoing, the issue price per share of the shares of such series, the rate
or amount of any dividends or the method of calculating any dividends, the dates
of payment thereof, any redemption, purchase and/or conversion prices and terms
and conditions of any redemption, purchase and/ or conversion, and any sinking
fund or other provisions;
2. The Preferred Shares of each series shall, with respect to the payment of
any dividends and any distribution of assets or return of capital in the event
of liquidation, dissolution or winding-up of the Corporation, whether voluntary
or involuntary, or any other return of capital or distribution of the assets of
the Corporation among its shareholders for the purpose of winding-up its
affairs, rank on a parity with the Preferred Shares of every other series and be
entitled to preference over any other shares of the Corporation ranking junior
to the Preferred Shares. The Preferred Shares of any series may also be given
such other preferences, not inconsistent with these articles, over the Common
Shares and any other shares of the Corporation ranking junior to such Preferred
Shares as may be fixed in accordance with section 1 above;
3. If any cumulative dividends or amounts payable on the return of capital
in respect of a series of Preferred Shares are not paid in full, all series of
Preferred Shares shall participate rateably in respect of such dividends and
return of capital;
4. The Preferred Shares of any series may be made convertible into Common
Shares;
5. Unless the directors otherwise determine in the articles of amendment
designating a series, and subject to the provisions of the CBCA and section 6
below, the Preferred Shares shall have no voting rights as a class; and
6. Any amendment to the articles of the Corporation to remove or vary any
rights, privileges, restrictions and conditions attaching to the Preferred
Shares as a class or to create any other class of shares ranking in priority to
or on a parity with the Preferred Shares, in addition to the authorization by
special resolution, must be given by at least two-thirds of the votes cast at a
meeting of the holders of Preferred Shares duly called for that purpose and at
every such meeting a holder of a Preference Share shall be entitled to one vote
in respect of each Preference Share held in addition to any other vote required
by the CBCA.
SERIES A PREFERRED SHARES
The first series of Preferred Shares shall consist of one share and shall be
designated as Series A Preferred Shares and in addition to the rights,
privileges, restrictions and conditions attaching to the Preferred Shares as a
class shall have attached thereto the following rights, privileges, restrictions
and conditions:
1. RANKING
The Series A Preferred Share shall rank junior to any other shares of the
Corporation with respect to the payment of dividends and repayment of capital.
2. DIVIDENDS
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The holder of the Series A Preferred Share shall not be entitled to receive
any dividend declared by the directors of the Corporation.
3. VOTING RIGHTS
The holder of the Series A Preferred Share shall be entitled to receive
notice of and to attend and vote at meetings of the shareholders of the
Corporation.
4. RIGHTS ON DISSOLUTION
In the event of the liquidation, dissolution or winding-up of the
Corporation whether voluntary or involuntary, the holder of the Series A
Preferred Share shall be entitled to receive in respect of such share, before
any distribution of any part of the assets of the Corporation among the holders
of any other class of shares of the Corporation ranking junior to the Series A
Preferred Share, an amount equal to $.01 per Series A Preferred Share.
5. CONVERSION
(a) Upon and subject to the terms and conditions hereinafter set forth
the holder of the Series A Preferred Share shall have the right to convert
the Series A Preferred Share into one fully-paid and non-assessable Common
Share on the basis of one Common Share as presently constituted for the
Series A Preferred Share so converted;
(b) The conversion privilege herein provided for may be exercised by
notice in writing given to the Secretary of the Corporation at its
registered office, signed by such holder or his agent;
(c) Upon the conversion of the Series A Preferred Share, there shall be
no payment or adjustment by the Corporation or by the holder of the Series A
Preferred Share on account of any dividends either on the Series A Preferred
Share so converted or on the Common Share resulting from such conversion;
(d) On the conversion of the Series A Preferred Share the share
certificate for the Common Share resulting therefrom shall be issued in the
name of the registered holder of the Series A Preferred Share so converted
or in such name or names as such registered holder may direct in writing
(either in the notice referred to in subparagraph (b) or otherwise),
provided that such registered holder shall pay any governmental or other tax
imposed in respect of such conversion;
(e) Subject as hereinafter provided in this subparagraph the right of a
holder of the Series A Preferred Share to convert the same into a Common
Share shall be deemed to have been exercised, and the registered holder of
the Series A Preferred Share to be converted (or any person or persons in
whose name or names any such registered holder of Series A Preferred Share
shall have directed the certificate representing the Common Share to be
issued as provided in subparagraph (d)) shall be deemed to have become the
holder of record of Common Shares, for all purposes on the date of actual
receipt by the Corporation of the notice in writing, notwithstanding any
delay in the delivery of the certificate representing the Common Share into
which such Series A Preferred Share has been converted; provided, however,
that should notice be given during a period when the registers of transfers
of Common Shares are properly closed, the registered holder of such share
(or such other person or persons as aforesaid) shall be deemed to become
holders of record of Common Shares immediately upon the re-opening of such
registers of transfers.
In the event of the Common Shares or the Series A Preferred Shares being, at
any time while any Series A Preferred Shares are outstanding, consolidated,
subdivided, reclassified or otherwise changed into a lesser or greater number of
shares of the same class or a lesser or greater or the same number of shares of
a different class or different classes of shares of the Corporation, appropriate
adjustments shall contemporaneously be made to the rights (including, without
limitation, the conversion right attached to the Series A Preferred Shares)
privileges, restrictions and conditions attaching to the Common Shares and
16
<PAGE>
the Series A Preferred Shares, respectively, so as to preserve in all respects
the benefits conferred on the holders of the Series A Preferred Shares by these
provisions.
COMMON SHARES
1. VOTING RIGHTS
Each holder of Common Shares shall be entitled to receive notice of and to
attend all meetings of shareholders of the Corporation and to vote thereat,
except meetings at which only holders of a specified class of shares (other than
Common Shares) or specified series of shares are entitled to vote. At all
meetings of which notice must be given to the holders of the Common Shares, each
holder of Common Shares shall be entitled to one vote in respect of each Common
Share held by him or her.
2. DIVIDENDS
The holders of the Common Shares shall be entitled, subject to the rights,
privileges, restrictions and conditions attaching to any other class of shares
of the Corporation, to receive any dividend declared by the Corporation.
3. RIGHTS ON DISSOLUTION
The holders of the Common Shares shall be entitled, subject to the rights,
privileges, restrictions and conditions attaching to any other class of shares
of the Corporation, to receive the remaining property of the Corporation on a
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary.
17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Bylaws provide for indemnification of directors and
officers of the Registrant to the full extent permitted by Delaware law.
Section 145 of the General Corporation Law of the State of Delaware provides
generally that a corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at its request in such capacity in another
corporation or business association, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
In addition, pursuant to the authority of Delaware law, the Certificate of
Incorporation of the Registrant also eliminates the monetary liability of
directors to the fullest extent permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions, the Registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits (See exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
2.1 Combination Agreement dated January 16, 1998, by and among IVI Checkmate Corp., International
Verifact Inc., Checkmate Electronics, Inc. and Future Merger Corporation (Incorporated by reference
from Exhibit 10.1(a) to Checkmate's Annual Report on Form 10-K for the period ending December 31,
1997, and included as Annex A to this Joint Proxy Statement/Prospectus)
2.2 Form of Plan of Arrangement and Exchangeable Share Provisions (included as Annex K to this Joint
Proxy Statement/Prospectus)
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Specimen Common Stock Certificate
5.1 Opinion of Alston & Bird LLP regarding the legality of the Common Stock
8.1 Opinion of Alston & Bird LLP regarding certain tax matters
8.2 Opinion of Meighen Demers regarding certain tax matters
8.3 Opinion of Morgan, Lewis & Bockius LLP regarding certain tax matters
9.1 Form of Voting and Exchange Trust Agreement (included as Annex H to this Joint Proxy
Statement/Prospectus)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
9.2 Stockholders Agreement by and between Ingenico, Mr. Spence and Mr. Moore dated as of January 16, 1998
10.1 Lease Agreement dated July 17, 1990, as amended, by and between Checkmate Electronics. Inc. and ASE
North Fulton Associates Joint Venture, for the premises located at 1011 Mansell Road, Suite C,
Roswell, Georgia 30076 (Incorporated by reference from Exhibit 10.1 to Checkmate's Registration
Statement on Form S-1, No. 33-67048)
10.1.1 Fifth Amendment, dated August 16, 1994, to the Lease Agreement filed as Exhibit 10.1 (Incorporated by
reference from Exhibit 10.1(a) to Checkmate's Annual Report on Form 10-K for the period ending
December 31, 1994)
10.1.2 Sixth Amendment, dated February 10, 1995, to the Lease Agreement filed as Exhibit 10.1 and related
Termination Agreement dated February 20, 1995 (Incorporated by reference from Exhibit 10.1(b) to
Checkmate's Annual Report on Form 10-K for the period ending December 31, 1994)
10.1.3 Seventh Amendment, dated January 18, 1996, to the Lease Agreement filed as Exhibit 10.1 and related
Termination Agreement dated February 20, 1995 (Incorporated by reference from Exhibit 10.1(c) to
Checkmate's Annual Report on Form 10-K for the period ending December 31, 1995)
10.1.4 Eighth Amendment, dated April 1, 1996, to the Lease Agreement filed as Exhibit 10.1 (Incorporated by
reference from Exhibit 10.1(d) to Checkmate's Annual Report on Form 10-K for the period ending
December 31, 1996)
10.1.5 Ninth Amendment, dated August 18, 1997, to the Lease Agreement filed as Exhibit 10.1 (Incorporated by
reference from Exhibit 10.1(e) to Checkmate's Annual Report on Form 10-K for the period ending
December 31, 1997)
10.2 Lease Agreement dated the 1st day of May 1986 between Markborough Properties Limited and
International Verifact Inc. (Incorporated by reference from Exhibit 10.1 to International Verifact
Inc.'s Registration Statement on Form F-4, No. 33-84926)
10.3 Amending Agreement dated as of the 1st day of July 1991 between Morgan Mae Enterprises Limited and
International Verifact Inc. (Incorporated by reference from Exhibit 10.2 to International Verifact
Inc.'s Registration Statement on Form F-4, No. 33-84926)
10.4 Settlement Agreement dated June 15, 1989, by and among Checkmate Electronics, Inc., J. Stanford
Spence, Diane M. Spence, Stanford Technologies, Inc., and Dudley L. Moore (Incorporated by reference
from Exhibit 10.2 to Checkmate's Registration Statement on Form S-1, No. 33-67048)
10.5 Executive Compensation Plans and Arrangements:
10.5.1 IVI Checkmate Corp. 1998 Long-Term Incentive Plan
10.5.2 IVI Checkmate Corp. 1998 Directors Stock Option Plan
10.5.4 Form of Employment Agreement between J. Stanford Spence and the IVI Checkmate Corp.
10.5.5 Employment Agreement dated as of January 1, 1998, between Checkmate Electronics, Inc. and John J.
Neubert (Incorporated by reference from Exhibit 10.4(f) to Checkmate's Annual Report on Form 10-K for
the period ended December 31, 1997)
10.5.6 Employment Agreement dated as of January 1, 1998, between Checkmate Electronics, Inc. and Gregory A.
Lewis (Incorporated by reference from Exhibit 10.4(g) to Checkmate's Annual Report on Form 10-K for
the period ended December 31, 1997)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
10.5.7 Amended and Restated Employment Agreement dated as of March 15, 1996, between International Verifact,
Inc. and George Whitton
10.5.7.1 Acknowledgement and Amending Agreement dated as of February 25, 1998, between International Verifact
Inc. and George Whitton
10.5.8 Management Services Agreement between International Verifact Inc., LBT Investments, Inc. and L. Barry
Thomson dated as of May 8, 1996
10.5.8.1 Amendment to the Management Services Agreement between International Verifact Inc., LBT Investments,
Inc. and L. Barry Thomson dated as of October 1, 1996
10.5.8.2 Amendment to the Management Services Agreement between International Verifact Inc., LBT Investments,
Inc. and L. Barry Thomson dated as of July 30, 1997
10.5.8.3 Amendment to the Management Services Agreement between International Verifact Inc., LBT Investments,
Inc. and L. Barry Thomson dated as of January 25, 1998
10.6 Master Alliance Agreement dated December 5, 1996, between Ingenico, S.A. and International Verifact
Inc.
10.7 Latin America Unanimous Shareholders' Agreement dated December 17, 1996, between Ingenico, S.A.,
International Verifact Inc. and IVI Ingenico Inc.
10.8 Technology License Agreement dated December 17, 1996, between Ingenico, S.A. and International
Verifact Inc.
10.9 Joint Development and Procurement Agreement dated December 17, 1996, between Ingenico, S.A. and
International Verifact Inc.
10.10 Investment Agreement dated December 5, 1996, between Ingenico, S.A. and International Verifact Inc.,
as amended by the Amendment to Investment Agreement, dated December 17, 1996, between Ingenico, S.A.
and International Verifact Inc.
10.11 Marketing and Distribution Agreement dated December 17, 1996, between Ingenico, S.A., International
Verifact Inc. and IVI Ingenico Inc.
10.12 Assignment, Assumption and Consent Agreement dated as of January 16, 1998 among International
Verifact Inc., Ingenico S.A., and IVI Checkmate Corp.
10.13 Manufacturing Agreement made as of the 22nd day of March 1993 between The Surface Mount Technology
Centre Inc. and International Verifact Inc. (Incorporated by reference from Exhibit 10.6 to
International Verifact Inc.'s Registration Statement on Form F-4, No. 33-84926)
10.14 Manufacturing Agreement made as of the 12th day of May 1993 between Nikom Electronics Corporation and
International Verifact Inc. (Incorporated by reference from Exhibit 10.7 to International Verifact
Inc.'s Registration Statement on Form F-4, No. 33-84926)
23.1 Consent of Alston & Bird LLP (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of Coopers & Lybrand
23.4 Consent of BancAmerica Robertson Stephens
23.5 Consent of BT Alex. Brown Incorporated
23.6 Consent of Meighen Demers (included in Exhibit 8.2)
23.7 Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 8.3)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
24.1 Power of Attorney with regard to amendments to this Registration Statement executed by the directors
and officers of the Company is included on the signature page of this Registration Statement
appearing on page II-6.
27 Financial Data Schedule (to be filed electronically)
99.1 Proxy for IVI
99.2 Proxy for Checkmate
99.3 Consent of Gerard Compain
99.4 Consent of Gareth Owen
99.5 Consent of Peter E. Roode
</TABLE>
(b) Financial Statement Schedules
Schedules are omitted because they are not required or are not applicable,
or the required information is shown in the financial statements or notes
thereto.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers for sales are being made,
a post-effective amendment to this registration statement:
(i) To include any Proxy Statement/Prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Proxy Statement/Prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to section 13
or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to
II-4
<PAGE>
the securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the Registrant's Certificate of Incorporation or
Bylaws, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefor, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment for the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy
Statement/Prospectus pursuant to Items 4, 10(b), 11, or 13 of Form S-4, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on May 22, 1998.
IVI CHECKMATE CORPORATION
By: /S/ J. STANFORD SPENCE
-----------------------------------------
J. Stanford Spence
CHAIRMAN OF THE BOARD
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints L. Barry Thomson and John J. Neubert, and either
of them (with full power in each to act alone), as true and lawful
attorneys-in-fact, with full power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any amendments to this
Registration Statement and any registration statement filed pursuant to Rule
462(b) of the Securities Act of 1933, as amended, relating thereto, and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or substitutes may lawfully do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on May 22, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
/s/ L. BARRY THOMSON President and Chief Executive Officer of IVI Checkmate
------------------------------------------- Corp. (principal executive officer)
L. Barry Thomson
/s/ JOHN J. NEUBERT Chief Financial Officer of IVI Checkmate Corp. (principal
------------------------------------------- financial and accounting officer)
John J. Neubert
/s/ J. STANFORD SPENCE Chairman of the Board of Directors of IVI Checkmate Corp.
-------------------------------------------
J. Stanford Spence
/s/ GEORGE WHITTON Vice Chairman of the Board of Directors of IVI Checkmate
------------------------------------------- Corp.
George Whitton
/s/ GREGORY A. LEWIS Director
-------------------------------------------
Gregory A. Lewis
</TABLE>
II-6
<PAGE>
EXHIBITS TO THE REGISTRATION STATEMENT
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
2.1 Combination Agreement dated January 16, 1998, by and among IVI Checkmate Corp., International
Verifact Inc., Checkmate Electronics, Inc. and Future Merger Corporation (Incorporated by reference
from Exhibit 10.1(a) to Checkmate's Annual Report on Form 10-K for the period ending December 31,
1997, and included as Annex A to this Joint Proxy Statement/Prospectus)
2.2 Form of Plan of Arrangement and Exchangeable Share Provisions (included as Annex K to this Joint
Proxy Statement/Prospectus)
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Specimen Common Stock Certificate
5.1 Opinion of Alston & Bird LLP regarding the legality of the Common Stock
8.1 Opinion of Alston & Bird LLP regarding certain tax matters
9.1 Form of Voting and Exchange Trust Agreement (included as Annex H to this Joint Proxy
Statement/Prospectus)
9.2 Stockholders Agreement by and between Ingenico, Mr. Spence and Mr. Moore dated as of January 16, 1998
10.1 Lease Agreement dated July 17, 1990, as amended, by and between Checkmate Electronics. Inc. and ASE
North Fulton Associates Joint Venture, for the premises located at 1011 Mansell Road, Suite C,
Roswell, Georgia 30076 (Incorporated by reference from Exhibit 10.1 to Checkmate's Registration
Statement on Form S-1, No. 33-67048)
10.1.1 Fifth Amendment, dated August 16, 1994, to the Lease Agreement filed as Exhibit 10.1 (Incorporated by
reference from Exhibit 10.1(a) to Checkmate's Annual Report on Form 10-K for the period ending
December 31, 1994)
10.1.2 Sixth Amendment, dated February 10, 1995, to the Lease Agreement filed as Exhibit 10.1 and related
Termination Agreement dated February 20, 1995 (Incorporated by reference from Exhibit 10.1(b) to
Checkmate's Annual Report on Form 10-K for the period ending December 31, 1994)
10.1.3 Seventh Amendment, dated January 18, 1996, to the Lease Agreement filed as Exhibit 10.1 and related
Termination Agreement dated February 20, 1995 (Incorporated by reference from Exhibit 10.1(c) to
Checkmate's Annual Report on Form 10-K for the period ending December 31, 1995)
10.1.4 Eighth Amendment, dated April 1, 1996, to the Lease Agreement filed as Exhibit 10.1 (Incorporated by
reference from Exhibit 10.1(d) to Checkmate's Annual Report on Form 10-K for the period ending
December 31, 1996)
10.1.5 Ninth Amendment, dated August 18, 1997, to the Lease Agreement filed as Exhibit 10.1 (Incorporated by
reference from Exhibit 10.1(e) to Checkmate's Annual Report on Form 10-K for the period ending
December 31, 1997)
10.2 Lease Agreement dated the 1st day of May 1986 between Markborough Properties Limited and
International Verifact Inc. (Incorporated by reference from Exhibit 10.1 to International Verifact
Inc.'s Registration Statement on Form F-4, No. 33-84926)
10.3 Amending Agreement dated as of the 1st day of July 1991 between Morgan Mae Enterprises Limited and
International Verifact Inc. (Incorporated by reference from Exhibit 10.2 to International Verifact
Inc.'s Registration Statement on Form F-4, No. 33-84926)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
10.4 Settlement Agreement dated June 15, 1989, by and among Checkmate Electronics, Inc., J. Stanford
Spence, Diane M. Spence, Stanford Technologies, Inc., and Dudley L. Moore (Incorporated by reference
from Exhibit 10.2 to Checkmate's Registration Statement on Form S-1, No. 33-67048)
10.5 Executive Compensation Plans and Arrangements:
10.5.1 IVI Checkmate Corp. 1998 Long-Term Incentive Plan
10.5.2 IVI Checkmate Corp. 1998 Directors Stock Option Plan
10.5.4 Form of Employment Agreement between J. Stanford Spence and the IVI Checkmate Corp.
10.5.5 Employment Agreement dated as of January 1, 1998, between Checkmate Electronics, Inc. and John J.
Neubert (Incorporated by reference from Exhibit 10.4(f) to Checkmate's Annual Report on Form 10-K for
the period ended December 31, 1997)
10.5.6 Employment Agreement dated as of January 1, 1998, between Checkmate Electronics, Inc. and Gregory A.
Lewis (Incorporated by reference from Exhibit 10.4(g) to Checkmate's Annual Report on Form 10-K for
the period ended December 31, 1997)
10.5.7 Amended and Restated Employment Agreement dated as of March 15, 1996, between International Verifact,
Inc. and George Whitton
10.5.7.1 Acknowledgement and Amending Agreement dated as of February 25, 1998, between International Verifact
Inc. and George Whitton
10.5.8 Management Services Agreement between International Verifact, Inc., LBT Investments, Inc. and L.
Barry Thomson dated as of May 8, 1996
10.5.8.1 Amendment to the Management Services Agreement between International Verifact Inc., LBT Investments,
Inc. and L. Barry Thomson dated as of October 1, 1996
10.5.8.2 Amendment to the Management Services Agreement between International Verifact Inc., LBT Investments,
Inc. and L. Barry Thomson dated as of July 30, 1997
10.5.8.3 Amendment to the Management Services Agreement between International Verifact Inc., LBT Investments,
Inc. and L. Barry Thomson dated as of January 25, 1998
10.6 Master Alliance Agreement dated December 5, 1996, between Ingenico, S.A. and International Verifact
Inc.
10.7 Latin America Unanimous Shareholders' Agreement dated December 17, 1996, between Ingenico, S.A.,
International Verifact Inc. and IVI Ingenico Inc.
10.8 Technology License Agreement dated December 17, 1996, between Ingenico, S.A. and International
Verifact Inc.
10.9 Joint Development and Procurement Agreement dated December 17, 1996, between Ingenico, S.A. and
International Verifact Inc.
10.10 Investment Agreement dated December 5, 1996, between Ingenico, S.A. and International Verifact Inc.,
as amended by the Amendment to Investment Agreement, dated December 17, 1996, between Ingenico, S.A.
and International Verifact Inc.
10.11 Marketing and Distribution Agreement dated December 17, 1996, between Ingenico, S.A., International
Verifact Inc. and IVI Ingenico Inc.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
10.12 Assignment, Assumption and Consent Agreement dated as of January 16, 1998 among International
Verifact Inc., Ingenico S.A., and IVI Checkmate Corp.
10.13 Manufacturing Agreement made as of the 22nd day of March 1993 between The Surface Mount Technology
Centre Inc. and International Verifact Inc. (Incorporated by reference from Exhibit 10.6 to
International Verifact Inc.'s Registration Statement on Form F-4, No. 33-84926)
10.14 Manufacturing Agreement made as of the 12th day of May 1993 between Nikom Electronics Corporation and
International Verifact Inc. (Incorporated by reference from Exhibit 10.7 to International Verifact
Inc.'s Registration Statement on Form F-4, No. 33-84926)
21.1 Subsidiaries of Registrant
23.1 Consent of Alston & Bird LLP (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of Coopers & Lybrand
23.4 Consent of BancAmerica Robertson Stephens
23.5 Consent of BT Alex. Brown Incorporated
23.6 Consent of Meighen Demers (included in Exhibit 8.2)
23.7 Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 8.3)
24.1 Power of Attorney with regard to amendments to this Registration Statement executed by the directors
and officers of the Company is included on the signature page of this Registration Statement
appearing on page II-6.
27 Financial Data Schedule (to be filed electronically)
99.1 Form of Proxy for IVI
99.2 Form of Proxy for Checkmate
</TABLE>
3
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION OF IVI CHECKMATE CORP.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
IVI CHECKMATE CORP.
The undersigned incorporator, for the purpose of incorporating or organizing
a corporation under the General Corporation Law of the State of Delaware (the
"GCL"), does hereby certify that:
FIRST: The name of the corporation is IVI CHECKMATE CORP. (hereinafter the
"Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is Corporate Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the GCL.
FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is 100,000,000 shares, consisting of (1)
99,000,000 shares of Common Stock, par value $0.01 per share (the "Common
Stock"), and (2) 1,000,000 shares of Preferred Stock, par value $0.01 per share
(the "Preferred Stock").
I. COMMON STOCK
Except as otherwise provided herein or as otherwise required by
applicable law, all shares of Common Stock will be identical in all respects
and will entitle the holders thereof to the same rights and privileges.
II. PREFERRED STOCK
The Preferred Stock may be issued in one or more series and shall have
such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other
special rights, and qualifications, or restrictions thereof, as shall be
stated and expressed in this Certificate of Incorporation or in any
amendment hereto, or in a resolution or resolutions providing for the
issuance of such stock adopted by the Board of Directors.
SERIES A PREFERRED STOCK
One share of the Preferred Stock, par value $.01 per share, is hereby
constituted as a series of the Preferred Stock designated Series A Preferred
Stock. The holder of the Series A Preferred Stock shall be entitled to
receive such dividends as the Board of Directors of the Corporation may
declare from time to time with respect to the Series A Preferred Stock. Upon
any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, and subject to the prior rights of any holders of
shares of Preferred Stock ranking senior to the Series A Preferred Stock,
the holder of the share of Series A Preferred Stock shall be paid an amount
equal to $1.00 before payment shall be made to holders of any stock ranking
on liquidation junior to the Series A Preferred Stock (such amount payable
with respect to the Series A Preferred Stock being referred to as the
"Series A Liquidation Preference Amount"). The Series A Preferred Stock
shall be redeemable at any time at the election of the Corporation for an
amount equal to the Series A Liquidation Preference Amount.
FIFTH: The Corporation shall be entitled to treat the person in whose name
any shares of its capital stock are registered as the owner thereof for all
purposes and shall not be bound to recognize any equitable or other claim to, or
interest in, such shares on the part of any other person, whether or not the
Corporation shall have notice thereof, except as required by applicable law.
SIXTH: The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, alter, amend
and repeal the By-Laws of the Corporation.
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EIGHTH: The Corporation expressly elects not to be governed by Section 203
of the GCL.
NINTH: To the fullest extent permitted by the GCL as the same exists or may
hereafter be amended, a director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. If the GCL is amended after the date of filing of this
Certificate of Incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the GCL, as so amended from time to time. No repeal or modification
of this Article NINTH by the stockholders shall adversely affect any right or
protection of a director of the Corporation existing by virtue of this Article
NINTH at the time of such repeal or modification.
TENTH: Except as set forth herein, the Corporation reserves the right to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred on stockholders herein are granted subject to this reservation.
ELEVENTH: Meetings of stockholders may be held within or without the State
of Delaware, as the By-Laws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision contained in applicable law)
outside the State of Delaware at such place as may be designated from time to
time by the Board of Directors or in the By-Laws of the Corporation.
TWELFTH: The powers of the undersigned incorporator shall terminate upon the
filing of this Certificate of Incorporation, and the persons who shall serve as
directors of the Corporation until their successors are elected and qualify are:
J. Stanford Spence
1003 Mansell Road
Roswell, Georgia 30076
George Whitton
79 Torbarrie Road
Toronto, Ontario, Canada
M3L 1G5
Gregory A. Lewis
1003 Mansell Road
Roswell, Georgia 30076
L. Barry Thomson
79 Torbarrie Road
Toronto, Ontario, Canada
M3L 1G5
IN WITNESS WHEREOF, I have signed this Certificate of Incorporation on
January 15, 1998.
By: /s/ DAVID G. NICHOLS,
JR.
-------------------------
Name: David G. Nichols,
Jr.
Address: 101 Park Avenue
10178 New York, NY
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EXHIBIT 3.2
BYLAWS OF IVI CHECKMATE CORP.
<PAGE>
BY-LAWS
OF
IVI CHECKMATE CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1. DELAWARE OFFICE. The principal office of the Corporation in
the State of Delaware shall be located in the City of Wilmington, County of New
Castle, and the name and address of its registered agent is The Corporation
Trust Company, 1209 Orange Street, Wilmington, Delaware.
SECTION 1.2. OTHER OFFICES. The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
SECTION 1.3. BOOKS AND RECORD. The books and records of the Corporation
may be kept outside the State of Delaware at such place or places as may from
time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation shall be held for the election of directors and the transaction of
such other proper business on such date and at such place and time as may be
fixed by resolution of the Board of Directors and designated in the notice or
waiver of notice of such annual meeting.
SECTION 2.2. SPECIAL MEETING. Subject to the rights of the holders of any
series of stock having a preference over the Common Stock of the Corporation as
to dividends or upon liquidation ("Preferred Stock") with respect to such series
of Preferred Stock, special meetings of the stockholders may be called only by
the Chairman of the Board, the Vice Chairman of the Board, the President or the
Secretary or by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors which the Corporation would have if
there were no vacancies (the "Whole Board"), or at the request in writing, the
holders of a majority of the outstanding shares of the Corporation entitled to
vote generally in the election of directors (the "Voting Stock"). Any such
request shall state the purpose or purposes of the proposed meeting.
SECTION 2.3. PLACE OF MEETING. The Board of Directors, the Chairman or
Vice Chairman of the Board, as the case may be, may designate the place of
meeting for any annual meeting or for any special meeting of the stockholders
called by the Board of Directors, the Chairman or Vice Chairman of the Board. If
no designation is so made, the place of meeting shall be the principal office of
the Corporation.
SECTION 2.4. NOTICE OF MEETING. Written or printed notice, stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered by the
Corporation not less than ten (10) days nor more than sixty (60) days before the
date of the meeting, either personally or by mail, to each stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail with postage thereon prepaid,
addressed to the stockholder at his address as it appears on the stock transfer
books of the Corporation. Such further notice shall be given as may be required
by law. Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Meetings may be held without notice if all
stockholders entitled to vote are present, except which such stockholder shall
attend a meeting for the express purpose of objecting, at the beginning of such
meeting, to the transaction of any business on the grounds that notice of such
meeting was inadequate or improperly given, or if notice is waived by those not
present in accordance
<PAGE>
with Section 6.4 of these By-Laws. Any previously scheduled meeting of the
stockholders may be postponed, and (unless the Certificate of Incorporation
otherwise provides) any special meeting of the stockholders may be cancelled, by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such meeting of stockholders.
SECTION 2.5. QUORUM AND ADJOURNMENT. Except as otherwise provided by law
or by the Certificate of Incorporation, the holders of a majority of the
outstanding shares of the Voting Stock, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders, except that when specified
business is to be voted on by a class or series of stock voting as a class, the
holders of a majority of the shares of such class or series shall constitute a
quorum of such class or series for the transaction of such business. The
chairman of the meeting or a majority of the shares so represented may adjourn
the meeting from time to time, whether or not there is such a quorum. No notice
of the time and place of adjourned meetings need be given except as required by
law. The stockholders present at a duly called meeting at which a quorum is
present may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.6. PROXIES. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing (or in such manner as is prescribed by the
General Corporation Law of the State of Delaware (the "GCL")) by the
stockholder, or by his duly authorized attorney in fact. The validity and
enforceability of any proxy shall be determined pursuant to the GCL. Such proxy
shall be filed with the Secretary before such meeting of stockholders at such
time as the Board may require. No proxy shall be voted or acted upon more than
three years from its date, unless the proxy provides for a longer period. A
stockholder may revoke any proxy that is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by delivering a proxy in accordance with applicable law bearing a later
date to the Secretary.
SECTION 2.7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) ANNUAL MEETINGS OF STOCKHOLDERS. (1) Nominations of persons for election
to the Board of Directors of the Corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders
(a) pursuant to the Corporation's notice of meeting, (b) by or at the direction
of the Board of Directors or (c) by any stockholder of the Corporation who was a
stockholder of record at the time of giving of notice provided for in this
By-Law, who is entitled to vote at the meeting and who complies with the notice
procedures set forth in this By-Law.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1)
of this By-Law, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on
the 60th day nor earlier than the close of business on the 90th day prior to
the first anniversary of the preceding year's annual meeting; PROVIDED,
HOWEVER, that in the event that the date of the annual meeting is more than
30 days before or more than 60 days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close
of business on the 90th day prior to such annual meeting and not later than
the close of business on the later of the 60th day prior to such annual
meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made by the Corporation. In no event shall
the public announcement of an adjournment of an annual meeting commence a
new time period for the giving of a stockholder's notice as described above.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule
14a-11 thereunder (including such person's written consent to being named in
the proxy
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statement as a nominee and to serving as a director if elected); (b) as to
any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2)
of this By-Law to the contrary, in the event that the number of directors to
be elected to the Board of Directors of the Corporation is increased and
there is no public announcement by the Corporation naming all of the
nominees for director or specifying the size of the increased Board of
Directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this By-Law shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not later
than the close of business on the 10th day following the day on which such
public announcement is first made by the Corporation.
(B) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the Corporation's
notice of meeting (a) by or at the direction of the Board of Directors or (b)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
By-Law, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in this By-Law. In the event the Corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder may nominate a person
or persons (as the case may be), for election to such position(s) as specified
in the Corporation's notice of meeting, if the stockholder's notice required by
paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 90th day prior to such special meeting and not later than the
close of business on the later of the 60th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.
(C) GENERAL. (1) Only such persons who are nominated in accordance with the
procedures set forth in this By-Law shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-Law. Except as otherwise provided by law or these By-Laws, the Chairman
of the meeting shall have the power and duty to determine whether a nomination
or any business proposed to be brought before the meeting was made or proposed,
as the case may be, in accordance with the procedures set forth in this By-Law
and, if any proposed nomination or business is not in compliance with this
By-Law, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
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(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this By-Law. Nothing in this By-Law shall be deemed to
affect any rights (i) of stockholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act or (ii) of the holders of any series of Preferred Stock to elect
directors under specified circumstances.
SECTION 2.8. PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED VOTE. Election
of directors at all meetings of the stockholders at which directors are to be
elected shall be by ballot, and, subject to the rights of the holders of any
series of Preferred Stock to elect directors under specified circumstances, a
plurality of the votes cast thereat shall elect directors. Except as otherwise
provided by law, the Certificate of Incorporation, or these By-Laws, in all
matters other than the election of directors, the affirmative vote of a majority
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the matter shall be the act of the stockholders.
SECTION 2.9. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The
Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the Chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by law.
THE CHAIRMAN OF THE MEETING SHALL FIX AND ANNOUNCE AT THE MEETING THE DATE
AND TIME OF THE OPENING AND THE CLOSING OF THE POLLS FOR EACH MATTER UPON WHICH
THE STOCKHOLDERS WILL VOTE AT A MEETING.
SECTION 2.10. RECORD DATE FOR ACTION BY WRITTEN CONSENT. In order that the
Corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any stockholder of record
seeking to have the stockholders authorize or take corporate action by written
consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within 10 days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed by
the Board of Directors within 10 days of the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in Delaware,
its principal place of business or to any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
SECTION 2.11. INSPECTORS OF WRITTEN CONSENT. In the event of the delivery,
in the manner provided by Section 2.10, to the Corporation of the requisite
written consent or consents to take corporate action and/or any related
revocation or revocations, the Corporation shall engage nationally recognized
independent inspectors of elections for the purpose of promptly performing a
ministerial review of the validity of the consents and revocations. For the
purpose of permitting the inspectors to perform such review, no
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<PAGE>
action by written consent without a meeting shall be effective until such date
as the independent inspectors certify to the Corporation that the consents
delivered to the Corporation in accordance with Section 2.10 represent at least
the minimum number of votes that would be necessary to take the corporate
action. Nothing contained in this paragraph shall in any way be construed to
suggest or imply that the Board of Directors or any stockholder shall not be
entitled to contest the validity of any consent or revocation thereof, whether
before or after such certification by the independent inspectors, or to take any
other action (including, without limitation, the commencement, prosecution or
defense of any litigation with respect thereto, and the seeking of injunctive
relief in such litigation).
SECTION 2.12. EFFECTIVENESS OF WRITTEN CONSENT. Every written consent
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within 60 days of the date the earliest dated written consent
was received in accordance with Section 2.10, a written consent or consents
signed by a sufficient number of holders to take such action are delivered to
the Corporation in the manner prescribed in Section 2.10.
SECTION 2.13. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
or cause to be prepared and made, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, the stockholder's
agent or attorney, at the stockholder's expense, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least five (5) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The Corporation
shall maintain the stockholder list in written form or in another form capable
of conversion into written form within a reasonable time. Upon the willful
neglect or refusal of the directors to produce such a list at any meeting for
the election of directors, they shall be ineligible for election to any office
at such meeting. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of stockholders or
the books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors. In addition to
the powers and authorities by these By-Laws expressly conferred upon them, the
Board of Directors may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws required to be exercised or done by the
stockholders.
SECTION 3.2. NUMBER, TENURE AND QUALIFICATIONS. Subject to the rights of
the holders of any series of Preferred Stock to elect directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively pursuant to a resolution adopted by a majority of the Whole Board.
At each annual meeting of stockholders, directors shall be elected for a term of
office to expire at the next succeeding annual meeting of stockholders or until
their earlier resignation or removal, with each director to hold office until
his or her successor shall have been duly elected and qualified.
SECTION 3.3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this By-Law immediately after, and at
the same place as, the Annual Meeting of Stockholders. The Board of Directors
may, by resolution, provide the time and place for the holding of additional
regular meetings without other notice than such resolution.
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SECTION 3.4. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be called at the request of the Chairman or Vice Chairman of the Board,
the President or a majority of the Board of Directors then in office. The person
or persons authorized to call special meetings of the Board of Directors may fix
the place and time of the meetings.
SECTION 3.5. NOTICE. Notice of any special meeting of directors shall be
given to each director at his business or residence in writing by hand delivery,
first-class or overnight mail or courier service, telegram or facsimile
transmission, or orally by telephone. If mailed by first-class mail, such notice
shall be deemed adequately delivered when deposited in the United States mails
so addressed, with postage thereon prepaid, at least five (5) days before such
meeting. If by telegram, overnight mail or courier service, such notice shall be
deemed adequately delivered when the telegram is delivered to the telegraph
company or the notice is delivered to the overnight mail or courier service
company at least twenty-four (24) hours before such meeting. If by facsimile
transmission, such notice shall be deemed adequately delivered when the notice
is transmitted at least twelve (12) hours before such meeting. If by telephone
or by hand delivery, the notice shall be given at least twelve (12) hours prior
to the time set for the meeting. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice of such meeting, except for amendments to these By-Laws,
as provided under Section 8.1. A meeting may be held at any time without notice
if all the directors are present or if those not present waive notice of the
meeting in accordance with Section 6.4 of these By-Laws.
SECTION 3.6. ACTION BY CONSENT OF BOARD OF DIRECTORS. Any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
SECTION 3.7. CONFERENCE TELEPHONE MEETINGS. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
SECTION 3.8. QUORUM. Subject to Section 3.9, a whole number of directors
equal to at least a majority of the Whole Board shall constitute a quorum for
the transaction of business, but if at any meeting of the Board of Directors
there shall be less than a quorum present, a majority of the directors present
may adjourn the meeting from time to time without further notice. The act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. The directors present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.
SECTION 3.9. VACANCIES. Subject to applicable law and the rights of the
holders of any series of Preferred Stock with respect to such series of
Preferred Stock, and unless the Board of Directors otherwise determines,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board of Directors or by plurality of the votes cast by the
holders of Voting Stock at any special meeting called for such purpose, and
directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have been
elected expires and until such director's successor shall have been duly elected
and qualified. No decrease in the number of authorized directors constituting
the Whole Board shall shorten the term of any incumbent director.
SECTION 3.10. EXECUTIVE AND OTHER COMMITTEES. The Board of Directors may,
by resolution adopted by a majority of the Whole Board, designate an Executive
Committee to exercise, subject to
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applicable provisions of law, all the powers of the Board in the management of
the business and affairs of the Corporation when the Board is not in session,
including without limitation the power to declare dividends, to authorize the
issuance of the Corporation's capital stock and to adopt a certificate of
ownership and merger pursuant to Section 253 of the GCL, and may, by resolution
similarly adopted, designate one or more other committees. The Executive
Committee shall consist of three directors and each such other committee shall
consist of two or more directors of the Corporation. The Board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. Any such
committee, other than the Executive Committee (the powers of which are expressly
provided for herein), may to the extent permitted by law exercise such powers
and shall have such responsibilities as shall be specified in the designating
resolution. In the absence or disqualification of any member of such committee
or committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may unanimously
appoint another member of the Board to act at the meeting in the place of any
such absent or disqualified member. Each committee shall keep written minutes of
its proceedings and shall report such proceedings to the Board when required.
A majority of any committee may determine its action and fix the time and
place of its meetings, unless the Board shall otherwise provide. Notice of such
meetings shall be given to each member of the committee in the manner provided
for in Section 3.5 of these By-Laws. The Board shall have power at any time to
fill vacancies in, to change the membership of, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the Board from appointing
one or more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority of the Board.
SECTION 3.11. REMOVAL. Subject to the rights of the holders of any series
of Preferred Stock with respect to such series of Preferred Stock, any director,
or the entire Board of Directors, may be removed from office at any time.
SECTION 3.12. RECORDS. The Board of Directors shall cause to be kept a
record containing the minutes of the proceedings of the meetings of the Board
and of the stockholders, appropriate stock books and registers and such books of
records and accounts as may be necessary for the proper conduct of the business
of the Corporation.
SECTION 3.13. COMPENSATION. Each director, in consideration of his or her
service as such, shall be entitled to receive from the Corporation such amount
per annum or such fees for the attendance at directors' meetings, or both, as
the Board may from time to time determine, together with reimbursement for the
reasonable out-of-pocket expenses, if any, incurred by such director in
connection with the performance of his or her duties. Each director who shall
serve as a member of any committee of directors in consideration of serving as
such shall be entitled to such additional amount per annum or such fees for
attendance at committee meetings, or both, as the Board may from time to time
determine, together with reimbursement for the reasonable out-of-pocket
expenses, if any, incurred by such director in the performance of his or her
duties. Nothing contained in this Section 3.13 shall preclude any director from
serving the Corporation or its subsidiaries in any other capacity and receiving
proper compensation therefor.
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ARTICLE IV
OFFICERS
SECTION 4.1. ELECTED OFFICERS. The elected officers of the Corporation
shall be a Chairman and a Vice Chairman of the Board of Directors, a President,
a Secretary, a Treasurer, and such other officers (including, without
limitation, a Chief Financial Officer) as the Board of Directors from time to
time may deem proper. The Chairman and Vice Chairman of the Board shall be
chosen from among the directors. All officers elected by the Board of Directors
shall each have such powers and duties as generally pertain to their respective
offices, subject to the specific provisions of this ARTICLE IV. Such officers
shall also have such powers and duties as from time to time may be conferred by
the Board of Directors or by any committee thereof. The Board or any committee
thereof may from time to time elect, or the President may appoint, such other
officers (including one or more Assistant Vice Presidents, Assistant
Secretaries, Assistant Treasurers, and Assistant Controllers) and such agents,
as may be necessary or desirable for the conduct of the business of the
Corporation. Such other officers and agents shall have such duties and shall
hold their offices for such terms as shall be provided in these By-Laws or as
may be prescribed by the Board or such committee or by the President, as the
case may be. Any two or more offices may be held by the same person.
SECTION 4.2. ELECTION AND TERM OF OFFICE. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after the annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Each officer shall
hold office until his successor shall have been duly elected and shall have
qualified or until his death or until he shall resign, but any officer may be
removed from office at any time by the affirmative vote of a majority of the
Whole Board or, except in the case of an officer or agent elected by the Board,
by the Chairman or Vice Chairman of the Board or President. Such removal shall
be without prejudice to the contractual rights, if any, of the person so
removed.
SECTION 4.3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors. The
Chairman of the Board shall perform all duties incidental to his office which
may be required by law and all such other duties as are properly required of him
by the Board of Directors.
SECTION 4.4. VICE CHAIRMAN OF THE BOARD. In the absence of the Chairman of
the Board, the Vice Chairman of the Board shall preside at all meetings of the
stockholders and of the Board of Directors. The Vice Chairman of the Board shall
perform all duties incidental to his office which may be required by law and all
such other duties as are properly required of by the Board of Directors.
SECTION 4.5. PRESIDENT. The President shall be the Chief Executive Officer
of the Corporation and shall be responsible for the general management of the
affairs of the Corporation. The President shall act in a general executive
capacity and shall perform all duties incidental to his office which may be
required by law and such other duties as a re properly required of him by the
Board of Directors. He shall, at the request of the Board of Directors, make
reports to the Board of Directors and the stockholders, and shall see that all
orders and resolutions of the Board of Directors and any committee thereof are
carried into effect. The President shall, in the absence of or because of the
inability to act of the Chairman or Vice Chairman of the Board, perform all
duties of the Chairman or Vice Chairman of the Board and preside at all meetings
of stockholders and of the Board of Directors.
SECTION 4.5. VICE-PRESIDENTS. Each Vice President shall have such powers
and shall perform such duties as shall be assigned to him by the Board of
Directors.
8
<PAGE>
SECTION 4.6. CHIEF FINANCIAL OFFICER. The Chief Financial Officer (if any)
shall be a Vice President and act in an executive financial capacity. He shall
assist the Chairman and Vice Chairman of the Board and the President in the
general supervision of the Corporation's financial policies and affairs.
SECTION 4.7. TREASURER. The Treasurer shall exercise general supervision
over the receipt, custody and disbursement of corporate funds. The Treasurer
shall cause the funds of the Corporation to be deposited in such banks as may be
authorized by the Board of Directors, or in such banks as may be designated as
depositories in the manner provided by resolution of the Board of Directors. He
shall have such further powers and duties and shall be subject to such
directions as may be granted or imposed upon him from time to time by the Board
of Directors, the Chairman or Vice Chairman of the Board or the President.
SECTION 4.8. SECRETARY. The Secretary shall keep or cause to be kept in
one or more books provided for that purpose, the minutes of all meetings of the
Board, the committees of the Board and the stockholders; he shall see that all
notices are duly given in accordance with the provisions of these By-Laws and as
required by law; he shall be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix an attest the seal to all other
documents-to be executed on behalf of the Corporation under its seal; and he
shall see that the books, reports, statements, certificates and other documents
and records required by law to be kept and filed are properly kept and filed;
and in general, he shall perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board, the Chairman or Vice Chairman of the Board or the President.
SECTION 4.9. REMOVAL. Any officer elected, or agent appointed, by the
Board of Directors may be removed by the affirmative vote of a majority of the
Whole Board whenever, in their judgment, the best interests of the Corporation
would be served thereby. Any officer or agent appointed by the President may be
removed by the President whenever, in his judgment, the best interests of the
Corporation would be served thereby. No elected officer shall have any
contractual rights against the Corporation for compensation by virtue of such
election beyond the date of the election of his successor, his death, his
resignation or his removal, whichever event shall first occur, except as
otherwise provided in an employment contract or under an employee deferred
compensation plan.
SECTION 4.10. VACANCIES. A newly created elected office and a vacancy in
any elected office because of death, resignation, or removal may be filled by
the Board of Directors for the unexpired portion of the term at any meeting of
the Board of Directors. Any vacancy in an office appointed by the President
because of death, resignation, or removal may be filled by the President.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
SECTION 5.1. STOCK CERTIFICATES AND TRANSFERS. The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares of
stock in such form as the appropriate officers of the Corporation may from time
to time prescribe. The shares of the stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof in person or
by his attorney, upon surrender for cancellation of certificates for at least
the same number of shares, with an assignment and power of transfer endorsed
thereon or attached thereto, duly executed, with such proof of the authenticity
of the signature as the Corporation or its agents may reasonably require.
The certificates of stock shall be signed, countersigned and registered in
such manner as the Board of Directors may by resolution prescribe, which
resolution may permit all or any of the signatures on such certificates to be in
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or
9
<PAGE>
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
SECTION 5.2. LOST, STOLEN OR DESTROYED CERTIFICATES. No certificate for
shares of stock in the Corporation shall be issued in place of any certificate
alleged to have been lost, destroyed or stolen, except on production of such
evidence of such loss, destruction or theft and on delivery to the Corporation
of a bond of indemnity in such amount, upon such terms and secured by such
surety, as the Board of Directors or any financial officer may in its or his
discretion require.
SECTION 5.3. TRANSFER AND REGISTRY AGENTS. The Corporation may from time
to time maintain one or more transfer offices or agents and registry offices or
agents at such place or places as may be determined from time to time by the
Board.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. FISCAL YEAR. The fiscal year of the Corporation shall begin
on the first day of January and end on the thirty-first day of December of each
year.
SECTION 6.2. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and the Certificate of
Incorporation.
SECTION 6.3. SEAL. The corporate seal shall have inscribed thereon the
words "Corporate Seal", the year of incorporation and around the margin thereof
the words "IVI Checkmate Corp."
SECTION 6.4. WAIVER OF NOTICE. Whenever any notice is required to be given
to any stockholder or director of the Corporation under the provisions of the
GCL or these By-Laws, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Neither the
business to be transacted at, nor the purpose of, any annual or special meeting
of the stockholders or the Board of Directors or committee thereof need be
specified in any waiver of notice of such meeting.
SECTION 6.5. AUDITS. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be done annually.
SECTION 6.6. RESIGNATIONS. Any director or any officer, whether elected or
appointed, may resign at any time by giving written notice of such resignation
to the Chairman or Vice Chairman of the Board, the President, or the Secretary,
and such resignation shall be deemed to be effective as of the close of business
on the date said notice is received by the Chairman or Vice Chairman of the
Board, the President, or the Secretary, or at such later time as is specified
therein. No formal action shall be required of the Board of Directors or the
stockholders to make any such resignation effective.
SECTION 6.7. INDEMNIFICATION AND INSURANCE. (A) Each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit, or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
or a person of whom he or she is the legal representative is or was a director,
officer, employee, fiduciary or agent of the Corporation or any of its
subsidiaries or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans maintained or sponsored by the Corporation,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer, employee, fiduciary or agent or in any other capacity
while serving as a director, officer, employee, fiduciary or agent, shall be
indemnified and held harmless by the Corporation to the fullest
10
<PAGE>
extent authorized by the GCL of the State of Delaware as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to, provide prior to such
amendment), against any and all cost and expense (including attorneys' fees),
judgments, fines, losses, claims, damages, liabilities, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee,
fiduciary or agent and shall inure to the benefit of his or her heirs, executors
and administrators; PROVIDED, HOWEVER, that except as provided in paragraph (C)
of this By-Law, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors. The right to indemnification conferred in this By-Law shall
be a contract right and shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its final
disposition, such advances to be paid by the Corporation within 20 days after
the receipt by the Corporation of a statement or statements from the claimant
requesting such advance or advances from time to time; PROVIDED, HOWEVER, that
if the GCL requires, the payment of such expenses incurred by a person
indemnified hereunder in advance of the final disposition of a proceeding shall
be made only upon delivery to the Corporation of an undertaking by or on behalf
of such person to repay all amounts so advanced if it shall ultimately be
determined that such person is not entitled to be indemnified under this By-Law
or otherwise.
(B) To obtain indemnification under this By-Law, a claimant shall submit to
the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and is
reasonably necessary to determine whether and to what extent the claimant is
entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this paragraph (B), a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (1) if requested by the claimant,
by Independent Counsel (as hereinafter defined), or (2) if no request is made by
the claimant for a determination by Independent Counsel, (i) by the Board of
Directors by a majority vote of a quorum consisting of Disinterested Directors
(as hereinafter defined), or (ii) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
the claimant, or (iii) if a quorum of Disinterested Directors so directs, by the
stockholders of the Corporation. In the event the determination of entitlement
to indemnification is to be made by Independent Counsel at the request of the
claimant, the Independent Counsel shall be selected by the Board of Directors
unless there shall have occurred within two years prior to the date of the
commencement of the action, suit or proceeding for which indemnification is
claimed any (i) merger or consolidation of the Corporation with a third party in
which the Corporation is not the surviving company; (ii) acquisition of a
majority of the outstanding Voting Stock by a third party or (iii) sale or
exchange or other disposition of all or substantially all of the Corporation's
assets to a third party, in which case the Independent Counsel shall be selected
by the claimant unless the claimant shall request that such selection be made by
the Board of Directors. If it is so determined that the claimant is entitled to
indemnification, payment to the claimant shall be made within 10 days after such
determination.
(C) If a claim under paragraph (A) of this By-Law is not paid in full by the
Corporation within thirty days after a written claim pursuant to paragraph (B)
of this By-Law has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the GCL for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation.
11
<PAGE>
Neither the failure of the Corporation (including its Board of Directors,
Independent Counsel or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the GCL, nor an actual determination by the Corporation (including
its Board of Directors, Independent Counsel or stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
(D) If a determination shall have been made pursuant to paragraph (B) of
this By-Law that the claimant is entitled to indemnification, the Corporation
shall be bound by such determination in any judicial proceeding commenced
pursuant to paragraph (C) of this By-Law.
(E) The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to paragraph (C) of this By-Law that the
procedures and presumptions of this By-Law are not valid, binding and
enforceable and shall stipulate in such proceeding that the Corporation is bound
by all the provisions of this By-Law.
(F) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
By-Law shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Laws, agreement, vote of stockholders or Disinterested
Directors or otherwise. No repeal or modification of this By-Law shall in any
way diminish or adversely affect the rights of any director, officer, employee
or agent of the Corporation hereunder in respect of any occurrence or matter
arising prior to any such repeal or modification.
(G) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the GCL. To the extent that the Corporation maintains any policy or
policies providing such insurance, each such director or officer, and each such
agent or employee to which rights to indemnification have been granted as
provided in paragraph (H) of this By-Law, shall be covered by such policy or
policies in accordance with its or their terms to the maximum extent of the
coverage thereunder for any such director, officer, employee or agent.
(H) The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and rights to be paid by
the Corporation the expenses incurred in defending any proceeding in advance of
its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this By-Law with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(I) If any provision or provisions of this By-Law shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (1) the validity,
legality and enforceability of the remaining provisions of this By-Law
(including, without limitation, each portion of any paragraph of this By-Law
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid, illegal or unenforceable) shall not in any way
be affected or impaired thereby; and (2) to the fullest extent possible, the
provisions of this By-Law (including, without limitation, each such portion of
any paragraph of this By-Law containing any such provision held to be invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
(J) For purposes of this By-Law:
(1) "Disinterested Director" means a director of the Corporation who is
not and was not a party to the matter in respect of which indemnification is
sought by the claimant.
12
<PAGE>
(2) "Independent Counsel" means a law firm, a member of a law firm, or
an independent practitioner, that is experienced in matters of corporation
law and shall include any person who, under the applicable standards of
professional conduct then prevailing, would not have a conflict of interest
in representing either the Corporation or the claimant in an action to
determine the claimant's rights under this By-Law.
(K) Any notice, request or other communication required or permitted to be
given to the Corporation under this By-Law shall be in writing and either
delivered in person or sent by telecopy, telex, telegram, overnight mail or
courier service, or certified or registered mail, postage prepaid, return
receipt requested, to the Secretary of the Corporation and shall be effective
only upon receipt by the Secretary.
ARTICLE VII
CONTRACTS, PROXIES, ETC.
SECTION 7.1. CONTRACTS. Except as otherwise required by law, the
Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
Corporation by such officer or officers of the Corporation as the Board of
Directors may from time to time direct. Such authority may be general or
confined to specific instances as the Board may determine. The Chairman or Vice
Chairman of the Board, the President or any Vice President may execute bonds,
contracts, deeds, leases and other instruments to be made or executed for or on
behalf of the Corporation subject to any restrictions imposed by the Board of
Directors or the Chairman or Vice Chairman of the Board, the President or any
Vice President of the Corporation may delegate contractual powers to others
under his jurisdiction, it being understood, however, that any such delegation
of power shall not relieve such officer of responsibility with respect to the
exercise of such delegated power.
SECTION 7.2. PROXIES. Unless otherwise provided by resolution adopted by
the Board of Directors, the Chairman or Vice Chairman of the Board, the
President or any Vice President may from time to time appoint an attorney or
attorneys or agent or agents of the Corporation, in the name and on behalf of
the Corporation, to cast the votes which the Corporation may be entitled to cast
as the holder of stock or other securities in any other corporation, any of
whose stock or other securities may be held by the Corporation, at meetings of
the holders of the stock or other securities of such other corporation, or to
consent in writing, in the name of the Corporation as such holder, to any action
by such other corporation, and may instruct the person or persons so appointed
as to the manner of casting such votes or giving such consent, and may execute
or cause to be executed in the name and on behalf of the Corporation and under
its corporate seal or otherwise, all such written proxies or other instruments
as he may deem necessary or proper in the premises.
ARTICLE VIII
AMENDMENTS
SECTION 8.1. AMENDMENTS. These By-Laws may be altered, amended, or
repealed by a majority of the Whole Board at any meeting of the Board of
Directors, as provided in the Certificate of Incorporation or as otherwise
permitted by the GCL, provided notice of the proposed change was given in the
notice of the meeting and, in the case of a meeting of the Board of Directors,
in a notice given not less than two days prior to the meeting.
13
<PAGE>
EXHIBIT 4.1
SPECIMEN COMMON STOCK CERTIFICATE
<PAGE>
IVC
IVI Checkmate Corp.
COMMON SHARES INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 450928 10 6
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF THE PAR VALUE OF $0.01 EACH OF
--------------------------
--------------------------
_______________________ ______________________
-------------------------- IVI Checkmate Corp.
--------------------------
transferable on the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
SECRETARY PRESIDENT
IVI CHECKMATE CORP. 1998 DELAWARE
<PAGE>
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT --
TEN ENT -- as tenants by the entireties ................................ Custodian................................
JT TEN -- as joint tenants with right (Cust) (Minor)
of under Uniform Gifts to Minors
survivorship and not as Act.................................................................
tenants (State)
in common UNIF TRF MIN ACT -- .................. Custodian (until
age..................)
(Cust)
....................................under Uniform Transfers
(Minor)
to Minors
Act.................................................................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,____________________hereby sell, assign and transfer unto
<TABLE>
<S> <C> <C>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------------------
- - -
- - -
- - -
- - -
- ----------------------------------------------------
</TABLE>
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated____________________________
___________________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
NOTICE:
SIGNATURE(S) GUARANTEED: _________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO
B.E.C. RULE 17AO-15,
<PAGE>
EXHIBIT 5.1
OPINION OF ALSTON & BIRD LLP REGARDING THE LEGALITY OF THE COMMON STOCK
<PAGE>
ALSTON & BIRD LLP
ONE ATLANTIC CENTER
1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30309-3424
404-881-7000
FAX 404-881-4777
WWW.ALSTON.COM
May 26, 1998
IVI Checkmate Corp.
1003 Mansell Road
Roswell, Georgia 30076
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to IVI Checkmate Corp., a Delaware corporation (the
"Registrant"), in connection with the filing by the Registrant on May 26, 1998
of a Registration Statement on Form S-4 (the "Registration Statement") to
register under the Securities Act of 1933, as amended, shares of the
Registrant's common stock, $.01 par value per share (the "Shares"), to be issued
by the Registrant pursuant to that certain Combination Agreement dated as of
January 16, 1998 (the "Combination Agreement"), by and among the Registrant,
International Verifact Inc., a Canadian corporation ("IVI"), Checkmate
Electronics, Inc., a Georgia corporation ("Checkmate"), and Future Merger
Corporation, a Georgia corporation and wholly owned subsidiary of the
Registrant. Pursuant to the Combination Agreement, IVI and Checkmate will become
wholly owned subsidiaries of the Registrant, and the Registrant will issue up to
18,381,207 Shares in exchange for outstanding common shares of IVI and
Checkmate.
As counsel for the Registrant, we have examined such corporate records and
documents as we have deemed relevant and necessary as the basis for this
opinion. As to factual matters relevant to this opinion, we have relied upon
representations and warranties contained in certificates and statements of
officers of the Registrant and certain public officials.
Based upon and subject to the foregoing, it is our opinion that the Shares
will, when issued in accordance with the terms and conditions set forth in the
Combination Agreement, be duly authorized, validly issued, fully paid and
non-assessable under Delaware corporate law as in effect on this date.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to our firm in the section entitled "Legal
Matters" in the Joint Proxy Statement/Prospectus constituting a part thereof.
ALSTON & BIRD LLP
By: _________/s/_HILL JEFFRIES________
M. Hill Jeffries, Partner
<PAGE>
EXHIBIT 8.1
OPINION OF ALSTON & BIRD LLP REGARDING CERTAIN TAX MATTERS
<PAGE>
ALSTON & BIRD LLP
ONE ATLANTIC CENTER
1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30309-3424
404-881-7000
FAX 404-881-4777
WWW.ALSTON.COM
May 22, 1998
Checkmate Electronics, Inc.
1003 Mansell Road
Roswell, Georgia 30076
Re: Proposed Merger Involving Checkmate Electronics, Inc.; Future Merger
Corporation; and IVI Checkmate Corp.
Ladies and Gentlemen:
We have acted as counsel to Checkmate Electronics, Inc., a Georgia
corporation (" Checkmate"), in connection with the proposed merger (the
"Merger") of Future Merger Corporation, a Georgia corporation and a wholly-owned
second-tier subsidiary of Checkmate ("Sub"), with and into Checkmate, with
Checkmate as the surviving corporation of the merger becoming a wholly-owned
subsidiary of IVI Checkmate Corp., a Delaware corporation and wholly-owned
first-tier subsidiary of Checkmate ("Company"). The Merger will be effected
pursuant to a Combination Agreement entered into by and among Checkmate,
Company, International Verifact Inc., and Sub (including the exhibits thereto
and the other documents contemplated thereby, the "Agreement"). In our capacity
as counsel to Checkmate, our opinion has been requested with respect to certain
of the federal income tax consequences of the Merger.
In rendering this opinion, we have examined the Internal Revenue Code of
1986, as amended (the "Code"), the United States Department of the Treasury
Regulations thereunder and rulings and court decisions as of the date hereof. In
addition, we have relied upon certain information made known to us as more fully
described below. All capitalized terms used herein without definition shall have
the respective meanings specified in the Agreement, and unless otherwise
specified, all section references herein are to the Code.
For purposes of the opinion set forth below, we have relied, with the
consent of the Checkmate, upon the accuracy and completeness of the
representations (which representations we have neither investigated nor
verified) contained in the certificate of an officer of the Checkmate made to us
(dated May 22, 1998) which we have assumed and you have confirmed to be complete
and accurate as of the date hereof and as of the effective date of the Merger.
We have also relied upon the accuracy of the Preliminary Joint Proxy
Statement/Prospectus and the exhibits thereto (together, the "Proxy Statement")
and have assumed that the transactions contemplated by the Agreement will be
consummated in accordance therewith and as described in the Proxy Statement.
In our examination of such documents, we have assumed, with your consent,
that all documents submitted to us as photocopies faithfully reproduce the
originals thereof, that such originals are authentic, that all such documents
have been or will be duly executed to the extent required, and that all
statements set forth in such documents are accurate. We have also obtained such
additional information and representations as we have deemed relevant and
necessary through consultation with various officers and representatives of
Checkmate.
We have participated in the preparation of the materials under the caption
"Material U.S. Federal Income Tax Consequences to Checkmate Shareholders"
contained in the Proxy Statement (the "Discussion"), and based solely on the
facts and assumptions set forth in such Proxy Statement, applicable
<PAGE>
provisions of governing law, and assuming the Merger is consummated in the
manner described in the Proxy Statement and pursuant to the Agreement, we are of
the opinion that the federal income tax treatment described therein is accurate
in all material respects. We confirm that to the extent that it relates to
matters of United States Federal income tax law such discussion constitutes our
opinion.
The opinion expressed herein is based upon existing U.S. statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinion is based solely on the documents
that we have examined, the additional information that we have obtained, and the
statements set out in the certificate described above, which we have assumed and
you have confirmed to be complete and accurate on the date hereof and will be
complete and accurate on the date that the Merger is consummated. Our opinion
cannot be relied upon if any of the facts contained in such documents or if such
additional information is, or later becomes, inaccurate, or if any of the
statements set out in such certificate is, or later becomes, inaccurate.
Finally, our opinion is limited to the tax matters specifically covered thereby,
and we have not been asked to address, nor have we addressed, any other tax
consequences of the Merger or related transactions, including but not limited
to, the particular status or circumstances of Checkmate shareholders and any
state or local tax consequences.
We hereby consent to the filing of this opinion as an exhibit to the Proxy
Statement and to the references and discussion of this opinion and the
references to the firm contained therein.
Very truly yours,
ALSTON & BIRD LLP
By: ________/s/ PINNEY L. ALLEN_______
Pinney L. Allen, Partner
2
<PAGE>
EXHIBIT 8.2
OPINION OF MEIGHEN DEMERS REGARDING CERTAIN TAX MATTERS
<PAGE>
[LETTERHEAD OF MEIGHEN DEMERS]
Date: May 26, 1998
International Verifact Inc.
79 Torbarrie Road
Toronto, Ontario
M3L 1G5
RE: JOINT PROXY STATEMENT/PROSPECTUS
Ladies and Gentlemen:
We have acted as Canadian counsel to International Verifact Inc., a Canadian
corporation ("IVI"), in connection with the preparation of a Joint Proxy
Statement/Prospectus, dated May 26, 1998 (the "Joint Proxy/Prospectus"),
relating to the Transaction contemplated in the Combination Agreement, dated as
of January 16, 1998 (the "Combination Agreement"), among IVI, Checkmate
Electronics, Inc., a Georgia corporation ("Checkmate"), IVI Checkmate Corp., a
newly-formed Delaware corporation (the "Company"), and Future Merger
Corporation, a Georgia corporation and a direct, wholly-owned subsidiary of the
Company. Unless otherwise defined herein, capitalized terms used herein have the
respective meanings ascribed to those terms in the Joint Proxy/Prospectus.
In arriving at the opinion expressed below, we have examined and relied upon
the following documents:
a. the Joint Proxy/Prospectus;
b. the Combination Agreement, including the Exhibits thereto;
c. the Voting form of and Exchange Trust Agreement;
d. the form of Support Agreement;
e. the form of Certificate of the Powers, Designations, Preferences and
Rights of the Series B Preferred Stock of IVI Checkmate Corp.;
f. the form of Plan of Arrangement;
g. the form of Exchangeable Share Provisions;
h. the forms of Affiliate Agreement for Affiliates of each of IVI and
Checkmate;
i. the Stockholders Agreement; and
j. the Shareholders Agreement.
We have also read and relied upon originals or copies, certified or
otherwise identified to our satisfaction, of such records of IVI, Checkmate and
the Company and such certificates and representations of officers and
representatives of IVI, Checkmate and the Company, and we have made such
investigations of law, as we have deemed appropriate as a basis for the opinion
expressed below. In our examinations, we have assumed the authenticity of
original documents, the accuracy of copies and the genuineness of signatures. We
understand and assume that: (i) each agreement referred to in clauses (c)
through (g) above will be executed in the respective forms attached as an
Exhibit to the Joint Proxy/Prospectus; (ii) the agreements referred to in clause
(h) above will be executed in the form attached as an Exhibit to the Combination
Agreement; (iii) each agreement referred to in clauses (b) through (j) above or
otherwise referred to in the Joint Proxy/Prospectus represents the valid and
binding obligation of the respective parties thereto, enforceable in accordance
with its respective terms, and the entire agreement between the parties with
respect to the subject matter thereof; (iv) the parties to each such agreement
have complied, and will comply, with all of their respective covenants,
agreements and undertakings contained therein;
<PAGE>
and (v) the transaction provided for by each such agreement or otherwise
referred to in the Joint Proxy/ Prospectus were and will be carried out in
accordance with their terms.
Our opinion is based upon existing Canadian federal income tax laws,
regulations and judicial decisions and takes into account administrative
pronouncements and proposed amendments that have been publicly announced as at
the date hereof (the "Canadian Tax Laws"). No assurance can be provided that any
proposed amendments will be enacted in the manner proposed or at all. No
assurance can be provided as to the effect any legislative changes to the
Canadian Tax Laws might have on our opinion. We are solicitors qualified to
practice in the Province of Ontario, Canada and our opinion is limited to the
laws of such province and the laws of Canada (including the Canadian Tax Laws),
applicable therein. No advance income tax rulings have been sought or obtained
from Revenue Canada, Customs, Excise and Taxation ("Revenue Canada") and no
assurance can be given that Revenue Canada or any court of law would agree with
the opinion set forth herein.
We have advised IVI in connection with the summary of Canadian federal
income tax consequences that appears in the Joint Proxy/Prospectus under the
caption "Material Income Tax Considerations to IVI Shareholders--Canadian
Federal Income Tax Considerations" and we confirm that, in our opinion, such
discussion describes the material Canadian federal income tax consequences of
the Arrangement and the ownership and disposition of IVI Common Stock,
Exchangeable Shares and the Company Common Stock to a holder resident in Canada.
While such description discusses the material anticipated Canadian federal
income tax consequences applicable to certain holders resident in Canada and
holders not resident in Canada, it does not purport to discuss all Canadian
federal income tax consequences and our opinion is limited to those Canadian
federal income tax consequences specifically discussed therein.
We are furnishing this letter in our capacity as Canadian Counsel to IVI and
this letter is solely for IVI's benefit. This letter is not to be used,
circulated, quoted or otherwise referred to for any other purpose, except as set
forth below.
We consent to the reference to our firm under the captions "Legal Maters"
and "Material Income Tax Considerations to IVI Shareholders--Canadian Federal
Income Tax Considerations" in the Joint Proxy/ Prospectus and we consent to the
filing of this opinion as an Exhibit to the Joint Proxy/Prospectus. In giving
this consent, we do not thereby admit that we are within the category of persons
whose consent is required to be filed with the Joint Proxy/Prospectus under the
provisions of the United States Securities Act of 1933, as amended, or the rules
and regulations promulgated thereunder.
Yours truly,
/s/ Meighen Demers
<PAGE>
EXHIBIT 8.3
OPINION OF MORGAN, LEWIS & BOCKIUS LLP REGARDING CERTAIN TAX MATTERS
<PAGE>
[Letterhead of Morgan, Lewis & Bockius LLP]
May 26, 1998
International Verifact Inc.
79 Torbarrie Road
Toronto, Ontario M3L 1G5
Re: Joint Proxy Statement/Prospectus
Ladies and Gentlemen:
We have acted as United States counsel to International Verifact Inc., a
Canadian corporation ("IVI"), in connection with the preparation of a Joint
Proxy Statement/Prospectus, dated May 26, 1998 (the "Joint Proxy/Prospectus"),
relating to the Transaction contemplated in the Combination Agreement, dated as
of January 16, 1998 (the "Combination Agreement"), among IVI, Checkmate
Electronics, Inc., a Georgia corporation ("Checkmate"), IVI Checkmate Corp., a
newly-formed Delaware corporation (the "Company"), and Future Merger
Corporation, a Georgia corporation and a direct, wholly-owned subsidiary of the
Company. Unless otherwise defined herein, capitalized terms used herein have the
respective meanings ascribed to those terms in the Joint Proxy/Prospectus.
In arriving at the opinion expressed below, we have examined and relied upon
the following documents:
(a) the Joint Proxy/Prospectus;
(b) the Combination Agreement, including the Exhibits thereto;
(c) the form of Voting and Exchange Trust Agreement;
(d) the form of Support Agreement;
(e) the form of Certificate of the Powers, Designations, Preferences and
Rights of the Series B Preferred Stock of IVI Checkmate Corp.;
(f) the form of Plan of Arrangement;
(g) the form of Exchangeable Share Provisions;
(h) the forms of Affiliate Agreement for Affiliates of each IVI and
Checkmate;
(i) the Stockholders Agreement;
(j) the Shareholders Agreement; and
(k) the tax representations letters to us from IVI, dated May 22, 1998, from
Checkmate, dated May 22, 1998 and from the Company dated May 22, 1998.
We have also read and relied upon originals or copies, certified or
otherwise identified to our satisfaction, of such records of IVI, Checkmate and
the Company and such certificates and representations of officers and
representatives of IVI, Checkmate and the Company, and we have made such
investigations of law, as we have deemed appropriate as a basis for the opinion
express below. In our examination, we have assumed the authenticity of original
documents, the accuracy of copies and the genuineness of signatures. We
understand and assume that (i) each agreement referred to in clauses (c) through
(g) above will be executed in the respective form attached as an Exhibit to the
Joint Proxy/Prospectus; (ii) the agreements referred to in clause (h) above will
be executed in the form attached as an Exhibit to the Combination Agreement;
(iii) each agreement referred to in clauses (b) through (j) above or otherwise
referred to in the Joint Proxy/Prospectus represents or will represent the valid
and binding obligation of the respective parties thereto, enforceable in
accordance with its respective terms, and the entire
<PAGE>
agreement between the parties with respect to the subject matter thereof; (iv)
the parties to each such agreement have complied, and will comply, with all of
their respective covenants, agreements and undertakings contained therein; (v)
the transactions provided for by each such agreement or otherwise referred to in
the Joint Proxy/Prospectus were and will be carried out in accordance with their
terms; and (vi) the tax representations letters referred to in clause (k) above
are accurate as of the date hereof and as of the Effective Date.
Our opinion is based upon existing United States federal income tax laws,
regulations, administrative pronouncements and judicial decisions. All such
authorities are subject to change, either prospectively or retroactively. No
assurance can be provided as to the effect of any such change upon our opinion.
The opinion set forth herein has no binding effect on the United States
Internal Revenue Service or the courts of the United States. No assurance can be
given that, if the matter were contested, a court would agree with the opinion
set forth herein.
We have advised IVI in connection with the summary of United States federal
income tax consequences that appears in the Joint Proxy/Prospectus under the
caption "Material Income Tax Considerations of IVI Shareholders--United States
Federal Income Tax Considerations" and we confirm that such discussion, to the
extent that it relates to matters of United States federal income tax law, is
our opinion. While such discussion describes the material anticipated federal
income tax consequences applicable to certain United States holders and Canadian
holders, it does not purport to discuss all United States tax consequences and
our opinion is limited to those United States tax consequences specifically
discussed therein.
In giving the foregoing opinion, we express no opinion other than as to the
federal income tax law of the United States of America.
We are furnishing this letter in our capacity as United States counsel to
IVI and this letter is solely for IVI's benefit. This letter is not to be used,
circulated, quoted or otherwise referred to for any other purpose, except as set
forth below.
We consent to the reference to our firm under the captions "Legal Matters"
and "Material Income Tax Considerations to IVI Shareholders--United States
Federal Income Tax Considerations" in the Joint Proxy/Prospectus and we consent
to filing of this opinion as an Exhibit to the Joint Proxy/Prospectus. In giving
this consent, we do not thereby admit that we are within the category of persons
whose consent is required to be filed with the Joint Proxy/Prospectus under the
provisions of the United States Securities Act of 1933, as amended, or the rules
and regulations promulgated thereunder.
Very truly yours,
____/s/ MORGAN, LEWIS & BOCKIUS LLP___
<PAGE>
EXHIBIT 9.2
STOCKHOLDERS AGREEMENT BY AND BETWEEN INGENICO, MR. SPENCE AND MR. MOORE
DATED AS OF JANUARY 16, 1998.
<PAGE>
STOCKHOLDERS AGREEMENT
This AGREEMENT is dated January 16, 1998 (this "AGREEMENT") among Ingenico
S.A., an entity incorporated under the laws of France ("INGENICO"), Dudley L.
Moore, Jr., a resident of the State of Georgia ("MOORE"), and J. Stanford
Spence, a resident of the State of Texas ("SPENCE").
In consideration of the mutual promises and agreements set forth herein, the
parties agree as follows:
1. For a period ending the earlier of December 31, 1999 or 18 months from
the Effective Date of the Combination Agreement, each of the parties hereto
agrees to vote all of its or his shares of the capital stock of IVI Checkmate
(or to cause the Trustee to vote its Exchangeable Shares) then owned (including
any shares acquired after the parties entered into this Agreement)
(collectively, the "SHARES"), at any stockholders meeting or in any written
consent for that purpose, against any business combination transaction involving
IVI Checkmate or its subsidiaries, such as a merger or share exchange, and
further agrees not to tender shares into, make, cause any of its affiliates to
make, or encourage others to make, during the term of this Agreement, a tender
or exchange offer (in which the tendering party is required to make a filing
under Section 14(d)(1) of the Securities Exchange Act of 1934, as amended) (a
"TENDER OFFER") for Shares, in which the consideration to be received by each
stockholder of IVI Checkmate is less than US$15 per Share in cash or other
highly liquid consideration. The amount of the consideration is to be calculated
two business days prior to any stockholders' vote required on such a
transaction.
2. Notwithstanding Section 1 above, in the event a Tender Offer has been
made by a third party for consideration less than US$15, each party shall have
the right to make a Tender Offer; provided that the consideration offered by
such party for tendered shares in such Tender Offer must be greater than the
amount offered in the initial third-party Tender Offer. Any party hereto may
tender Shares to another party in a Tender Offer permitted under this Section 2.
3. For a period of three years from the Effective Date of the Combination
Agreement, each of the parties hereto agrees to vote all of its or his Shares
(or to cause the Trustee to vote its Exchangeable Shares), at any stockholders'
meeting or in any written consent for that purpose, and take all other actions
necessary, to ensure the election to the Board of Directors of IVI Checkmate of
Gerard Compain (or any other designee of Ingenico), Spence and George Whitton;
provided further, that if such persons are so elected by the stockholders of IVI
Checkmate, the parties agree to use their best efforts to ensure the appointment
of Spence as Chairman of the Board, George Whitton as Vice Chairman of the Board
of IVI Checkmate and Gerard Compain as a member of the three-member Executive
Committee of the Board of Directors.
4. Nothing contained herein shall prevent any party, during the period
ending the earlier of December 31, 1999 or 18 months following the Effective
Date of the Combination Agreement, from (a) buying or otherwise acquiring
additional Shares, or (b) selling Shares (i) to the public pursuant to a
registered offering under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), (ii) to the public through a broker or market-maker pursuant
to the provisions of Rule 144 (or any successor rule) promulgated under the
Securities Act, (iii) in a Tender Offer consistent with Section 1 or Section 2
above, or (iv) in a business combination transaction approved by the
stockholders of IVI Checkmate. Notwithstanding any other provision of this
Agreement, no sale or other transfer of Shares may be made, other than pursuant
to the immediately preceding sentence, unless the transferee has agreed in
writing to be bound by the terms and conditions of this Agreement pursuant to an
instrument in form and substance satisfactory to the parties hereto and the
transfer complies with all applicable laws.
5. In the event that Ingenico is conclusively and finally prohibited from
exercising its right under the Investment Agreement to purchase shares of IVI
Checkmate in an amount that would increase its ownership to 15% (as calculated
in accordance with the Investment Agreement) of the voting capital stock of IVI
Checkmate because such action would preclude pooling of interests accounting
treatment with regard to the transactions contemplated by the Combination
Agreement, the terms of Sections 1 and 2 of this Agreement shall terminate and
shall be of no further force and effect.
<PAGE>
6. This Agreement shall be governed and construed in accordance with the
laws of the State of Delaware applicable to agreements made and to be performed
entirely within such state, without regard to the principles of conflicts of law
thereof.
7. With respect to any claim arising out of this Agreement, the parties
agree to waive their right to a jury trial and agree to have such matter
adjudicated in front of an arbitration panel in accordance with the provisions
of the Combination Agreement.
Capitalized terms used herein and not defined shall have the meanings
ascribed to such terms in the Combination Agreement dated as of January 16, 1998
by and among IVI Checkmate Corp., a Delaware corporation ("IVI CHECKMATE"),
International Verifact Inc., a Canadian corporation, Checkmate Electronics,
Inc., a Georgia corporation, and Future Merger Corporation, a Georgia
corporation and wholly-owned subsidiary of Newco.
For purposes of this Agreement, "Investment Agreement" means that certain
Investment Agreement dated as of December 5, 1996 between International Verifact
Inc. and Ingenico, as amended.
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Agreement on the date first written above.
<TABLE>
<S> <C> <C>
INGENICO S.A.
By: /s/ GERARD COMPAIN
-----------------------------------------
Name: Gerard Compain
Title: VICE CHAIRMAN
/s/ DUDLEY L. MOORE, JR.
-----------------------------------------
Dudley L. Moore, Jr.
/s/ J. STANFORD SPENCE
-----------------------------------------
J. Stanford Spence
</TABLE>
2
<PAGE>
EXHIBIT 10.5.1
IVI CHECKMATE CORP. 1998 LONG-TERM INCENTIVE PLAN
<PAGE>
IVI CHECKMATE CORP.
1998 LONG-TERM INCENTIVE PLAN
ARTICLE I
PURPOSE
1.1 GENERAL. The purpose of the IVI Checkmate Corp. 1998 Long-Term
Incentive Plan (the "Plan") is to promote the success, and enhance the value, of
IVI Checkmate Corp. (the "Corporation"), by linking the personal interests of
its employees, officers, consultants and directors to those of Corporation
stockholders and by providing such persons with an incentive for outstanding
performance. The Plan is further intended to provide flexibility to the
Corporation in its ability to motivate, attract, and retain the services of
employees, officers, consultants and directors upon whose judgment, interest,
and special effort the successful conduct of the Corporation's operation is
largely dependent. Accordingly, the Plan permits the grant of incentive awards
from time to time to selected employees, officers, consultants and directors.
ARTICLE 2
EFFECTIVE DATE
2.1 EFFECTIVE DATE. The Plan shall be effective as of the date upon which
it shall be approved by the Board. However, the Plan shall be submitted to the
stockholders of the Corporation for approval within 12 months of the Board's
approval thereof. No Incentive Stock Options granted under the Plan may be
exercised prior to approval of the Plan by the stockholders and if the
stockholders fail to approve the Plan within 12 months of the Board's approval
thereof, any Incentive Stock Options previously granted hereunder shall be
automatically converted to Non-Qualified Stock Options without any further act.
In the discretion of the Committee, Awards may be made to Covered Employees
which are intended to constitute qualified performance-based compensation under
Code Section 162(m). Any such Awards shall be contingent upon the stockholders
having approved the Plan.
ARTICLE 3
DEFINITIONS
3.1 DEFINITIONS. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Section 1.1 unless a clearly different meaning is required by the
context. The following words and phrases shall have the following meanings:
"Award" means any Option, Stock Appreciation Right, Restricted Stock
Award, Performance Unit Award, Dividend Equivalent Award, or Other
Stock-Based Award, or any other right or interest relating to Stock or cash,
granted to a Participant under the Plan.
"Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
"Board" means the Board of Directors of the Corporation.
"Cause" means (i) the willful and continued failure of a Participant to
perform substantially his or her duties with the Company or a Parent or
Subsidiary (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Participant by the Board or the Chief
Executive Officer of the Company which specifically identifies the manner in
which the Board or Chief Executive Officer believes that the Participant has
not substantially performed his or her duties, or (ii) the willful engaging
by the Participant in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the Company.
"Change in Control" means and includes each of the following:
<PAGE>
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 33 1/3% or more of the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection
(i), the following acquisitions shall not constitute a Change of Control:
(A) any acquisition by a Person who is on the Effective Date the
beneficial owner of 33 1/3% or more of the Outstanding Company Voting
Securities, (B) any acquisition directly from the Company, (C) any
acquisition by the Company, (D) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (E) any acquisition by any
corporation pursuant to a transaction which complies with clauses (A),
(B) and (C) of subsection (iii) of this definition; or
(ii) Individuals who, as of the Effective Date, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the Effective Date whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of
the Company (a "Business Combination"), in each case, unless, following
such Business Combination, (A) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 33 1/3%
or more of the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination, and (C) at least a majority of
the members of the board of directors of the corporation resulting from
such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination.
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the committee of the Board described in Article 4.
"Corporation" means IVI Checkmate Corp., a Delaware corporation.
2
<PAGE>
"Covered Employee" means a covered employee as defined in Code Section
162(m)(3).
"Disability" shall mean a disability entitling the Participant to
long-term disability benefits under the Company's long-term disability plan,
or no such plan exists, whether a Participant has suffered a long-term
disability shall be determined by the Committee, acting in good faith.
"Dividend Equivalent" means a right granted to a Participant under
Article 11.
"Effective Date" has the meaning assigned such term in Section 2.1.
"Fair Market Value", on any date, means (i) if the Stock is listed on a
securities exchange or is traded over the Nasdaq National Market, the
closing sales price on such exchange or over such system on such date or, in
the absence of reported sales on such date, the closing sales price on the
immediately preceding date on which sales were reported, or (ii) if the
Stock is not listed on a securities exchange or traded over the Nasdaq
National Market, the mean between the bid and offered prices as quoted by
Nasdaq for such date, provided that if it is determined that the fair market
value is not properly reflected by such Nasdaq quotations, Fair Market Value
will be determined by such other method as the Committee determines in good
faith to be reasonable.
"Incentive Stock Option" means an Option that is intended to meet the
requirements of Section 422 of the Code or any successor provision thereto.
"Non-Qualified Stock Option" means an Option that is not an Incentive
Stock Option.
"Normal Retirement" means a Participant's voluntary termination of
employment with the Corporation, Parent or Subsidiary after attaining age 65
with five years of service.
"Option" means a right granted to a Participant under Article 7 of the
Plan to purchase Stock at a specified price during specified time periods.
An Option may be either an Incentive Stock Option or a Non-Qualified Stock
Option.
"Other Stock-Based Award" means a right, granted to a Participant under
Article 12, that relates to or is valued by reference to Stock or other
Awards relating to Stock.
"Parent" means a corporation which owns or beneficially owns a majority
of the outstanding voting stock or voting power of the Corporation. For
Incentive Stock Options, the term shall have the same meaning as set forth
in Code Section 424(e).
"Participant" means a person who, as an employee, officer, consultant or
director of the Corporation or any Subsidiary, has been granted an Award
under the Plan.
"Performance Unit" means a right granted to a Participant under Article
9, to receive cash, Stock, or other Awards, the payment of which is
contingent upon achieving certain performance goals established by the
Committee.
"Plan" means the IVI Checkmate Corp. 1998 Long-Term Incentive Plan, as
amended from time to time.
"Restricted Stock Award" means Stock granted to a Participant under
Article 10 that is subject to certain restrictions and to risk of
forfeiture.
"Stock" means the $.01 par value common stock of the Corporation and
such other securities of the Corporation as may be substituted for Stock
pursuant to Article 14.
"Stock Appreciation Right" or "SAR" means a right granted to a
Participant under Article 8 to receive a payment equal to the difference
between the Fair Market Value of a share of Stock as of the date of exercise
of the SAR over the grant price of the SAR, all as determined pursuant to
Article 8.
3
<PAGE>
"Subsidiary" means any corporation, limited liability company,
partnership or other entity of which a majority of the outstanding voting
stock or voting power is beneficially owned directly or indirectly by the
Corporation. For Incentive Stock Options, the term shall have the meaning
set forth in Code Section 424(f).
"1933 Act" means the Securities Act of 1933, as amended from time to
time.
"1934 Act" means the Securities Exchange Act of 1934, as amended from
time to time.
ARTICLE 4
ADMINISTRATION
4.1 COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board or, at the discretion of the Board from time to time, by
the Board. The Committee shall consist of two or more members of the Board. It
is intended that the directors appointed to serve on the Committee shall be
"non-employee directors" (within the meaning of Rule 16b-3 promulgated under the
1934 Act) and "outside directors" (within the meaning of Code Section 162(m) and
the regulations thereunder). However, the mere fact that a Committee member
shall fail to qualify under either of the foregoing requirements shall not
invalidate any Award made by the Committee which Award is otherwise validly made
under the Plan. The members of the Committee shall be appointed by, and may be
changed at any time and from time to time in the discretion of, the Board.
During any time that the Board is acting as administrator of the Plan, it shall
have all the powers of the Committee hereunder, and any reference herein to the
Committee (other than in this Section 4.1) shall include the Board.
4.2 ACTION BY THE COMMITTEE. For purposes of administering the Plan, the
following rules of procedure shall govern the Committee. A majority of the
Committee shall constitute a quorum. The acts of a majority of the members
present at any meeting at which a quorum is present, and acts approved
unanimously in writing by the members of the Committee in lieu of a meeting,
shall be deemed the acts of the Committee. Each member of the Committee is
entitled to, in good faith, rely or act upon any report or other information
furnished to that member by any officer or other employee of the Corporation or
any Parent or Subsidiary, the Corporation's independent certified public
accountants, or any executive compensation consultant or other professional
retained by the Corporation to assist in the administration of the Plan.
4.3 AUTHORITY OF COMMITTEE. The Committee has the exclusive power,
authority and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted to each
Participant;
(c) Determine the number of Awards to be granted and the number of
shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted under the
Plan, including but not limited to, the exercise price, grant price, or
purchase price, any restrictions or limitations on the Award, any schedule
for lapse of forfeiture restrictions or restrictions on the exercisability
of an Award, and accelerations or waivers thereof, based in each case on
such considerations as the Committee in its sole discretion determines;
(e) Accelerate the vesting or lapse of restrictions of any outstanding
Award, based in each case on such considerations as the Committee in its
sole discretion determines;
(f) Determine whether, to what extent, and under what circumstances an
Award may be settled in, or the exercise price of an Award may be paid in,
cash, Stock, other Awards, or other property, or an Award may be canceled,
forfeited, or surrendered;
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(g) Prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(h) Decide all other matters that must be determined in connection with
an Award;
(i) Establish, adopt or revise any rules and regulations as it may deem
necessary or advisable to administer the Plan;
(j) Make all other decisions and determinations that may be required
under the Plan or as the Committee deems necessary or advisable to
administer the Plan; and
(k) Amend the Plan or any Award Agreement as provided herein.
4.4. DECISIONS BINDING. The Committee's interpretation of the Plan, any
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding, and
conclusive on all parties.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1. NUMBER OF SHARES. Subject to adjustment as provided in Section 14.1,
the aggregate number of shares of Stock reserved and available for Awards or
which may be used to provide a basis of measurement for or to determine the
value of an Award (such as with a Stock Appreciation Right or Performance Unit
Award) shall be 2,500,000, of which not more than 10% may be granted as Awards
of Restricted Stock or unrestricted Stock Awards.
5.2. LAPSED AWARDS. To the extent that an Award is canceled, terminates,
expires or lapses for any reason, any shares of Stock subject to the Award will
again be available for the grant of an Award under the Plan and shares subject
to SARs or other Awards settled in cash will be available for the grant of an
Award under the Plan.
5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4. LIMITATION ON AWARDS. Notwithstanding any provision in the Plan to
the contrary, the maximum number of shares of Stock with respect to one or more
Options and/or SARs that may be granted during any one calendar year under the
Plan to any one Covered Employee shall be 350,000. The maximum fair market value
(measured as of the date of grant) of any Awards other than Options and SARs
that may be received by a Covered Employee (less any consideration paid by the
Participant for such Award) during any one calendar year under the Plan shall be
$1,000,000.
ARTICLE 6
ELIGIBILITY
6.1. GENERAL. Awards may be granted only to individuals who are employees,
officers, consultants or directors of the Corporation or a Parent or Subsidiary.
ARTICLE 7
STOCK OPTIONS
7.1. GENERAL. The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of Stock under an
Option shall be determined by the Committee, provided that the exercise
price for any Option shall not be less than the Fair Market Value as of the
date of the grant.
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(b) TIME AND CONDITIONS OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part. The
Committee also shall determine the performance or other conditions, if any,
that must be satisfied before all or part of an Option may be exercised. The
Committee may waive any exercise provisions at any time in whole or in part
based upon factors as the Committee may determine in its sole discretion so
that the Option becomes exerciseable at an earlier date.
(c) PAYMENT. The Committee shall determine the methods by which the
exercise price of an Option may be paid, the form of payment, including,
without limitation, cash, shares of Stock, or other property (including
"cashless exercise" arrangements), and the methods by which shares of Stock
shall be delivered or deemed to be delivered to Participants; provided that
if shares of Stock surrendered in payment of the exercise price were
themselves acquired otherwise than on the open market, such shares shall
have been held by the Participant for at least six months.
(d) EVIDENCE OF GRANT. All Options shall be evidenced by a written Award
Agreement between the Corporation and the Participant. The Award Agreement
shall include such provisions, not inconsistent with the Plan, as may be
specified by the Committee.
(e) CANADIAN PARTICIPANTS. Any Participant who is a legal resident of
Canada on the date of grant may elect to have some or all of any Options
(other than an Incentive Stock Option) that would otherwise be granted to
such Participant granted instead to a trust or trusts governed by a
registered retirement savings plan established by and for the benefit of
such Participant. Such election must be made prior to the execution of the
Award Agreement evidencing the Option and shall be specified in the Award
Agreement.
7.2. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options
granted under the Plan must comply with the following additional rules:
(a) EXERCISE PRICE. The exercise price per share of Stock shall be set
by the Committee, provided that the exercise price for any Incentive Stock
Option shall not be less than the Fair Market Value as of the date of the
grant.
(b) EXERCISE. In no event may any Incentive Stock Option be exercisable
for more than ten years from the date of its grant.
(c) LAPSE OF OPTION. An Incentive Stock Option shall lapse under the
earliest of the following circumstances; provided, however, that the
Committee may, prior to the lapse of the Incentive Stock Option under the
circumstances described in paragraphs (3), (4) and (5) below, provide in
writing that the Option will extend until a later date, but if Option is
exercised after the dates specified in paragraphs (3), (4) and (5) below, it
will automatically become a Non-Qualified Stock Option:
(1) The Incentive Stock Option shall lapse as of the option
expiration date set forth in the Award Agreement.
(2) The Incentive Stock Option shall lapse ten years after it is
granted, unless an earlier time is set in the Award Agreement.
(3) If the Participant terminates employment for any reason other
than as provided in paragraph (4) or (5) below, the Incentive Stock
Option shall lapse, unless it is previously exercised, three months after
the Participant's termination of employment; provided, however, that if
the Participant's employment is terminated by the Company for Cause or by
the Participant without the consent of the Company, the Incentive Stock
Option shall (to the extent not previously exercised) lapse immediately.
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(4) If the Participant terminates employment by reason of his
Disability, the Incentive Stock Option shall lapse, unless it is
previously exercised, one year after the Participant's termination of
employment.
(5) If the Participant dies while employed, or during the three-month
period described in paragraph (3) or during the one-year period described
in paragraph (4) and before the Option otherwise lapses, the Option shall
lapse one year after the Participant's death. Upon the Participant's
death, any exercisable Incentive Stock Options may be exercised by the
Participant's beneficiary, determined in accordance with Section 13.6.
Unless the exercisability of the Incentive Stock Option is accelerated
as provided in Article 13, if a Participant exercises an Option after
termination of employment, the Option may be exercised only with respect to
the shares that were otherwise vested on the Participant's termination of
employment.
(d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market Value
(determined as of the time an Award is made) of all shares of Stock with
respect to which Incentive Stock Options are first exercisable by a
Participant in any calendar year may not exceed $100,000.00.
(e) TEN PERCENT OWNERS. No Incentive Stock Option shall be granted to
any individual who, at the date of grant, owns stock possessing more than
ten percent of the total combined voting power of all classes of stock of
the Corporation or any Parent or Subsidiary unless the exercise price per
share of such Option is at least 110% of the Fair Market Value per share of
Stock at the date of grant and the Option expires no later than five years
after the date of grant.
(f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of an Incentive
Stock Option may be made pursuant to the Plan after the day immediately
prior to the tenth anniversary of the Effective Date.
(g) RIGHT TO EXERCISE. During a Participant's lifetime, an Incentive
Stock Option may be exercised only by the Participant or, in the case of the
Participant's Disability, by the Participant's guardian or legal
representative.
(h) DIRECTORS. The Committee may not grant an Incentive Stock Option to
a non-employee director. The Committee may grant an Incentive Stock Option
to a director who is also an employee of the Corporation or Parent or
Subsidiary but only in that individual's position as an employee and not as
a director.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1. GRANT OF SARS. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:
(a) RIGHT TO PAYMENT. Upon the exercise of a Stock Appreciation Right,
the Participant to whom it is granted has the right to receive the excess,
if any, of:
(1) The Fair Market Value of one share of Stock on the date of
exercise; over
(2) The grant price of the Stock Appreciation Right as determined by
the Committee, which shall not be less than the Fair Market Value of one
share of Stock on the date of grant.
(b) OTHER TERMS. All awards of Stock Appreciation Rights shall be
evidenced by an Award Agreement. The terms, methods of exercise, methods of
settlement, form of consideration payable in settlement, and any other terms
and conditions of any Stock Appreciation Right shall be determined by the
Committee at the time of the grant of the Award and shall be reflected in
the Award Agreement.
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ARTICLE 9
PERFORMANCE UNITS
9.1. GRANT OF PERFORMANCE UNITS. The Committee is authorized to grant
Performance Units to Participants on such terms and conditions as may be
selected by the Committee. The Committee shall have the complete discretion to
determine the number of Performance Units granted to each Participant. All
Awards of Performance Units shall be evidenced by an Award Agreement.
9.2. RIGHT TO PAYMENT. A grant of Performance Units gives the Participant
rights, valued as determined by the Committee, and payable to, or exercisable
by, the Participant to whom the Performance Units are granted, in whole or in
part, as the Committee shall establish at grant or thereafter. The Committee
shall set performance goals and other terms or conditions to payment of the
Performance Units in its discretion which, depending on the extent to which they
are met, will determine the number and value of Performance Units that will be
paid to the Participant.
9.3. OTHER TERMS. Performance Units may be payable in cash, Stock, or
other property, and have such other terms and conditions as determined by the
Committee and reflected in the Award Agreement.
ARTICLE 10
RESTRICTED STOCK AWARDS
10.1. GRANT OF RESTRICTED STOCK. The Committee is authorized to make
Awards of Restricted Stock to Participants in such amounts and subject to such
terms and conditions as may be selected by the Committee. All Awards of
Restricted Stock shall be evidenced by a Restricted Stock Award Agreement.
10.2. ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, upon the satisfaction of performance
goals or otherwise, as the Committee determines at the time of the grant of the
Award or thereafter.
10.3. FORFEITURE. Except as otherwise determined by the Committee at the
time of the grant of the Award or thereafter, upon termination of employment
during the applicable restriction period or upon failure to satisfy a
performance goal during the applicable restriction period, Restricted Stock that
is at that time subject to restrictions shall be forfeited and reacquired by the
Corporation; provided, however, that the Committee may provide in any Award
Agreement that restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of terminations resulting
from specified causes, and the Committee may in other cases waive in whole or in
part restrictions or forfeiture conditions relating to Restricted Stock.
10.4. CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, certificates must bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock.
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ARTICLE 11
DIVIDEND EQUIVALENTS
11.1 GRANT OF DIVIDEND EQUIVALENTS. The Committee is authorized to grant
Dividend Equivalents to Participants subject to such terms and conditions as may
be selected by the Committee. Dividend Equivalents shall entitle the Participant
to receive payments equal to dividends with respect to all or a portion of the
number of shares of Stock subject to an Award, as determined by the Committee.
The Committee may provide that Dividend Equivalents be paid or distributed when
accrued or be deemed to have been reinvested in additional shares of Stock, or
otherwise reinvested.
ARTICLE 12
OTHER STOCK-BASED AWARDS
12.1. GRANT OF OTHER STOCK-BASED AWARDS. The Committee is authorized,
subject to limitations under applicable law, to grant to Participants such other
Awards that are payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares of Stock, as deemed by the Committee to
be consistent with the purposes of the Plan, including without limitation shares
of Stock awarded purely as a "bonus" and not subject to any restrictions or
conditions, convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares of Stock, and Awards valued by reference
to book value of shares of Stock or the value of securities of or the
performance of specified Parents or Subsidiaries. The Committee shall determine
the terms and conditions of such Awards.
ARTICLE 13
PROVISIONS APPLICABLE TO AWARDS
13.1. STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under the
Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the Plan. If an Award is granted in substitution for another Award, the
Committee may require the surrender of such other Award in consideration of the
grant of the new Award. Awards granted in addition to or in tandem with other
Awards may be granted either at the same time as or at a different time from the
grant of such other Awards.
13.2. EXCHANGE PROVISIONS. The Committee may at any time offer to exchange
or buy out any previously granted Award for a payment in cash, Stock, or another
Award (subject to Section 14.1), based on the terms and conditions the Committee
determines and communicates to the Participant at the time the offer is made.
13.3. TERM OF AWARD. The term of each Award shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock Option exceed a period of ten years from the date of its grant
(or, if Section 7.2(e) applies, five years from the date of its grant).
13.4. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and any
applicable law or Award Agreement, payments or transfers to be made by the
Corporation or a Parent or Subsidiary on the grant or exercise of an Award may
be made in such form as the Committee determines at or after the time of grant,
including without limitation, cash, Stock, other Awards, or other property, or
any combination, and may be made in a single payment or transfer, in
installments, or on a deferred basis, in each case determined in accordance with
rules adopted by, and at the discretion of, the Committee.
13.5. LIMITS ON TRANSFER. No right or interest of a Participant in any
unexercised or restricted Award may be pledged, encumbered, or hypothecated to
or in favor of any party other than the
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Corporation or a Parent or Subsidiary, or shall be subject to any lien,
obligation, or liability of such Participant to any other party other than the
Corporation or a Parent or Subsidiary. No unexercised or restricted Award shall
be assignable or transferable by a Participant other than by will or the laws of
descent and distribution or, except in the case of an Incentive Stock Option,
pursuant to a domestic relations order that would satisfy Section 414(p)(1)(A)
of the Code if such Section applied to an Award under the Plan; provided,
however, that the Committee may (but need not) permit other transfers where the
Committee concludes that such transferability (i) does not result in accelerated
taxation, (ii) does not cause any Option intended to be an incentive stock
option to fail to be described in Code Section 422(b), and (iii) is otherwise
appropriate and desirable, taking into account any factors deemed relevant,
including without limitation, any state or federal tax or securities laws or
regulations applicable to transferable Awards.
13.6 BENEFICIARIES. Notwithstanding Section 13.5, a Participant may, in
the manner determined by the Committee, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Committee. If no beneficiary has been designated or survives the
Participant, payment shall be made to the Participant's estate. Subject to the
foregoing, a beneficiary designation may be changed or revoked by a Participant
at any time provided the change or revocation is filed with the Committee.
13.7. STOCK CERTIFICATES. All Stock certificates delivered under the Plan
are subject to any stop-transfer orders and other restrictions as the Committee
deems necessary or advisable to comply with federal or state securities laws,
rules and regulations and the rules of any national securities exchange or
automated quotation system on which the Stock is listed, quoted, or traded. The
Committee may place legends on any Stock certificate to reference restrictions
applicable to the Stock.
13.8 ACCELERATION UPON DEATH, NORMAL RETIREMENT OR
DISABILITY. Notwithstanding any other provision in the Plan or any
Participant's Award Agreement to the contrary, upon the Participant's death,
Normal Retirement or Disability during his employment or service as a consultant
or director, all outstanding Options, Stock Appreciation Rights, and other
Awards in the nature of rights that may be exercised shall become fully
exercisable and all restrictions on outstanding Awards shall lapse. Any Option
or Stock Appreciation Rights Awards shall thereafter continue or lapse in
accordance with the other provisions of the Plan and the Award Agreement. To the
extent that this provision causes Incentive Stock Options to exceed the dollar
limitation set forth in Section 7.2(d), the excess Options shall be deemed to be
Non-Qualified Stock Options.
13.9. ACCELERATION UPON TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN
CONTROL. Except as otherwise provided in the Award Agreement, upon a
Participant's termination of employment by the Company other than for Cause, or
by the Participant for any reason, within 12 months after the occurrence of a
Change in Control, all of such Participant's outstanding Options, Stock
Appreciation Rights, and other Awards in the nature of rights that may be
exercised shall become fully exercisable and all restrictions on outstanding
Awards shall lapse; provided, however that such acceleration will not occur if,
in the opinion of the Company's accountants, such acceleration would preclude
the use of "pooling of interest" accounting treatment for a Change in Control
transaction that (a) would otherwise qualify for such accounting treatment, and
(b) is contingent upon qualifying for such accounting treatment. To the extent
that this provision causes Incentive Stock Options to exceed the dollar
limitation set forth in Section 7.2(d), the excess Options shall be deemed to be
Non-Qualified Stock Options.
13.10. ACCELERATION FOR ANY OTHER REASON. The Committee may in its sole
discretion at any time determine that all or a portion of a Participant's
Options, Stock Appreciation Rights, and other Awards in the nature of rights
that may be exercised shall become fully or partially exercisable, and/or that
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all or a part of the restrictions on all or a portion of the outstanding Awards
shall lapse, in each case, as of such date as the Committee may, in its sole
discretion, declare. The Committee may discriminate among Participants and among
Awards granted to a Participant in exercising its discretion pursuant to this
Section 13.10.
13.11. EFFECT OF ACCELERATION. If an Award is accelerated under Section
13.8, 13.9 or 13.10, the Committee may, in its sole discretion, provide (i) that
the Award will expire after a designated period of time after such acceleration
to the extent not then exercised, (ii) that the Award will be settled in cash
rather than Stock, (iii) that the Award will be assumed by another party to the
transaction giving rise to the acceleration or otherwise be equitably converted
in connection with such transaction, or (iv) any combination of the foregoing.
The Committee's determination need not be uniform and may be different for
different Participants whether or not such Participants are similarly situated.
13.12. PERFORMANCE GOALS. The Committee may determine that any Award
granted pursuant to this Plan to a Participant (including, but not limited to,
Participants who are Covered Employees) shall be determined solely on the basis
of (a) the achievement by the Corporation or a Parent or Subsidiary of a
specified target return, or target growth in return, on equity or assets, (b)
the Corporation's, Parent's or Subsidiary's stock price, (c) the achievement by
an individual or a business unit of the Corporation, Parent or Subsidiary of a
specified target, or target growth in, revenues, net income or earnings per
share, (d) the achievement of objectively determinable goals with respect to
product delivery, product quality, customer satisfaction, meeting budgets and/or
retention of employees or (e) any combination of the goals set forth in (a)
through (d) above. If an Award is made on such basis, the Committee shall
establish goals prior to the beginning of the period for which such performance
goal relates (or such later date as may be permitted under Code Section 162(m)
or the regulations thereunder) and the Committee may for any reason reduce (but
not increase) any Award, notwithstanding the achievement of a specified goal.
Any payment of an Award granted with performance goals shall be conditioned on
the written certification of the Committee in each case that the performance
goals and any other material conditions were satisfied.
13.13. TERMINATION OF EMPLOYMENT. Whether military, government or other
service or other leave of absence shall constitute a termination of employment
shall be determined in each case by the Committee at its discretion, and any
determination by the Committee shall be final and conclusive. A termination of
employment shall not occur in a circumstance in which a Participant transfers
from the Corporation to one of its Parents or Subsidiaries, transfers from a
Parent or Subsidiary to the Corporation, or transfers from one Parent or
Subsidiary to another Parent or Subsidiary.
ARTICLE 14
CHANGES IN CAPITAL STRUCTURE
14.1. GENERAL. In the event a stock dividend is declared upon the Stock,
the shares of Stock then subject to each Award shall be increased
proportionately without any change in the aggregate purchase price therefor. In
the event the Stock shall be changed into or exchanged for a different number or
class of shares of stock or securities of the Corporation or of another
corporation, whether through reorganization, recapitalization, reclassification,
stock split-up, combination of shares, merger or consolidation, there shall be
substituted for each such share of Stock then subject to each Award the number
and class of shares into which each outstanding share of Stock shall be so
exchanged, all without any change in the aggregate purchase price for the shares
then subject to each Award.
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ARTICLE 15
AMENDMENT, MODIFICATION AND TERMINATION
15.1. AMENDMENT, MODIFICATION AND TERMINATION. The Committee or the Board
may, at any time and from time to time, amend, modify or terminate the Plan
without stockholder approval; provided, however, that the Committee or Board may
condition any amendment or modification on the approval of stockholders of the
Company if such approval is necessary or deemed advisable with respect to tax,
securities or other applicable laws, policies or regulations.
15.2 AWARDS PREVIOUSLY GRANTED. At any time and from time to time, the
Committee may amend, modify or terminate any outstanding Award without approval
of the Participant; provided, however, that such amendment, modification or
termination shall not, without the Participant's consent, reduce or diminish the
value of such Award determined as if the Award had been exercised, vested,
cashed in or otherwise settled on the date of such amendment or termination;
provided further that the original term of any Option may not be extended by
more than five years. No termination, amendment, or modification of the Plan
shall adversely affect any Award previously granted under the Plan, without the
written consent of the Participant.
ARTICLE 16
GENERAL PROVISIONS
16.1. NO RIGHTS TO AWARDS. No Participant or employee, officer, consultant
or director shall have any claim to be granted any Award under the Plan, and
neither the Corporation nor the Committee is obligated to treat Participants and
employees, officers, consultants or directors uniformly.
16.2. NO STOCKHOLDER RIGHTS. No Award gives the Participant any of the
rights of a stockholder of the Corporation unless and until shares of Stock are
in fact issued to such person in connection with such Award.
16.3. WITHHOLDING. The Corporation or any Parent or Subsidiary shall have
the authority and the right to deduct or withhold, or require a Participant to
remit to the Corporation, an amount sufficient to satisfy federal, state, and
local taxes (including the Participant's FICA obligation) required by law to be
withheld with respect to any taxable event arising as a result of the Plan. With
respect to withholding required upon any taxable event under the Plan, the
Committee may, at the time the Award is granted or thereafter, require that any
such withholding requirement be satisfied, in whole or in part, by withholding
shares of Stock having a Fair Market Value on the date of withholding equal to
the amount to be withheld for tax purposes, all in accordance with such
procedures as the Committee establishes.
16.4. NO RIGHT TO EMPLOYMENT OR OTHER STATUS. Nothing in the Plan or any
Award Agreement shall interfere with or limit in any way the right of the
Corporation or any Parent or Subsidiary to terminate any Participant's
employment or status as a consultant or director at any time, nor confer upon
any Participant any right to continue as an employee, officer, consultant or
director of the Corporation or any Parent or Subsidiary.
l6.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an "unfunded"
plan for incentive and deferred compensation. With respect to any payments not
yet made to a Participant pursuant to an Award, nothing contained in the Plan or
any Award Agreement shall give the Participant any rights that are greater than
those of a general creditor of the Corporation or any Parent or Subsidiary.
16.6. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or benefit plan of the
Corporation or any Parent or Subsidiary unless provided otherwise in such other
plan.
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16.7. EXPENSES. The expenses of administering the Plan shall be borne by
the Corporation and its Parents or Subsidiaries.
16.8. TITLES AND HEADINGS. The titles and headings of the Sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
16.9. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
16.10. FRACTIONAL SHARES. No fractional shares of Stock shall be issued
and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
16.11. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Corporation
to make payment of awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Corporation shall be under no obligation to
register under the 1933 Act, or any state securities act, any of the shares of
Stock paid under the Plan. The shares paid under the Plan may in certain
circumstances be exempt from registration under the 1933 Act, and the
Corporation may restrict the transfer of such shares in such manner as it deems
advisable to ensure the availability of any such exemption.
16.12. GOVERNING LAW. To the extent not governed by federal law, the Plan
and all Award Agreements shall be construed in accordance with and governed by
the laws of the State of Georgia.
16.13 ADDITIONAL PROVISIONS. Each Award Agreement may contain such other
terms and conditions as the Committee may determine; provided that such other
terms and conditions are not inconsistent with the provisions of this Plan.
The foregoing is hereby acknowledged as being the IVI Checkmate Corp. 1998
Long-Term Incentive Plan as adopted by the Board of Directors of the Company on
May 22, 1998, and approved by the stockholders of the Company on May 22, 1998.
IVI CHECKMATE CORP.
By: __________________________________
Its: _________________________________
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EXHIBIT 10.5.2
IVI CHECKMATE CORP. 1998 DIRECTORS STOCK OPTION PLAN
<PAGE>
IVI CHECKMATE CORP.
1998 DIRECTORS STOCK OPTION PLAN
ARTICLE 1
PURPOSE
1.1 GENERAL PURPOSE. The purpose of this Plan is to further the growth and
development of the Company by encouraging directors who are not employees of the
Company or any parent or subsidiary corporation of the Company to obtain a
proprietary interest in the Company by owning its stock. The Company intends
that the Plan will provide such persons with an added incentive to continue to
serve as Directors and will stimulate their efforts in promoting the growth,
efficiency and profitability of the Company. The Company also intends that the
Plan will afford the Company a means of attracting persons of outstanding
quality to service on the Board.
1.2 INTENDED TAX EFFECTS OF OPTIONS. It is intended that the tax effects
of any Option granted hereunder should be determined under Code Section83.
ARTICLE 2
DEFINITIONS
The following words and phrases as used in this Plan shall have the meanings
set forth in this Article unless a different meaning is clearly required by the
context:
2.1 1993 ACT shall mean the Securities Act of 1933, as amended.
2.2 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
2.3 BENEFICIARY shall mean, with respect to an Optionee, the Person or
Persons who acquire the Options of such Optionee by bequest or inheritance. To
the extent that an Option has not yet been distributed to such Person or Persons
from a deceased Optionee's estate, an Option may be exercised by the executor or
administrator (as applicable) of the deceased Optionee's estate.
2.4 BOARD shall mean the Board of Directors of the Company.
2.5 CAUSE shall mean (i) the willful and continued failure of an Optionee
to perform substantially his or her duties with the Company or a parent or
subsidiary of the Company (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for substantial
performance is delivered to the Optionee by the Board which specifically
identifies the manner in which the Board believes that the Optionee has not
substantially performed his or her duties, or (ii) the willful engaging by the
Optionee in illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company.
2.6 CHANGE OF CONTROL means and includes each of the following:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
33 1/3% or more of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however,
that for purposes of this subsection (i), the following acquisitions shall
not constitute a Change of Control: (A) any acquisition by a Person who is
on the Effective Date the beneficial owner of 33 1/3% or more of the
Outstanding Company Voting Securities, (B) any acquisition directly from the
Company, (C) any acquisition by the Company, (D) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (E) any acquisition
by any corporation pursuant to a transaction which complies with clauses
(A), (B) and (C) of subsection (iii) of this definition; or
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(b) Individuals who, as of the Effective Date, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the Effective Date whose election, or nomination for election
by the Company's stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company
(a "Business Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 33 1/3% or more of the combined
voting power of the then outstanding voting securities of such corporation
except to the extent that such ownership existed prior to the Business
Combination, and (C) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination.
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2.7 CODE shall mean the Internal Revenue Code of 1986, as amended.
2.8 COMMITTEE shall mean the committee appointed by the Board to
administer and interpret the Plan in accordance with Article 3 below.
2.9 COMMON STOCK shall mean the common stock of the company.
2.10 COMPANY shall mean IVI Checkmate Corp., a Delaware corporation.
2.11 DIRECTOR shall mean an individual who is serving as a member of the
Board (i.e., a director of the Company).
2.12 DISABILITY shall mean, with respect to an individual, the total and
permanent disability of such individual as determined by the Committee in its
sole discretion.
2.13 EFFECTIVE DATE shall mean the date on which this Plan is approved by
the stockholders of the Company. See Article 9 herein.
2.14 FAIR MARKET VALUE, on any date, means (i) if the Common Stock is
listed on a securities exchange or is traded over the Nasdaq National Market
System, the closing sales price on such exchange or over such system on such
date, or, in the absence of reported sales on such date, the closing sales price
on the immediately preceding date on which sales were reported, or (ii) if the
Common Stock is not listed on
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a securities exchange or traded over the Nasdaq National Market System, the mean
between the bid and offered prices as quoted by Nasdaq for such date, provided
that if it is determined that the fair market value is not properly reflected by
such Nasdaq quotations, Fair Market Value will be determined by such other
method as the Committee determines in good faith to be reasonable.
2.15 NON-EMPLOYEE DIRECTOR shall mean a person described in Section 5.1
hereof.
2.16 NQSO shall mean an option to which Code Section421 (relating
generally to certain incentive stock options and certain other options) does not
apply.
2.17 OPTION shall mean NQSOs granted to individuals pursuant to the terms
and provision of this Plan.
2.18 OPTION AGREEMENT shall mean a written agreement, executed and dated
by the company and an Optionee, evidencing an Option granted under the terms and
provisions of this Plan, setting forth the terms and conditions of such Option,
and specifying the name of the Optionee and the number of shares of stock
subject to such Option.
2.19 OPTION PRICE shall mean the purchase price of the shares of Common
Stock underlying an Option.
2.20 OPTIONEE shall mean an individual who is granted an Option pursuant
to the terms and provisions of this Plan.
2.21 PERSON shall mean any individual, organization, corporation,
partnership or other entity.
2.22 PLAN shall mean this IVI Checkmate Corp. 1998 Directors Stock Option
Plan.
ARTICLE 3
ADMINISTRATION
3.1 GENERAL ADMINISTRATION. The Plan shall be administered and interpreted
by the Committee. Subject to the express provisions of the Plan, the Committee
shall have authority to interpret the Plan, to prescribe, amend and rescind
rules and regulations relating to the Plan, to determine the terms and
provisions of the Option Agreements by which Options shall be evidenced (which
shall not be inconsistent with the terms of the Plan), and to make all other
determinations necessary or advisable for the administration of the Plan, all of
which determinations shall be final, binding and conclusive.
3.2 APPOINTMENT. The Board shall appoint the Committee from among its
members to serve at the pleasure of the Board. The Board from time to time may
remove members from or add members to, the Committee and shall fill all
vacancies thereon. The Committee at all times shall be composed of two or more
directors.
3.3 ORGANIZATION. The Committee may select one of its members as its
chairman and shall hold its meetings at such times and at such places as it
shall deem advisable. A majority of the Committee shall constitute a quorum, and
such majority shall determine its actions. The Committee shall keep minutes of
its proceedings and shall report the same to the Board at the meeting next
succeeding.
3.4 INDEMNIFICATION. In addition to such other rights of indemnification
as they have as directors or as members of the Committee, the members of the
Committee, to the extent permitted by applicable law, shall be indemnified by
the Company against reasonable expenses (including, without limitation,
attorneys' fees) actually and necessarily incurred in connection with the
defense of any action, suit or proceedings, or in connection with any appeal, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Options granted
hereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved to the extent required by and in the manner provided
by the articles or certificate of incorporation or the bylaws of the company
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relating to indemnification of directors) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Committee member or members did not act in good faith and in a manner he or they
reasonably believed to be in or not opposed to the best interest of the Company.
ARTICLE 4
STOCK
The stock subject to the Options and other provisions of the Plan shall be
authorized but unissued or reacquired shares of Common Stock. Subject to
readjustment in accordance with the provisions of Article 7, the total number of
shares of Common Stock for which Options may be granted to persons participating
in the Plan shall not exceed in the aggregate 250,000 shares of Common Stock.
Notwithstanding the foregoing, shares of Common Stock allocable to the
unexercised portion of any expired or terminated Option again may become subject
to Options under the Plan.
ARTICLE 5
ELIGIBILITY TO RECEIVE AND GRANT OF OPTIONS
5.1 INDIVIDUALS ELIGIBLE FOR GRANTS OF OPTIONS. The individuals eligible
to receive Options hereunder shall be solely those individuals who are elected
as a Director AND who are not employees of the Company or any parent or
subsidiary corporation of the Company. Such individuals shall receive Options
hereunder in accordance with the provisions of Section 5.2 below.
5.2 GRANT OF OPTIONS. On first date prior to 2002 on which a Person first
becomes a Non-Employee Director, and on each of the dates of the Annual Meeting
of the stockholders of the Company held in 1999, 2000, 2001 and 2002, each
Non-Employee Director then serving in such capacity shall be granted an Option
to purchase 10,000 shares of Common Stock, with such Option subject to the
provisions of Article 6 below.
ARTICLE 6
TERMS AND CONDITIONS OF OPTIONS
Options granted hereunder and Option Agreements shall comply with and be
subject to the following terms and conditions:
6.1 OPTION AGREEMENT. Each Option granted hereunder shall be evidenced by
an Option Agreement which sets forth the terms of the Option as specified
herein.
6.2 OPTIONEE AND NUMBER OF SHARES. Each Option Agreement shall state the
name of the Optionee and the total number of shares of the Common Stock to which
it pertains.
6.3 VESTING.
(a) Each Option granted under this Plan shall first become exercisable
(i.e., vested) with respect to all shares subject to such Option as of the
first anniversary of the date the Option is granted; provided, if an
Optionee ceases to be a Director, his rights with regard to all non-vested
Options shall cease immediately except as provided in Subsections (b) and
(c) below.
(b) Notwithstanding the above, any Options previously granted to an
Optionee shall become immediately vested and exercisable for 100% of the
number of shares subject to the Options upon the Optionee's Disability or
death.
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(c) Notwithstanding the above, the Options previously granted to an
Optionee shall become immediately vested and exercisable for 100% of the
number of shares subject to the Options upon a Change of Control.
6.4 OPTION PRICE. The Option Price of the shares of Common Stock
underlying each Option shall be the Fair Market Value of the Common Stock as of
the date the Option is granted.
6.5 TERMS OF OPTIONS. Terms of Options granted under the Plan shall
commence on the date of grant and shall expire and no longer be exercisable
after five years from the date the Option is granted. No Option shall be granted
hereunder after the grant of Options at the 2002 Annual Meeting of Stockholders.
6.6 TERMS OF EXERCISE. The exercise of an Option may be for less than the
full number of shares of Common Stock subject to such Option, but such exercise
shall not be made for less than (i) 100 shares or (ii) the total remaining
shares subject to the Option, if such total is less than 100 shares. Subject to
the other restrictions on exercise set forth herein, the unexercised portion of
an Option may be exercised at a later date by the Optionee.
6.7 METHOD OF EXERCISE. All Options granted hereunder shall be exercised
by written notice directed to the Secretary of the Company at its principal
place of business or to such other person as the Committee may direct. Each
notice of exercise shall identify the Option which the Optionee is exercising
(in whole or in part) and shall be accompanied by payment of the Option Price
for the number of shares specified in such notice and by any documents required
by Section 8.1. The Company shall make delivery of such shares within a
reasonable period of time; provided, if any law or regulation requires the
Company to take any action (including, but not limited to, the filing of a
registration statement under the 1933 Act and causing such registration
statement to become effective) with respect to the shares specified in such
notice before the issuance thereof, then the date of delivery of such shares
shall be extended for the period necessary to take such action.
6.8 MEDIUM AND TIME OF PAYMENT.
(a) The Option Price shall be payable upon the exercise of the Option in
an amount equal to the number of shares then being purchased times the per
share Option Price. Payment, at the election of the Optionee (or his
successors as provided in subsection (c) of Section 6.9), shall be (A) in
cash; (B) by delivery to the Company of a certificate or certificates for
shares of the Common Stock duly endorsed for transfer to the Company; or (C)
by a combination of (A) and (B).
(b) If all or part of the Option Price is paid by delivery of shares of
the Common Stock, on the date of such payment, the Optionee must have held
such shares for at least six months; and the value of such Common Stock
(which shall be the Fair Market Value of such Common Stock on the date of
exercise) shall be less than or equal to the total Option Price payment. If
the Optionee delivers Common Stock with a value that is less than the total
Option Price, then such Optionee shall pay the balance of the total Option
Price in cash.
6.9 EFFECT OF TERMINATION OF SERVICE OR DEATH. Except as provided in
subsections (a), (b) and (c) below, no Option shall be exercisable unless the
Optionee thereof shall have been a Director from the date of the granting of the
Option until the date of exercise.
(a) TERMINATION OF SERVICE. In the event an Optionee ceases to be a
Director for any reason other than death or Disability, any Option or
unexercised portion thereof granted to him shall terminate on and shall not
be exercisable after the earliest to occur of (i) the expiration date of the
Option, (ii) three months after the date the Optionee ceases to be a
Director or (iii) the date on which the Company gives notice to such
Optionee of termination of his service as a Director if service is
terminated by the Company or by its stockholders for Cause (an Optionee's
resignation in anticipation of termination of service by the Company or by
its stockholders for Cause shall constitute a notice of termination by the
Company). Notwithstanding the foregoing, in the event that an Optionee's
service
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as a Director terminates for a reason other than death or Disability at any
time after a Change of Control, the term of all Options of that Optionee
shall be extended through the earlier to occur of (i) the expiration date of
the Option, (ii) three months after the date the Optionee ceases to be a
Director. Prior to the earlier of the dates specified in the preceding
sentences of this subsection (a), the Option shall be exercisable only in
accordance with its terms and only for the number of shares exercisable on
the date of termination of service as a Director. The question of whether an
authorized leave of absence or absence for military or government service or
for any other reason shall constitute a termination of service as a Director
for purposes of the Plan shall be determined by the Committee, which
determination shall be final and conclusive.
(b) DISABILITY. Upon the termination of an Optionee's service as a
Director due to Disability, any Option or unexercised portion thereof
granted to him which is otherwise exercisable shall terminate on and shall
not be exercisable after the earlier to occur of (i) the expiration date of
such Option, or (ii) one year after the date on which such Optionee ceases
to be a Director due to Disability. Prior to the earlier of such date, such
Option shall be exercisable only in accordance with its terms and only for
the number of shares exercisable on the date such Optionee's service as a
Director ceases due to Disability.
(c) DEATH. In the event of the death of the Optionee (i) while he is a
Director, (ii) within three months after the date on which such Optionee's
service as a Director is terminated (for a reason other than Cause) as
provided in subsection (a) above, or (iii) within one year after the date on
which such Optionee's service as a Director terminated due to his
Disability, any Option or unexercised portion thereof granted to him which
is otherwise exercisable may be exercised by the Optionee's Beneficiary at
any time prior to the expiration of one year from the date of death of such
Optionee, but in no event later than the date of expiration of the Option
period. Such exercise shall be effected pursuant to the terms of this
Section as if such Beneficiary is the named Optionee.
6.10 RESTRICTIONS ON TRANSFER AND EXERCISE OF OPTIONS. No Option shall be
assignable or transferable by the Optionee except by will or by the laws of
descent and distribution, and any purported transfer shall be null and void.
During the lifetime of an Optionee, the Option shall be exercisable only by him;
provided, however, that in the event the Optionee is incapacitated and unable to
exercise Options, such Options may be exercised by such Optionee's legal
guardian, legal representative, fiduciary or other representative whom the
Committee deems appropriate based on applicable facts and circumstances.
6.11 RIGHTS AS A STOCKHOLDER. An Optionee shall have no rights as a
stockholder with respect to shares covered by his Option until date of the
issuance of the shares to him and only after the Option Price of such shares is
fully paid. Unless specified in Article 7, no adjustment will be made for
dividends or other rights for which the record date is prior to the date of such
issuance.
6.12 NO OBLIGATION TO EXERCISE OPTION. The granting of an Option shall
impose no obligation upon the Option to exercise such Option.
6.13 ACCELERATION. The Committee shall at all times have the power to
accelerate the vesting date of Options previously granted under this Plan.
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ARTICLE 7
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
7.1 RECAPITALIZATION. In the event that the outstanding shares of the
Common Stock of the Company are hereafter increased or decreased or changed into
or exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, reclassification, stock split,
combination of shares or dividend payable in shares of the Common Stock, the
following rules shall apply:
(a) The Committee shall take an appropriate adjustment in the number and
kind of shares available for the granting of Options under the Plan.
(b) The Committee also shall make an appropriate adjustment in the
number and kind of shares as to which outstanding Options, or portions
thereof then unexercised, shall be exercisable; any such adjustment in any
outstanding Options shall be made without change in the total price
applicable to the unexercised portion of such Option and with a
corresponding adjustment in the Option Price per share. No fractional shares
shall be issued or optioned in making the foregoing adjustments, and the
number of shares available under the Plan or the number of shares subject to
any outstanding Options shall be the next lower number of shares, rounding
all fractions downward.
(c) If any rights or warrants to subscribe for additional shares are
given PRO RATA to holders of outstanding shares of the class or classes of
stock then set aside for the Plan, each Optionee shall be entitled to the
same rights or warrants on the same basis as holders of the outstanding
shares with respect to such portion of his Option as is exercised on or
prior to the record date for determining stockholders entitled to receive or
exercise such rights or warrants.
7.2 REORGANIZATION. Subject to any required action by the stockholders, if
the Company shall be a party to any reorganization involving merger,
consolidation, acquisition of the stock or acquisition of the assets of the
Company which does not constitute a Change of Control, the Committee, in its
discretion, may declare that:
(a) any Option granted but not yet exercised shall pertain to and apply,
with appropriate adjustments as determined by the Committee, to the
securities of the resulting corporation to which a holder of the number of
shares of the Common Stock subject to such Option would have been entitled;
(b) any or all outstanding Options granted hereunder shall become
immediately nonforfeitable and fully exercisable or vested (to the extent
permitted under federal or state securities laws); and/or
(c) any or all outstanding Options granted hereunder shall become
immediately nonforfeitable and fully exercisable or vested (to the extent
permitted under federal or state securities laws) and are to be terminated
after giving at least 30 days' notice to the Optionees to whom such Options
have been granted.
7.3 LIMITS ON ADJUSTMENTS. Any issuance by the Company of stock of any
class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of the Common Stock subject to any Option, except as
specifically provided otherwise in this Article. The grant of Options pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge, consolidate or dissolve, or to liquidate,
sell or transfer all or any part of its business or assets. All adjustments the
Committee makes under this Article shall be conclusive.
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ARTICLE 8
AGREEMENT BY OPTIONEE AND SECURITIES REGISTRATION
8.1 AGREEMENT. If, in the opinion of counsel to the Company, such action
is necessary or desirable, no Options shall be granted to any Optionee, and no
Option shall be exercisable, unless, at the time of grant or exercise, as
applicable, such Optionee (i) represents and warrants that he will acquire the
Common Stock for investment only and not for purposes of resale or distribution,
and (ii) makes such further representations and warranties as are deemed
necessary or desirable by counsel to the Company with regard to holding and
resale of the Common Stock. The Optionee shall, upon the request of the
Committee, execute and deliver to the Company an agreement or affidavit to such
effect. Should the Committee have reasonable cause to believe that such Optionee
did not execute such agreement or affidavit in good faith, the Company shall not
be bound by the grant of the Option or by the exercise of the Option. All
certificates representing shares of Common Stock issued pursuant to the Plan
shall be marked with the following restrictive legend or similar legend, if such
marking, in the opinion of counsel to the Company, is necessary or desirable:
The shares represented by this certificate [have not been registered under
the Securities Act of 1933, as amended, or the securities laws of any state
and] are held by an "affiliate" (as such term is defined in Rule 144
promulgated by the Securities and Exchange Commission under the Securities
Act of 1933, as amended) of the Corporation. Accordingly, these shares may
not be sold, hypothecated, pledged or otherwise transferred except (i)
pursuant to an effective registration statement under the Securities Act of
1933, as amended, and any applicable securities laws or regulations of any
state with respect to such shares, (ii) in accordance with Securities and
Exchange Commission Rule 144, or (iii) upon the issuance to the Corporation
of a favorable opinion of counsel or the submission to the Corporation of
such other evidence as may be satisfactory to the Corporation that such
proposed sale, assignments encumbrance or other transfer will not be in
violation of the Securities Act of 1933, as amended, or any applicable
securities laws of any state or any rules or regulations thereunder. Any
attempted transfer of this certificate or the shares represented hereby
which is in violation of the preceding restrictions will not be recognized
by the Corporation, nor will any transfer be recognized as the owner thereof
by the Corporation.
If the Common Stock is (A) held by an Optionee who ceases to be an "affiliate,"
as that term is defined in Rule 144 of the 1933 Act, and (B) registered under
the 1933 Act and all applicable state securities laws and regulations as
provided in Section 8.2, the Committee, in its discretion and with the advice of
counsel, may dispense with or authorize the removal of the restrictive legend
set forth above or the portion thereof that is inapplicable.
8.2 REGISTRATION. In the event that the Company in its sole discretion
shall deem it necessary or advisable to register, under the 1933 Act or any
state securities laws or regulations, any shares with respect to which Options
have been granted hereunder, then the Company shall take such action at its own
expense before delivery of the certificates representing such shares to an
Optionee. In such event, and if the shares of Common Stock of the Company shall
be listed on any national securities exchange or on Nasdaq at the time of the
exercise of any Option, the Company shall make prompt application at its own
expense for the listing on such stock exchange or Nasdaq of the shares of Common
Stock to be issued.
ARTICLE 9
EFFECTIVE DATE
The Plan shall be effective as of the Effective Date upon the adoption of
the Plan by the stockholders of the Company at the [1999 Annual Meeting of
Stockholders of the Company], and no Option shall be granted hereunder prior to
said date. Failure to obtain such approval shall render the Plan null and void
AB INITIO.
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ARTICLE 10
AMENDMENT AND TERMINATION
10.1 AMENDMENT AND TERMINATION BY THE BOARD. The Board may, at any time
and from time to time, amend, modify or terminate the Plan without stockholder
approval; provided, however, that the Board may condition any amendment or
modification on the approval of stockholders of the Company if such approval is
necessary or deemed advisable with respect to tax, securities or other
applicable laws, policies or regulations. No amendment modification or
termination of the Plan shall adversely affect, in any way, the rights of the
Optionees who have outstanding Options without the consent of such Optionees.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of the Common Stock subject to the Options granted hereunder will be used
for general corporate purposes.
11.2 NOTICES. All notices or other communications by an Optionee to the
Committee pursuant to or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Committee at the
location, or by the person, designated by the Committee for the receipt thereof.
11.3 TERM OF PLAN. Subject to the terms of Article 10, the Plan shall
terminate upon the later of (i) the complete exercise or lapse of the last
outstanding Option, or (ii) the last date upon which Options may be granted
hereunder.
11.4 GOVERNING LAW. The Plan shall be governed by and construed in
accordance with the laws of the State of Georgia.
11.5 PLAN DOCUMENT CONTROLS. In the event of any conflict between the
provisions of an Option Agreement and the Plan, the Plan shall control.
11.6 GENDER AND NUMBER. Wherever applicable, the masculine pronoun shall
include the feminine pronoun, and the singular shall include the plural.
11.7 HEADINGS. The titles in this Plan are inserted for convenience of
reference; they constitute no part of the Plan and are not to be considered in
the construction hereof.
11.8 LEGAL REFERENCES. Any references in this Plan to a provision of law
which is subsequent to the Effective Date of this Plan, revised, modified,
finalized or redesignated, shall automatically be deemed a reference to such
revised, modified, finalized or redesignated provision of law.
11.9 NO RIGHTS TO PERFORM SERVICES. Nothing contained in the Plan, or any
modification thereof, shall be construed to give any individual any rights to
perform services for the Company or any parent or subsidiary corporation of the
Company.
11.10 FUNDED ARRANGEMENT. The Plan shall not be funded, and except for
reserving a sufficient number of authorized shares to the extent required by law
to meet the requirements of the Plan, the Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any grant under the Plan.
APPROVED BY BOARD OF DIRECTORS ON MAY 22, 1998
APPROVED BY STOCKHOLDERS ON MAY 22, 1998
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EXHIBIT 10.5.4
FORM OF EMPLOYMENT AGREEMENT BETWEEN
INTERNATIONAL VERIFACT INC. AND J. STANFORD SPENCE
<PAGE>
AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into this day of
, 1998, by and between IVI Checkmate Corp., a corporation
(hereinafter, the "Company"), and J. Stanford Spence (hereinafter, "Spence").
BACKGROUND
Spence is the Chairman of the Board and Chief Executive Officer of Checkmate
Electronics, Inc., a Georgia corporation ("Checkmate Electronics"). Checkmate
Electronics was acquired by the Company on the date hereof pursuant to a
Combination Agreement, dated as of January , 1998, by and among the
Company, Checkmate Electronics, International Verifact, Inc., a Canadian
corporation, and a merger subsidiary of the Company (the "Combination
Transaction").
The Company desires to engage Spence in the capacity set forth herein, in
accordance with the terms and conditions of this Agreement. Spence is willing to
serve as such in accordance with the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EFFECTIVE DATE. This Agreement shall be effective as of the effective
date (the "Effective Date") of the Combination Transaction.
2. ENGAGEMENT. Spence is hereby engaged on the Effective Date as a
consultant to the Company and as the Chairman of the Board of Directors of the
Company. In his capacity as consultant and Chairman of the Board, Spence will
report directly to the Board of Directors of the Company.
3. ENGAGEMENT PERIOD. Unless earlier terminated herein in accordance with
Section 7 hereof, Spence's engagement under this Agreement shall begin on the
Effective Date and extend for a period (the "Engagement Period") ending on the
date which is five (5) years after the Effective Date.
4. DIRECTORSHIP. Pursuant to the Combination Transaction, as of the
Effective Date, Spence was elected to a one-year term as a director of the
Company. At the end of such term as director and thereafter during the
Engagement Period, the Board of Directors of the Company shall, subject to the
satisfaction of its fiduciary responsibilities, nominate Spence for re-election
to the Board of Directors and, if so elected by the shareholders of the Company,
shall appoint Spence as Chairman of the Board.
5. EXTENT OF SERVICE. During the Engagement Period, Spence agrees to
devote substantial time and attention to the performance of his duties as
Chairman of the Board and to make himself reasonably available on a
substantially full-time basis for consultation with the Board of Directors and
executive management of the Company on matters pertaining to the business of the
Company, including, without limitation, such matters as acquisitions and
corporate strategy, as well as ongoing operational and business issues.
6. COMPENSATION AND BENEFITS.
(a) COMPENSATION. During the Engagement Period, the Company will
pay to Spence compensation ("Compensation") at the Adjusted Annual Rate,
less normal withholdings, payable in equal monthly or more frequent
installments as are customary under the Company's payroll practices from
time to time.
For purposes of this Section 6(a), the following terms have the
following meanings.
"Adjusted Annual Rate" shall mean, for each calendar year during the
Engagement Period, the product of the Base Rate, multiplied by the sum of
(1.00) plus the Percent Index Change for such calendar year.
<PAGE>
"Base Rate" shall mean U.S.$220,000 per year, provided that the Base
Rate shall be automatically reduced from U.S.$220,000 to U.S.$150,000 per
year upon the occurrence of any of the events described in Section 8(b)
hereof.
"Percent Index Change" shall mean with respect to each January 1, a
percentage equal to: (Current Index for such January 1 -the Base Index)/Base
Index, but not less than zero.
"Current Index" shall mean with respect to each January 1 during the
Engagement Period, the CPI published as final for August of the previous
calendar year.
"Base Index" shall mean the CPI published as final for August 1997.
"CPI" shall mean the Consumer Price Index for All Urban Consumers, U.S.
City Average, for all Items (1982-1984 = 100), as published from time to
time by the Bureau of Labor Statistics of the U.S. Department of Labor (or
if such index is no longer published, another comparable measure established
by a source mutually agreeable to Spence and the Company).
For example, if the Base rate is U.S.$220,000, and the Percent Index
Change for calendar year 1999 is +5%, then the Adjusted Annual Rate for
calendar year 1999 is U.S.$131,000.
(b) WELFARE BENEFIT PLANS. During the Engagement Period, Spence and
Spence's family shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies (including,
without limitation, medical, disability, life, and accidental death
insurance plans and programs) to the extent applicable generally to the
executive officers of the Company and its affiliated companies, and on
the same basis as such other executive officers. Without limiting the
foregoing, during the Engagement Period, the Company shall at a minimum
provide Spence and his spouse with comprehensive medical and
hospitalization insurance coverage.
(c) EXPENSES. During the Engagement Period, Spence shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by Spence in accordance with the policies, practices and
procedures of the Company and its affiliated companies to the extent
applicable generally to other executive officers of the Company and its
affiliated companies.
(d) FRINGE BENEFITS. During the Engagement Period, Spence shall be
entitled to fringe benefits in accordance with the plans, practices,
programs and policies of the Company and its affiliated companies in
effect for executive officers of the Company and its affiliated
companies. Without limiting the foregoing, during the Engagement Period,
the Company shall provide Spence with an automobile of Spence's choosing
and pay related lease payments, insurance and maintenance expenses
thereon.
7. TERMINATION OF ENGAGEMENT.
(a) DEATH OR DISABILITY. Spence's engagement shall terminate
automatically upon Spence's death during the Engagement Period. If the
Company determines in good faith that the Disability of Spence has
occurred during the Engagement Period (pursuant to the definition of
Disability set forth below), it may give to Spence written notice in
accordance with this Agreement of its intention to terminate Spence's
engagement. In such event, Spence's engagement with the Company shall
terminate effective on the 30th day after receipt of such written notice
by Spence (the "Disability Effective Date"), provided that, within the 30
days after such receipt, Spence shall not have returned to full-time
performance of Spence's duties. For purposes of this Agreement,
"Disability" shall mean a mental or physical disability as determined by
the Board of Directors of the Company in accordance with standards and
procedures similar to those under the Company's employee long-term
disability plan, if any. At any time that the Company does not maintain
such a long-term disability plan, Disability shall mean the inability of
Spence, as determined by the Board, to substantially perform the
essential functions of his regular duties
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and responsibilities due to a medically determinable physical or mental
illness which has lasted (or can reasonably be expected to last) for a
period of six consecutive months.
(b) TERMINATION BY THE COMPANY. The Company may terminate Spence's
consulting engagement during the Engagement Period with or without cause.
(c) TERMINATION BY SPENCE. Spence may at any time resign as
Chairman of the Board with or without retaining his consulting engagement
for the remainder of the Engagement Period. Spence may at any time
terminate his consulting engagement with or without Good Reason. For
purposes of this Agreement, "Good Reason" shall mean:
(i) a reduction by the Company in Spence's Compensation and benefits
as in effect on the Effective Date or as the same may be increased from
time to time; or
(ii) Spence's removal or failure to be reelected as a director of the
Company or as Chairman of the Board, but not including Spence's voluntary
resignation or failure to accept nomination as a director or as Chairman
of the Board; or
(iii) any failure by the Company to comply with and satisfy Section
14(b) of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company, or by
Spence for Good Reason, shall be communicated by Notice of Termination to
the other party hereto given in accordance with this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written
notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Spence's engagement under the provision so indicated
and (iii) if the Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination date (which
date shall be not more than 30 days after the giving of such notice). The
failure by Spence to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason shall not
waive any right of Spence hereunder or preclude Spence from asserting
such fact or circumstance in enforcing Spence's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if
Spence's engagement is terminated by the Company other than for Spence's
death or Disability, or by Spence for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as the
case may be, and (ii) if Spence's engagement is terminated by reason of
death or Disability, the Date of Termination shall be the date of death
or the Disability Effective Date, as the case may be.
8. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) TERMINATION BY THE COMPANY OTHER THAN FOR DEATH OR DISABILITY;
TERMINATION BY SPENCE FOR GOOD REASON. If, during the Engagement Period,
the Company shall terminate Spence's consulting engagement other than for
death or Disability, or Spence shall terminate his consulting engagement
for Good Reason, then in consideration of Spence's services rendered
prior to such termination and of Spence's covenants contained in Section
9 hereof:
(i) the Company shall pay to Spence in a lump sum in cash within 30
days after the Date of Termination the sum of (1) Spence's Compensation
through the Date of Termination to the extent not theretofore paid, and
(2) any compensation previously deferred by Spence (together with any
accrued interest or earnings thereon) to the extent not theretofore paid
(the sum of the amounts described in clauses (1) and (2) shall be
hereinafter referred to as the "Accrued Obligations"); and
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(ii) the Company shall continue to pay to Spence his Compensation in
accordance with 6(a) hereof for the period beginning on the Date of
Termination and ending on the last day of the scheduled Engagement Period
(the "Remaining Engagement Period"); and
(iii) for the Remaining Engagement Period, or such longer period as
may be provided by the terms of the appropriate plan, program, practice
or policy, the Company shall continue benefits to Spence and/or Spence's
family at least equal to those which would have been provided to them in
accordance with the welfare plans, programs, practices and policies
described in Section 6(b) of this Agreement if Spence's engagement had
not been terminated or, if more favorable to Spence, as in effect
generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies and their families, provided,
however, that if Spence becomes re-employed with another employer and is
eligible to receive medical or other welfare benefits under another
employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during
such applicable period of eligibility ("Welfare Benefits"); and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to Spence any other amounts or benefits
required to be paid or provided or which Spence is eligible to receive
under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits"). With respect
to the provision of Other Benefits, the term Other Benefits as utilized
in this Section 8(a) shall include, without limitation, Spence's
continued use during the Engagement Period of a Company automobile as
provided in Section 6(e) hereof.
(b) TERMINATION BY SPENCE OTHER THAN FOR GOOD REASON; TERMINATION
DUE TO DISABILITY. If, during the Engagement Period, Spence shall
terminate his consulting engagement other than for Good Reason, or
Spence's engagement is terminated due to his Disability, then in
consideration of Spence's services rendered prior to such termination and
of Spence's covenants contained in Section 9 hereof:
(i) the Company shall pay to Spence in a lump sum in cash within 30
days after the Date of Termination the Accrued Obligations; and
(ii) the Company shall continue to pay Spence his Compensation in
accordance with Section 6(a) hereof (but with the Base Rate reduced to
U.S.$150,000) for the Remaining Engagement Period; and
(iii) the Company shall continue to provide Spence the Welfare
Benefits for the Remaining Engagement Period, or such longer period as
may be provided by the terms of the applicable Welfare Benefits; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to Spence the Other Benefits. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in
this Section 8(b) shall include, without limitation, and Spence shall be
entitled (i) to the continued use during the Engagement Period of a
Company automobile as provided in Section 6(e) hereof, and (ii) to
receive, benefits under such plans, programs, practices and policies
relating to disability benefits, if any, as applicable generally to
executive officers of the Company and its affiliated companies and their
beneficiaries, and on the same basis as such executive officers and their
beneficiaries.
(c) DEATH. If Spence's engagement is terminated by reason of
Spence's death during the Engagement Period, this Agreement shall
terminate without further obligations to Spence's legal representatives
under this Agreement, other than for payment of Accrued Obligations and
the timely payment or provision of Other Benefits. Accrued Obligations
shall be paid to Spence's
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estate or beneficiary, as applicable, in a lump sum in cash within 30
days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 8(c) shall
include, without limitation, and Spence's estate and/or beneficiaries
shall be entitled to receive, benefits under such plans, programs,
practices and policies relating to death benefits, if any, as applicable
generally to executive officers of the Company and its affiliated
companies and their beneficiaries, and on the same basis as such
executive officers and their beneficiaries.
9. RESTRICTIVE COVENANTS.
(a) GENERAL. Spence and the Company understand and agree that the
purpose of the provisions of this Section 9 is to protect legitimate
business interests of the Company, as more fully described below, and is
not intended to eliminate Spence's post-engagement competition with the
Company PER SE, nor is it intended to impair or infringe upon Spence's
right to work, earn a living, or acquire and possess property from the
fruits of Spence's labor. Spence hereby acknowledges that the
restrictions set forth in this Section 9 are reasonable and that they do
not, and will not, unduly impair Spence's ability to earn a living after
the termination of this Agreement. Therefore, subject to the limitations
of reasonableness imposed by law upon the restrictions set forth herein
by the time and geographical area described below, Spence shall be
subject to the restrictions set forth in this Section 9.
(b) DEFINITIONS. The following capitalized terms used in this
Section 9 shall have the meanings assigned to them below, which
definitions shall apply to both the singular and the plural forms of such
terms:
"Competitive Services" means the manufacture and sale to
distributors, retailers and financial service institutions of
point-of-sale software and terminals, comprising check readers, MICRO
analyzers, payment authorization and point-of-transaction promotion
loyalty systems, signature capture devices and electronic transaction
processing equipment.
"Confidential Information" means any confidential or proprietary
information possessed by the Company or its affiliated entities or
relating to its or their business, including without limitation, any
confidential "know-how", customer lists, details of client or consultant
contracts, current and anticipated customer requirements, pricing
policies, price lists, market studies, business plans, operational
methods, marketing plans or strategies, product development techniques or
plans, computer software programs (including object code and source
code), data and documentation, data base technologies, systems,
structures and architectures, inventions and ideas, past, current and
planned research and development, compilations, devices, methods,
techniques, processes, financial information and data, business
acquisition plans, new personnel acquisition plans and any other
information that would constitute a trade secret under the common law or
statutory law of the State of Georgia.
"Determination Date" means the date of termination of Spence's
engagement with the Company hereunder.
"Person" means any individual or any corporation, partnership, joint
venture, association or other entity or enterprise.
"Principal or Representative" means a principal, owner, partner,
shareholder, joint venturer, investor, member, trustee, director,
officer, manager, employee, agent, representative or consultant.
"Protected Clients" means clients of the Company that obtained any of
the Competitive Services from the Company within one (1) year prior to
the Determination Date.
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"Protected Employees" means employees of the Company who were
employed by the Company at any time within six (6) months prior to the
Determination Date.
"Restricted Period" means the original Engagement Period, regardless
of any earlier termination of Spence's engagement with the Company
hereunder.
"Restricted Territory" means the northern part of the State of
Georgia.
"Restrictive Covenants" means the restrictive covenants contained in
Section 9(c) hereof.
(c) RESTRICTIVE COVENANTS.
(i) RESTRICTION ON DISCLOSURE AND USE OF CONFIDENTIAL
INFORMATION. Spence understands and agrees that the Confidential Information
constitutes a valuable asset of the Company and its affiliated entities, and may
not be converted to Spence's own use. Accordingly, Spence hereby agrees that he
shall not, directly or indirectly, at any time during the Restricted Period
reveal, divulge, or disclose to any Person not expressly authorized by the
Company any Confidential Information, and Spence shall not, directly or
indirectly, at any time during the Restricted Period use or make use of any
Confidential Information in connection with any business activity other than
that of the Company. The parties acknowledge and agree that this Agreement is
not intended to, and does not, alter either the Company's rights or Spence's
obligations under any state or federal statutory or common law regarding trade
secrets and unfair trade practices.
Anything herein to the contrary notwithstanding, Spence shall not be
restricted from disclosing or using Confidential Information that: (i) is or
becomes generally available to the public other than as a result of an
unauthorized disclosure by Spence or Spence's agent; (ii) becomes available to
Spence in a manner that is not in contravention of applicable law from a source
(other than the Company or its affiliated entities or one of its or their
officers, employees, agents or representatives) that is not bound by a
confidential relationship with the Company or its affiliated entities or by a
confidentiality or other similar agreement; (iii) was known to Spence on a
non-confidential basis and not in contravention of applicable law or a
confidentiality or other similar agreement before its disclosure to Spence by
the Company or its affiliated entities or one of its or their officers,
employees, agents or representatives; or (iv) is required to be disclosed by
law, court order or other legal process; provided, however, that in the event
disclosure is required by law, Spence shall provide the Company with prompt
notice of such requirement so that the Company may seek an appropriate
protective order prior to any such required disclosure by Spence.
(ii) NONSOLICITATION OF PROTECTED EMPLOYEES. Spence understands
and agrees that the relationship between the Company and each of its Protected
Employees constitutes a valuable asset of the Company and may not be converted
to Spence's own use. Accordingly, Spence hereby agrees that during the
Restricted Period Spence shall not directly or indirectly on Spence's own behalf
or as a Principal or Representative of any Person or otherwise solicit or induce
any Protected Employee to terminate his or her employment relationship with the
Company or to enter into employment with any other Person.
(iii) RESTRICTION ON RELATIONSHIPS WITH PROTECTED CLIENTS. Spence
understands and agrees that the relationship between the Company and each of its
Protected Clients constitutes a valuable asset of the Company and may not be
converted to Spence's own use. Accordingly, Spence hereby agrees that, during
the Restricted Period, Spence shall not, without the prior written consent of
the Company, directly or indirectly, on Spence's own behalf or as a Principal or
Representative of any Person or otherwise, solicit a Protected Client for the
purpose of providing or selling Competitive Services; provided, however, that
the prohibition of this covenant shall apply only to Protected Clients with whom
Spence had Material Contact on the Company's behalf during the twelve (12)
months immediately preceding the termination of Spence's engagement hereunder.
For purposes of this Agreement, Spence had "Material Contact" with a Protected
Client if (a) Spence had business dealings with the Protected Client on the
Company's behalf; (b) Spence was responsible for supervising or coordinating the
dealings between the Company and the
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Protected Client; or (c) Spence obtained Confidential Information about the
customer as a result of Spence's association with the Company.
(iv) NONCOMPETITION WITH THE COMPANY. During the Restricted
Period, Spence, unless acting in accordance with the Company's prior written
consent, will not directly provide any Competitive Services to, and will not,
directly or indirectly, on his own or on behalf of any Person, be affiliated
with as a Principal or Representative any Person engaged, in whole or in part,
in the provision of Competitive Services in a capacity where Spence's duties or
responsibilities for such Person will include strategic planning, policymaking
or management; provided, however, that the provisions of this Agreement shall
not be deemed to prohibit the ownership by Spence of any securities of the
Company or its affiliated entities or not more than five percent (5%) of any
class of securities of any corporation having a class of securities registered
pursuant to the Securities Exchange Act of 1934, as amended.
10. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit Spence's continuing or future participation in any plan, program, policy
or practice provided by the Company or any of its affiliated companies and for
which Spence may qualify, nor, subject to Section 15(d), shall anything herein
limit or otherwise affect such rights as Spence may have under any contract or
agreement with the Company or any of its affiliated companies. Amounts which are
vested benefits or which Spence is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with the Company or
any of its affiliated companies at or subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
11. LIMITATION OF BENEFITS IN CERTAIN INSTANCES.
(a) Anything in this Agreement to the contrary notwithstanding, in the event
it shall be determined that any benefit, payment or distribution by the Company
to or for the benefit of Spence (whether payable or distributable pursuant to
the terms of this Agreement or otherwise) (a "Payment") would, if paid, be
subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), then prior to the making
of any Payment to Spence, a calculation shall be made comparing (i) the net
benefit to Spence of the Payment after payment of the Excise Tax, to (ii) the
net benefit to Spence if the Payment had been limited to the extent necessary to
avoid being subject to the Excise Tax. If the amount calculated under (i) above
is less than the amount calculated under (ii) above, then the Payment shall be
reduced to the extent necessary of avoid the imposition of the Excise Tax.
Spence may select the Payments to be limited or reduced.
(b) All determinations required to be made under this Section 11, including
whether an Excise Tax would otherwise be imposed and the assumptions to be
utilized in arriving at such determination, shall be made by Ernst & Young LLP
or such other certified public accounting firm as may be designated by Spence
(the "Accounting Firm") which shall provide detailed supporting calculations
both to the Company and Spence within 15 business days of the receipt of notice
from Spence that a Payment is due to be made, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the change
of control, Spence may appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any determination by the
Accounting Firm shall be binding upon the Company and Spence. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section 11
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Spence.
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12. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
Spence or others. In no event shall Spence be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to Spence
under any of the provisions of this Agreement, and such amounts shall not be
reduced whether or not Spence obtains other employment. The Company agrees to
pay as incurred, to the full extent permitted by law, all legal fees and
expenses which Spence may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, Spence or others of the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by Spence about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Code.
13. REPRESENTATIONS AND WARRANTIES. Spence hereby represents and warrants
to the Company that Spence's execution of this Agreement and performance of his
obligations hereunder will not violate the terms or conditions of any contract
or obligation, written or oral, between Spence and any other person or entity.
By executing this Agreement, Future hereby consents to Spence's entrance into
this Agreement and acknowledges that the same does not constitute a violation of
the covenants of Spence contained in that certain Settlement Agreement, dated as
of June 15, 1989, by and among Spence, Diane M. Spence, Stanford Technologies,
Inc. and Dudley L. Moore, Jr. (the "Settlement Agreement").
14. ASSIGNMENT AND SUCCESSORS.
(a) SPENCE. This Agreement is personal to Spence and without the prior
written consent of the Company shall not be assignable by Spence otherwise than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by Spence's legal representatives.
(b) THE COMPANY. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. The Company will
require any successor to all or substantially all of the business and/or assets
of the Company (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
15. MISCELLANEOUS.
(a) WAIVER. Failure of either party to insist, in one or more instances,
on performance by the other in strict accordance with the terms and conditions
of this Agreement shall not be deemed a waiver or relinquishment of any right
granted in this Agreement or of the future performance of any such term or
condition or of any other term or condition of this Agreement, unless such
waiver is contained in a writing signed by the party making the waiver.
(b) SEVERABILITY. If any provision or covenant, or any part thereof, of
this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
(c) OTHER AGENTS. Nothing in this Agreement is to be interpreted as
limiting the Company from employing other personnel on such terms and conditions
as may be satisfactory to it.
(d) ENTIRE AGREEMENT. Beginning on the Effective Date and except as
specifically provided herein, this Agreement contains the entire agreement
between the Company and Spence with respect to the subject matter hereof, and,
except as provided to the contrary herein, it supersedes and invalidates any
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previous agreements or contracts between them which relate to the subject matter
hereof; provided, however, that this Agreement does not supersede or invalidate
the Settlement Agreement. No representations, inducements, promises or
agreements, oral or otherwise, which are not embodied herein shall be of any
force or effect.
(e) GOVERNING LAW. Except to the extent preempted by federal law, and
without regard to conflict of laws principles, the laws of the State of Georgia
shall govern this Agreement in all respects, whether as to its validity,
construction, capacity, performance or otherwise.
(f) NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or three days after mailing if mailed, first class,
certified mail, postage prepaid:
<TABLE>
<S> <C>
To the Company:
IVI Checkmate Corp.
1003 Mansell Road
Roswell, Georgia 30076
Facsimile No. (770) 594-6019
Attention: Chief Executive Officer
To Spence:
J. Stanford Spence
7209 Valburn Drive
Austin, Texas 78731
</TABLE>
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
(g) AMENDMENTS AND MODIFICATIONS. This Agreement may be amended or
modified only by a writing signed by both parties hereto, which makes specific
reference to this Agreement.
(signatures on following page)
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Agreement as of the date first above written.
IVI CHECKMATE CORP.
By: __________________________________
Title: _______________________________
EXECUTIVE:
______________________________________
J. Stanford Spence
Acknowledged for purposes of Section
13:
CHECKMATE ELECTRONICS, INC.
By: __________________________________
Title: _______________________________
10
<PAGE>
EXHIBIT 10.5.7
AMENDED AND RESTATED EMPLOYMENT AGREEMENT DATED AS OF MARCH 15, 1996, BETWEEN
INTERNATIONAL VERIFACT INC. AND GEORGE WHITTON
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT is amended and restated as of March 15, 1996.
B E T W E E N
INTERNATIONAL VERIFACT INC.,
a corporation continued under the laws of Canada,
(hereinafter referred to as the "Corporation")
OF THE FIRST PART
-and -
GEORGE WHITTON,
of the Town of Cave Creek, in the State of Arizona,
(hereinafter referred to as the "Executive")
OF THE SECOND PART
WHEREAS by agreement dated January 6, 1995 (the "Original Agreement") both
the Corporation and the Executive set out the terms and conditions governing the
Executive's employment with the Corporation;
AND WHEREAS the parties to the Original Agreement wish to amend and restate
the Original Agreement;
NOW THEREFORE in consideration of the mutual covenants and agreements
contained in this Agreement and other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged by each of the
parties), the parties hereto agree that the Original Agreement is hereby amended
and restated in its entirety as follows:
1. DEFINITIONS
(a) "CHANGE OF CONTROL" means the occurrence of both:
(i) the acquisition or continuing ownership of common shares of the
Corporation and/or securities ("Convertible Securities") convertible
into, exchangeable for or representing the right to acquire common
shares of the Corporation as a result of which a person, group of
persons or persons acting jointly or in concert, or persons
associated or affiliated within the meaning of the Canada Business
Corporations Act with any such person, group of persons or any of
such persons acting jointly or in concert (collectively the
"Acquirors"), beneficially own shares of the Corporation and/or
Convertible Securities such that, assuming only the conversion,
exchange or exercise of Convertible Securities beneficially owned by
the Acquirors, the Acquirors would beneficially own shares that would
entitle the holders thereof to cast more than 30% of the votes
attaching to all shares in the capital of the Corporation that may be
cast to elect directors of the Corporation; and
(ii) the exercise of the voting power of all or any such shares so as to
cause or result in the election of three or more directors of the
Corporation who were not Incumbent Directors.
(b) "INCUMBENT DIRECTOR" means any member of the Board of Directors of the
Corporation who was a member of the Board of Directors of the Corporation
immediately prior to a Change of Control and any successor to an
Incumbent Director who was recommended or elected or appointed to succeed
any Incumbent Director by the affirmative vote of a majority of the
Incumbent Directors then on the Board of Directors of the Corporation.
<PAGE>
2. TERM
This Agreement shall be in effect immediately as at and from the date first
written above and shall remain in effect until the earlier of December 31, 2000
and the date of termination as provided in Section 7 hereafter.
3. DUTIES
The Executive shall serve the Corporation and any subsidiaries and
affiliates of the Corporation in such capacity or capacities and shall perform
such duties and exercise such powers pertaining to the management and operation
of the Corporation and any subsidiaries and affiliates of the Corporation (as
those terms are defined in the Canada Business Corporations Act) as may be
determined from time to time by the Board of Directors of the Corporation
consistent with the office of the Executive. Without limiting the foregoing, the
Executive shall occupy the office of Chairman of the Board of Directors of the
Corporation. The Executive shall:
(a) devote his full time and attention and his best efforts during normal
business hours to the business and affairs of the Corporation;
(b) perform those duties that may reasonably be assigned to the Executive
diligently and faithfully to the best of the Executive's abilities and in
the best interests of the Corporation; and
(c) use his best efforts to promote the interests and goodwill of the
Corporation.
4. REMUNERATION
(a) Commencing January 1, 1997, and for the remainder of the term of this
Agreement, the annual base salary payable to the Executive for his
services hereunder shall be US $150,000 exclusive of those benefits set
forth herein. The annual base salary payable to the Executive pursuant to
this subsection shall be payable semi-monthly in arrears or in such other
manner as may be mutually agreed upon, less, in any case, any deductions
or withholdings required by law.
(b) The Corporation shall provide the Executive with employee benefits
comparable to those provided by the Corporation from time to time to
other senior executives of the Corporation through its existing group
life or group insurance plans.
5. NO FURTHER SALARY OR BONUS ADJUSTMENTS
Other than as herein provided, there shall be no further salary, bonus,
cost-of-living or merit increase in the annual base salary unless agreed to in
writing by the Corporation.
6. EXPENSES
The Executive shall be entitled to a car allowance of U.S. $500 per month.
The Executive shall be reimbursed for all reasonable travel and other
out-of-pocket expenses, including reasonable operating, maintenance and
insurance costs of the Executive's vehicle, actually and properly incurred by
the Executive from time to time in connection with carrying out his duties
hereunder. For all such expenses the Executive shall furnish to the Corporation
originals of all invoices or statements in respect of which the Executive seeks
reimbursement.
7. TERMINATION
(a) The Corporation may terminate the employment of the Executive by the
Corporation and any employment or offices held by the Executive with an
affiliate of the Corporation without notice or any payment in lieu of
notice for cause which, without limiting the generality of the foregoing,
shall include:
(i) if there is a repeated and demonstrated failure on the part of the
Executive to perform the material duties of the Executive's position
in a competent manner and where the Executive
2
<PAGE>
fails to substantially remedy the failure within a reasonable period
of time after receiving written notice of such failure from the
Corporation;
(ii) if the Executive is convicted of a criminal offence involving fraud
or dishonesty;
(iii) if the Executive or any member of his family makes any personal
profit arising out of or in connection with a transaction to which
the Corporation or any affiliate of the Corporation is a party or
with which it is associated without obtaining the prior written
consent of the Corporation;
(iv) if the Executive fails to honour his fiduciary duties to the
Corporation, including the duty to act in the best interests of the
Corporation; or
(v) if the Executive disobeys reasonable instructions given in the course
of employment by the Board of Directors of the Corporation that are
not inconsistent with the Executive's management position and not
remedied by the Executive within a reasonable period of time after
receiving written notice of such disobedience.
(b) This agreement may be immediately terminated by the Corporation by
notice to the Executive if the Executive becomes permanently disabled.
The Executive shall be deemed to have become permanently disabled if in
any year during the employment period, because of ill health, physical or
mental disability, or for other causes beyond the control of the
Executive, the Executive has been continuously unable or unwilling or has
failed to perform the Executive's duties for 120 consecutive days, or if,
during any year during the employment period, the Executive has failed to
perform his duties for a total of 180 days, consecutive or not. The term
"any year during the employment period" means any period of 12
consecutive months during which the Executive is employed by the
Corporation.
(c) This agreement shall terminate without notice upon the death of the
Executive.
(d) This agreement shall terminate upon the effective date of the
Executive's voluntary termination of employment.
8. SEVERANCE PAYMENTS
(a) Upon termination of the Executive's employment:
(i) for cause; or
(ii) by the Executive's voluntary termination of employment;
the Executive shall not be entitled to any severance payment other than
compensation earned by the Executive before the date of termination
calculated pro rata up to and including the date of termination, together
with any amount to which the Executive is entitled under the Employment
Standards Act (Ontario), as amended.
(b) If the Executive's employment is terminated within one (1) year of a
Change of Control the Executive shall be entitled to receive:
(i) seventy-two (72) month's salary at the then applicable annual base
salary rate. The term "annual base salary rate" means the annual
salary rate then in effect; and
(ii) the continuation of the benefits provided for in Section 6 hereof
for six (6) months after the employment is terminated.
9. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario.
3
<PAGE>
10. NO ASSIGNMENT
The Executive may not assign, pledge or encumber the Executive's interest in
this agreement nor assign any of the rights or duties of the Executive under
this agreement without the prior written consent of the Corporation.
11. SEVERABILITY
If any provision in this Agreement including the breadth or scope of such
provision, is determined to be invalid or unenforceable in whole or in part by
any court of competent jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remaining provisions, or part
thereof, of this agreement and such remaining provisions, or part thereof, shall
remain enforceable and binding.
12. ENFORCEABILITY
The Executive hereby confirms and agrees that the covenants and restrictions
pertaining to the Executive contained in this agreement are reasonable and valid
and hereby further acknowledges and agrees that the Corporation would suffer
irreparable injury in the event of any breach by the Executive of his
obligations under any such covenant or restriction. Accordingly, the Executive
hereby acknowledges and agrees that damages would be an inadequate remedy at law
in connection with any such breach and that the Corporation shall therefore be
entitled in lieu of any action for damages, temporary and permanent injunctive
relief enjoining and restraining the Executive from any such breach.
13. SUCCESSORS
This agreement shall be binding on and enure to the benefit of the
successors and assigns of the Corporation and the heirs, executors, personal
legal representatives and permitted assigns of the Executive.
14. NOTICES
Any notice or other communication required or permitted to be given
hereunder shall be in writing and either delivered by hand or telecommunications
facility or mailed by prepaid registered mail. At any time other than during a
general discontinuance of postal service due to strike, lock-out or otherwise, a
notice so mailed shall be deemed to have been received three business days after
the post-marked date thereof or, if delivered by hand or telecommunications
facility, shall be deemed to have been received at the time it is delivered. If
there is general discontinuance of postal service due to strike, lock-out or
otherwise, a notice sent by prepaid registered mail shall be deemed to have been
received three business days after the resumption of postal service. Notices
shall be addressed as follows:
(a) if to the Corporation:
International Verifact Inc.
79 Torbarrie Road
Toronto, Ontario M3L 1G5
(b) if to the Executive:
39851 North 54th Street
Cave Creek, Arizona
U.S.A. 85331
4
<PAGE>
15. LEGAL ADVICE
The Executive hereby represents and warrants to the Corporation and
acknowledges and agrees that he had the opportunity to seek and was not
prevented nor discouraged by the Corporation from seeking independent legal
advice prior to the execution and delivery of this agreement and that, in the
event that he did not avail himself with that opportunity prior to signing this
agreement, he did so voluntarily without any undue pressure and agrees that his
failure to obtain independent legal advice shall not be used by him as a defence
to the enforcement of his obligations under this agreement.
16. WAIVER OF BREACH
The waiver by either party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
thereof.
IN WITNESS THEREOF the parties have executed this Agreement.
<TABLE>
<S> <C> <C>
INTERNATIONAL VERIFACT INC.
By: /s/
-----------------------------------------
Name:
Title:
EXECUTIVE
/S/ GEORGE WHITTON
-----------------------------------------------
Witness GEORGE WHITTON
</TABLE>
5
<PAGE>
EXHIBIT 10.5.7.1
ACKNOWLEDGEMENT AND AMENDING AGREEMENT DATED FEBRUARY 25, 1998, BETWEEN
INTERNATIONAL VERIFACT INC. AND GEORGE WHITTON
<PAGE>
THIS ACKNOWLEDGMENT AND AMENDING AGREEMENT is made as of the 25th day of
February, 1998.
B E T W E E N :
INTERNATIONAL VERIFACT INC.
(hereinafter referred to as the "CORPORATION")
OF THE FIRST PART,
-and -
GEORGE WHITTON
(hereinafter referred to as the "EXECUTIVE")
OF THE SECOND PART.
WHEREAS the parties hereto are parties to an amended and restated employment
agreement made as of March 15, 1996 (the "AGREEMENT");
AND WHEREAS the Corporation, IVI Checkmate Corp., Checkmate Electronics,
Inc., and Future Merger Corporation have entered into a combination agreement
dated January 16, 1998 (the "COMBINATION AGREEMENT");
AND WHEREAS the parties hereto wish to enter into this acknowledgment and to
amend the Agreement in the manner hereinafter set forth;
NOW THEREFORE in consideration of the premises and of the mutual covenants
and agreements hereinafter set forth (the receipt and sufficiency of which is
hereby acknowledged) and for other good and valuable consideration, the parties
agree as follows:
1. (a) The parties hereto acknowledge and agree that notwithstanding the
definition of "Change of Control" as set forth in Section 1(a) of the
Agreement a Change of Control will occur upon the completion of the
transactions contemplated by the Combination Agreement (the "COMBINATION
AGREEMENT CLOSING") so that if the Executive's employment is terminated
within one (1) year of the Combination Agreement Closing, the Executive
will be entitled to receive the severance payments provided for in
Section 8(b) of the Agreement.
(b) Section 1(a) of the Agreement be and the same is hereby amended by
deleting the word "both" at the end of the first line thereof so that the
introductory words of Section 1(a) will read: "Change of Control" means
the occurrence of:".
2. Section 1(a) of the Agreement be and the same is amended by deleting the word
"and" at the end of subsection 1(a)(i) thereof and inserting the word "or" in
its place and stead.
3. In all other respects the Agreement be and the same is hereby confirmed.
4. All signatures of the parties to this Agreement may be transmitted by
facsimile and each such facsimile shall for all purposes be deemed to be the
original signature of the person whose signature it reproduces and shall be
binding upon that person and on the party on whose behalf that person signed.
5. This Agreement may be executed in one or more counterparts, each of which so
executed shall constitute an original and all of which together shall
constitute one and the same agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the
date first written above.
<PAGE>
<TABLE>
<S> <C> <C>
INTERNATIONAL VERIFACT INC.
Per: /s/ PETER ROODE
-----------------------------------------
Peter Roode
DIRECTOR AND MEMBER OF THE COMPENSATION
COMMITTEE
Per: /s/ L. BARRY THOMSON
-----------------------------------------
L. Barry Thomson
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
<TABLE>
<S> <C>
/s/ /s/ GEORGE WHITTON
- ------------------------------------------- ---------------------------------------------
Witness GEORGE WHITTON
</TABLE>
2
<PAGE>
EXHIBIT 10.5.8
MANAGEMENT SERVICES AGREEMENT BETWEEN INTERNATIONAL VERIFACT INC., LBT
INVESTMENTS, INC.
AND L. BARRY THOMSON DATED AS OF MAY 8, 1996
<PAGE>
THIS MANAGEMENT SERVICES AGREEMENT is made as of the 8th day of May, 1996.
B E T W E E N
INTERNATIONAL VERIFACT INC.,
a corporation continued under the laws of Canada,
(hereinafter referred to as the "Corporation")
OF THE FIRST PART
-and -
L.B.T. INVESTMENTS INC., a corporation
incorporated under the laws of the Province of
Ontario,
(hereinafter referred to as the "Manager")
OF THE SECOND PART
-and -
L. BARRY THOMSON,
of the Town of Oakville, in the Province of Ontario,
(hereinafter referred to as the "Thomson")
OF THE THIRD PART
WHEREAS the Corporation desires to retain the Manager to provide certain
services to the Corporation, including the provision of Thomson to act in the
capacity of President and Chief Executive Officer of the Corporation;
AND WHEREAS the Manager is prepared to provide the services required by the
Corporation;
AND WHEREAS Thomson is prepared, at the request of the Manager, to accept
the appointment as President and Chief Executive Officer of the Corporation;
NOW THEREFORE in consideration of the premises and of the mutual covenants
and agreements hereinafter set forth and in consideration of the sum of Two
Dollars ($2.00) now paid by the Corporation to each of the Manager and Thomson
(the receipt and sufficiency of which is hereby acknowledged) and for other good
and valuable consideration, the parties agree as follows:
1. DEFINITIONS
(a) "CHANGE OF CONTROL" means the occurrence of both:
(i) the acquisition or continuing ownership of voting securities of the
Corporation and/or securities ("Convertible Securities") convertible into,
exchangeable for or representing the right to acquire voting securities of
the Corporation as a result of which a person, group of persons or persons
acting jointly or in concert, or persons associated or affiliated within the
meaning of the CANADA BUSINESS CORPORATIONS ACT with any such person, group
of persons or any of such persons acting jointly or in concert (collectively
the "Acquirors"), beneficially own securities of the Corporation and/or
Convertible Securities such that, assuming only the conversion, exchange or
exercise of Convertible Securities beneficially owned by the Acquirors, the
Acquirors would beneficially own securities that would entitle the holders
thereof to cast more than 30% of the votes attaching to all securities in
the capital of the Corporation that may be cast to elect directors of the
Corporation; and
<PAGE>
(ii) election or appointment of three or more directors of the
Corporation who were not Incumbent Directors after the date of the Acquirors
acquired control as set forth in subsection 1(a)(i) above; and
a Change of Control shall be deemed to have occurred on the date that the last
of the three or more directors who were not Incumbent Directors are elected or
appointed.
(b) "INCUMBENT DIRECTOR" means any member of the Board of Directors of the
Corporation who was a member of the Board of Directors of the Corporation
immediately prior to a Change of Control and any successor to an Incumbent
Director who was recommended or elected or appointed to succeed any Incumbent
Director by the affirmative vote of a majority of the Incumbent Directors then
on the Board of Directors of the Corporation.
2. TERM
This Agreement shall be in effect immediately upon execution and shall
remain in effect until it is terminated as provided in section 6 hereafter.
3. APPOINTMENT, ACCEPTANCE AND DUTIES
(a) The Corporation hereby retains the Manager to provide to the Corporation
the services of Thomson who will act as the President and Chief Executive
Officer of the Corporation and the Manager agrees to provide such services.
During the currency of this Agreement, Thomson shall:
(i) report to the board of directors of the Corporation and shall devote
his full time and attention and his best efforts during normal business
hours to the business and affairs of the Corporation;
(ii) exercise the powers and authorities and fulfil the responsibilities
of his position honestly, diligently and faithfully to the best of his
abilities and in the best interests of the Corporation; and
(iii) use his best efforts to promote the interests and goodwill of the
Corporation.
(b) During the currency of this Agreement the Corporation and the Manager
agree that the Corporation shall, unless Thomson otherwise requests, ensure that
Thomson will be nominated by management of the Corporation as a director
thereof.
4. MANAGEMENT FEE
(a) For the provision of the services herein set forth, subject to review as
hereinafter provided the Corporation agrees to pay to the Manager an annual fee
of $225,000.00. The Manager agrees that it will provide invoices to the
Corporation on a monthly basis, in arrears, for one-twelfth of the then current
annual fee. The Corporation and the Manager agree that on or before October 1 in
each year during the currency of this Agreement, commencing on or before October
1, 1996, the annual fee shall be reviewed by the Manager and the board of
directors of the Corporation with a view to ensuring that the Manager's fee is
fair and reasonable considering the services to be provided and considering the
performance of Thomson in carrying out his obligations in the capacity of
President and Chief Executive Officer of the Corporation. It is understood and
agreed that in no event shall the annual fee to be paid to the Manager be
reduced without the Manager's prior written consent. The amount of any increase
in the annual fee shall be determined solely by the board of directors in their
absolute discretion.
(b) The Manager shall be entitled to receive a performance bonus of not less
than $50,000.00 during each calendar year of this Agreement. The Manager and the
board of directors shall determine the Manager's bonus program on or before
April 1 in each year for that calendar year and such program will be based upon
the Manager meeting reasonably set, measurable performance objectives approved
by the board of directors. The parties acknowledge and agree that the Manager is
presently operating under an interim arrangement with the Corporation and
participating in a bonus program for the year January 1,
2
<PAGE>
1996 to December 31, 1996. The Manager shall permit Thomson to participate in
such stock options plans as may from time to time be established for directors
and senior officers of the Corporation in such manner as the board of directors
of the Corporation may, in their absolute discretion, determine.
(c) The Manager shall submit monthly in arrears, in addition to the invoice
in respect of its fees, an invoice in respect of its reasonable expenses
actually and properly incurred by it in connection with carrying out its duties
hereunder which such expenses will include an amount (presently $1,000.00 per
month (the "automobile payment") plus reasonable operating and maintenance
expenses) as agreed by the Manager and the Corporation from time to time, in
respect of the provision of an automobile for Thomson. The Corporation agrees
that it shall reimburse the Manager for such expenses no later than the 15th day
of the month following the month in which the Manager submitted same.
(d) The Corporation shall permit Thomson to be registered with such health
benefit programs as the Corporation may implement from time to time on behalf of
its employees (which shall include at least life insurance, medical insurance,
disability insurance, dental insurance and a drug plan) and the Corporation will
reimburse the Manager for the costs of providing such benefits to Thomson.
(e) The Corporation shall reimburse the Manager for its costs in paying for
Thomson's annual membership or association fees for such trade and C.E.O.
associations as the Corporation and the Manager may agree (to an aggregate
maximum amount of $6,000.00 per year) and its costs in paying for Thomson's
annual fees in a social club (to a maximum of $3,000.00 per year).
5. VACATION
The Manager agrees that Thomson shall be entitled to only four weeks
vacation per year and that Thomson shall only take such vacation at the most
appropriate time considering the demands of the business of the Corporation and
taking into account the staffing requirements of the Corporation and the need
for the timely performance of the services to be provided pursuant to the terms
of this Agreement.
6. TERMINATION
(a) The Corporation may terminate this Agreement without notice or any
payment in lieu of notice for cause.
(b) This Agreement may immediately be terminated by the Corporation without
notice to the Manager if Thomson becomes permanently disabled. Thomson shall be
deemed to have become permanently disabled if in any year during the currency of
this Agreement, because of ill health, physical or mental disability, or for
other causes beyond control of Thomson, Thomson has been continuously unable or
unwilling or has failed to perform his duties for 120 consecutive days, or if,
during any year during the currency of this Agreement he has failed to perform
his duties for a total of 180 days, consecutive or not. The term "any year
during the currency of this Agreement" means any period of 12 consecutive months
during which the Agreement is in full force and effect.
(c) The Corporation may terminate this Agreement without notice upon the
death of Thomson.
(d) The Manager may terminate this Agreement on not less than 30 days'
notice to the Corporation.
7. TERMINATION PAYMENTS
(a) Upon termination of this Agreement for the reason set forth in
subsection 6(a) above, the Manager shall not be entitled to any termination
payment other than its fees calculated PRO RATA up to and including the date of
termination and payment of any outstanding amounts due under subsections 4(c),
4(d) and 4(e) hereof. Upon termination of this Agreement for any of the reasons
set forth in subsections 6(b), (c) or (d) above, the Manager shall be entitled
to its fees calculated PRO RATA up to and including the date of termination,
payment of any outstanding amounts due under subsections 4(c), 4(d) and 4(e)
hereof
3
<PAGE>
and the Corporation shall pay to the Manager its PRO RATA entitlement under the
then current bonus program.
(b) If this Agreement is terminated for any other reason, other than the
reasons set forth in Section 6 and subsection 7(c) does not apply, then the
Corporation shall forthwith pay to the Manager or as the Manager directs the
following:
(i) two times the aggregate of the annual fee (referred to in subsection
4(a)) and the performance bonus (referred to in subsection 4(b)) paid and/or
earned by the Manager in the year immediately preceding the year of
termination;
(ii) two times the total automobile payments referred to in subsection
4(c) paid in the year immediately preceding the year of termination;
(iii) two times the cost of providing the benefits referred to in
subsections 4(d) and 4(e) in the year immediately preceding the year of
termination; and
(iv) the cost of the Manager retaining on behalf of Thomson outplacement
services provided by the KPMG Management Consulting C.E.O. Program or an
equivalent firm acceptable to the Manager.
The termination payments described in this subsection are the only payments
the Manager will receive in the event of the termination of this Agreement for
the reasons contemplated in this subsection (b).
(c) In the event that at any time within one year of a Change of Control
this Agreement is terminated for any reason other than the reasons set forth in
Section 6, then notwithstanding subsection 7(b) hereof, the Corporation shall
forthwith pay to the Manager or as the Manager directs the following:
(i) three times the greater of:
A. the aggregate of the annual fee (referred to in subsection 4(a))
and the performance bonus (referred to in subsection 4(b)) for the year
immediately preceding the year in which this Agreement is terminated; and
B. the aggregate of the annual fee (as referred to in subsection
4(a)) and the performance bonus referred to in subsection 4(b)) for the
year immediately preceding the Change of Control; and
(ii) three times the total automobile payments referred to in subsection
4(c) paid in the year immediately preceding the year of termination;
(iii) three times the cost of providing the benefits referred to in
subsections 4(d) and 4(e) hereof in the year immediately preceding the year
of termination; and
(iv) the cost of the Manager in retaining on behalf of Thomson
outplacement services provided by the KPMG Management Consulting C.E.O.
Program or an equivalent firm acceptable to the Manager.
8. CONFIDENTIALITY AND NON-SOLICITATION
Each of the Manager and Thomson acknowledge and agree that:
(a) in the course of providing the services contemplated by this
Agreement and in particular in the case of Thomson performing his duties and
responsibilities as the Chief Executive Officer of the Corporation, each of
them has had and will continue in the future to have access to and has been
and will be entrusted with detailed confidential information and trade
secrets (printed or otherwise) concerning past, present, future and
contemplated products, services, operations, technology and marketing
techniques and procedures of the Corporation and its subsidiaries,
including, without
4
<PAGE>
limitation, information relating to addresses, preferences, needs and
requirements of past, present and prospective clients, customers, suppliers
and employees of the Corporation and its subsidiaries (collectively,
"Confidential Information"), the disclosure of any of which to competitors
of the Corporation or to the general public, or the use of same by the
Manager, Thomson or any competitor of the Corporation or any of its
subsidiaries, would be highly detrimental to the interests of the
Corporation;
(b) in the course of performing his duties and responsibilities for the
Corporation, Thomson has been and will continue in the future to be a
representative of the Corporation to its customers, clients and suppliers
and as such has had and will continue in the future to have significant
responsibility for maintaining and enhancing the goodwill of the Corporation
with such customers, clients and suppliers and would not have, except by
virtue of the provision of services pursuant to this Agreement, developed a
close and direct relationship with the customers, clients and suppliers of
the Corporation;
(c) Thomson, in acting in the capacity of the Chief Executive Officer of
the Corporation, owes fiduciary duties to the Corporation, including the
duty to act in the best interests of the Corporation;
(d) the right to maintain the confidentiality of the Confidential
Information, the right to preserve the goodwill of the Corporation and the
right to the benefit of any relationship that has developed between Thomson
and the customers, clients and suppliers of the Corporation by virtue of the
provision of service pursuant to this Agreement constitute proprietary
rights of the Corporation, which the Corporation is entitled to protect; and
(e) the Manager and Thomson shall forthwith transfer to the benefit of
the Corporation any rights and interest in any invention and discovery of
any process or technology related in any manner to the business of the
Corporation Thomson could imagine, conceive or create during the term of
this Agreement.
In acknowledgement of the matters described above and in consideration of the
payments to be paid to the Manager pursuant to this Agreement, the Manager and
Thomson hereby agree that they will not, directly or indirectly, disclose to any
person or in any way make use of (other than for the benefit of the
Corporation), in any manner, any of the Confidential Information, provided that
such Confidential Information shall be deemed not to include information that is
or becomes generally available to the public other than as a result of
disclosure by the Manager or Thomson.
9. NON-SOLICITATION
The Manager and Thomson hereby agree that they will not, during the currency
of this Agreement and for a period of three years after the termination of this
Agreement, be a party to or abet any solicitation of customers, clients or
suppliers of the Corporation or any of its subsidiaries, to transfer business
from the Corporation or any of its subsidiaries to any other person, or seek in
any way to persuade or entice any employee of the Corporation (except the person
who fills the position of Executive Assistant to the President and Chief
Executive Officer) or any of its subsidiaries to leave that employment or to be
a party to or abet any such action.
10. DISCLOSURE
During the currency of this Agreement, the Manager and Thomson shall
promptly disclose to the Board of Directors by written notice to the Secretary
full information concerning any interest, direct or indirect, of the Manager or
Thomson (as owner, shareholder, partner, lender or other investor, director,
officer, employees, consultant or otherwise) or any member of Thomson's family
in any business that is reasonably known to the Manager or to Thomson to
purchase or otherwise obtain services or products from, or to sell or otherwise
provide services or products to the Corporation or to any of its suppliers or
customers. Notwithstanding the foregoing it is agreed and acknowledged that both
the Manager and
5
<PAGE>
Thomson shall be entitled to engage in normal dealings with any customer of or
supplier to the Corporation and to invest in any public company provided that
any such investment does not exceed 5% of the outstanding securities of such
public company.
11. RETURN OF MATERIALS
All files, forms, brochures, books, materials, written correspondence,
memoranda, documents, manuals, computer disks, software products and lists
(including lists of customers, suppliers, products and prices) pertaining to the
business of the Corporation or any of its subsidiaries and associates that may
come into the possession or control of the Manager or Thomson shall at all times
remain the property of the Corporation or such subsidiary or associate, as the
case may be. On termination of this Agreement for any reason, the Manager and
Thomson agree to deliver promptly to the Corporation all such property of the
Corporation in their possession or directly or indirectly under their control.
The Manager and Thomson agree not to make for their own use or that of any other
party reproductions or copies of any such property or other property of the
Corporation.
12. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario.
13. NO ASSIGNMENT
This Agreement may not be assigned without the consent of all of the parties
hereto.
14. SURVIVAL
The parties agree and acknowledge that notwithstanding the termination of
this Agreement pursuant to section 6 hereof the provisions of section 8, 11 and
16 hereof shall survive in perpetuity and the provisions of section 9 shall
survive for three (3) years from the date of such termination.
15. SEVERABILITY
If any provision in this Agreement including the breadth or scope of such
provision, is determined to be invalid or unenforceable in whole or in part by
any court of competent jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remaining provisions, or part
thereof, of this Agreement and such remaining provisions, or part thereof, shall
remain enforceable and binding.
16. ENFORCEABILITY
The Manager and Thomson hereby confirm and agree that the covenants and
restrictions pertaining to them contained in this Agreement are reasonable and
valid and hereby further acknowledge and agree that the Corporation would suffer
irreparable injury in the event of any breach by the Manager or Thomson of their
obligations under any such covenant or restriction. Accordingly, each of the
Manager and Thomson hereby acknowledge and agree that damages would be an
inadequate remedy at law in connection with any such breach and that the
Corporation shall therefore be entitled in lieu of any action for damages,
temporary and permanent injunctive relief enjoining and restraining the Manager
and Thomson from any such breach.
17. SUCCESSORS
This Agreement shall be binding on and enure to the benefit of the
successors and permitted assigns of the Corporation and the Manager and the
heirs, executors, personal legal representatives and permitted assigns of
Thomson.
6
<PAGE>
18. NOTICES
Any notice or other communication required or permitted to be given
hereunder shall be in writing and either delivered by hand or telecommunications
facility or mailed by prepaid registered mail. At any time other than during a
general discontinuance of postal service due to strike, lock-out or otherwise, a
notice so mailed shall be deemed to have been received three business days after
the post-marked date thereof or, if delivered by hand or telecommunications
facility, shall be deemed to have been received at the time it is delivered. If
there is general discontinuance of postal service due to strike, lock-out or
otherwise, a notice sent by prepaid registered mail shall be deemed to have been
received three business days after the resumption of postal service. Notices
shall be addressed as follows:
(a) if to the Corporation:
International Verifact Inc.
79 Torbarrie Road
Toronto, Ontario
M3L 1G5
(b) if to the Manager:
200 Poplar Drive
Oakville, Ontario
L6J 4C6
(c) if to Thomson:
200 Poplar Drive
Oakville, Ontario
L6J 4C6
19. LEGAL ADVICE
Thomson hereby represents and warrants to the Manager and to the Corporation
and acknowledges and agrees that he had the opportunity to seek and was not
prevented nor discouraged by the Corporation or the Manager from seeking
independent legal advice prior to the execution and delivery of this Agreement
and that, in the event that he did not avail himself with that opportunity prior
to signing this Agreement, he did so voluntarily without any undue pressure and
agrees that his failure to obtain independent legal advice shall not be used by
him as a defence to the enforcement of his obligations under this Agreement.
20. WAIVER OF BREACH
The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
thereof.
7
<PAGE>
IN WITNESS THEREOF the parties have executed this Agreement.
<TABLE>
<S> <C> <C>
INTERNATIONAL VERIFACT INC.
/s/
-----------------------------------------
Name:
Title:
L.B.T. INVESTMENTS INC.
/s/
-----------------------------------------
Name:
Title:
/s/ /s/ L. BARRY THOMSON
- ------------------------------ -----------------------------------------
WITNESS L. BARRY THOMSON
</TABLE>
8
<PAGE>
EXHIBIT 10.5.8.1
AMENDMENT TO THE MANAGEMENT SERVICES AGREEMENT DATED OCTOBER 1, 1996,
BETWEEN INTERNATIONAL VERIFACT INC., LBT INVESTMENTS, INC. AND L. BARRY THOMSON
<PAGE>
AMENDMENT TO THE MANAGEMENT SERVICES AGREEMENT
B E T W E E N :
INTERNATIONAL VERIFACT INC.,
a corporation continued under the laws of Canada,
(hereinafter referred to as the "Corporation")
- and -
L.B.T. INVESTMENTS INC.,
a corporation incorporated under the laws of the Province of Ontario,
(hereinafter referred to as the "Manager")
- and -
BARRY THOMSON,
of the Town of Oakville, in the Province of Ontario,
(hereinafter referred to as "Thomson")
WHEREAS the parties hereto entered into a management services agreement as
of the 8th day of May, 1996 (the " Original Agreement");
AND WHEREAS the Corporation and the Manager have agreed to an increase in
the annual management fee;
NOW THEREFORE this agreement witnesses that in consideration of the
respective covenants and agreements of the parties herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by each of the parties hereto, it is hereby agreed by and
between the parties that the Original Agreement shall be amended as follows:
1. Paragraph 4(a) of the Original Agreement is amended by changing the amount
of the annual management fee from $225,000 to $250,000;
2. The Original Agreement is hereby amended to the extent necessary to give
effect to the provisions hereof and, as so amended, is hereby confirmed and
shall continue in full force and effect.
IN WITNESS WHEREOF the parties have executed this agreement as of the 1st
day of October, 1996.
<TABLE>
<S> <C>
INTERNATIONAL VERIFACT INC.
/S/
--------------------------------------------
PER:
L.B.T. INVESTMENTS INC.
/S/
--------------------------------------------
PER:
)
)
)
)
)
/S/ ) /S/ L. BARRY THOMSON
- -------------------------------------------- --------------------------------------------
Witness BARRY THOMSON
</TABLE>
<PAGE>
EXHIBIT 10.5.8.2
AMENDMENT TO THE MANAGEMENT SERVICES AGREEMENT BETWEEN INTERNATIONAL VERIFACT
INC.,
LBT INVESTMENTS, INC. AND L. BARRY THOMSON DATED AS OF JULY 30, 1997
<PAGE>
AMENDMENT TO THE MANAGEMENT SERVICES AGREEMENT
B E T W E E N :
INTERNATIONAL VERIFACT INC.,
a corporation continued under the laws of Canada,
(hereinafter referred to as the "Corporation")
- and -
L.B.T. INVESTMENTS INC.,
a corporation incorporated under the laws of the Province of Ontario,
(hereinafter referred to as the "Manager")
- and -
BARRY THOMSON,
of the Town of Oakville, in the Province of Ontario,
(hereinafter referred to as "Thomson")
WHEREAS the parties hereto entered into a management services agreement as
of the 8th day of May, 1996 (the " Original Agreement");
AND WHEREAS the Original Agreement was amended by agreement dated the 1st
day of October, 1996 (the Original Agreement as amended being referred to herein
as the "Amended Agreement");
AND WHEREAS the Corporation and the Manager have agreed that for the Manager
to be able to properly promote the interests of the Corporation it is essential
that Thomson be a member of a golf club;
NOW THEREFORE this agreement witnesses that in consideration of the
respective covenants and agreements of the parties herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by each of the parties hereto, it is hereby agreed by and
between the parties that the Amended Agreement shall be amended as follows:
1. Section 4 of the Amended Agreement shall be amended by the addition of
the following:
"4(f) The Corporation shall apply for, and maintain for the term of this
Agreement, membership as a Corporate Member of The Lake Joseph Club (the "Club")
with Thomson designated as the designated executive entitled to the privileges
of Club membership. The Corporation shall pay on a timely basis all entrance and
annual fees with respect to such membership. If this Agreement is terminated for
any reason, other than the reasons set forth in Section 6, then the Corporation
shall forthwith take all necessary steps, at its expense, including, without
limitation, the payment of all transfer fees, to transfer the membership in the
Club to the Manager or Thomson, as directed by the Manager."
2. The Amended Agreement is hereby amended to the extent necessary to give
effect to the provisions hereof and, as so amended, is hereby confirmed
and shall continue in full force and effect.
IN WITNESS WHEREOF the parties have executed this agreement as of the 30th
day of July, 1997.
<PAGE>
INTERNATIONAL VERIFACT INC.
/S/
--------------------------------------
Per:
L.B.T. INVESTMENTS INC.
/S/
--------------------------------------
Per:
<TABLE>
<S> <C> <C>
)
)
)
)
)
/S/ ) /S/ L. Barry Thomson
- -------------------------------------- -----------------------------------------------
Witness BARRY THOMSON
</TABLE>
2
<PAGE>
EXHIBIT 10.5.8.3
AMENDMENT TO THE MANAGEMENT SERVICES AGREEMENT BETWEEN INTERNATIONAL VERIFACT
INC.,
LBT INVESTMENTS, INC. AND L. BARRY THOMSON DATED AS OF JANUARY 25, 1998
<PAGE>
AMENDMENT TO THE MANAGEMENT SERVICES AGREEMENT
B E T W E E N :
INTERNATIONAL VERIFACT INC., a corporation incorporated under the
laws of Canada,
(hereinafter referred to as the "Corporation")
OF THE FIRST PART,
- and -
LBT INVESTMENTS INC., a corporation incorporated pursuant to the
laws of Ontario,
(hereinafter referred to as the "Manager")
OF THE SECOND PART,
- and -
L. BARRY THOMSON, of the Town of Oakville, Province of Ontario,
(hereinafter referred to as "THOMSON")
OF THE THIRD PART.
WHEREAS the parties hereto entered into a management services agreement as
of the 8th day of May, 1996, which was subsequently amended by agreements in
writing dated the 1st day of October, 1996 and the 30th day of July, 1997
(collectively the "AGREEMENT");
AND WHEREAS the Corporation, IVI Checkmate Corp., Checkmate Electronics,
Inc. and Future Merger Corporation have entered into a combination agreement
dated January 16, 1998 (the "COMBINATION AGREEMENT") which provides, INTER ALIA,
that Thomson will be the President and Chief Executive Officer of Newco and
Chief Executive Officer of the Surviving Corporation as at and from the
Effective Time on the Effective Date (as such terms are defined in the
Combination Agreement) upon such terms as are summarized in Exhibit H to the
Combination Agreement;
AND WHEREAS Thomson shall continue as President and Chief Executive Officer
of the Corporation;
AND WHEREAS the parties hereto wish to amend the Agreement and to reflect
the intention and agreement of the parties with respect to the provision of
Thomson by the Manager to Newco and the Surviving Corporation from and after the
Effective Time on the Effective Date as contemplated by the Combination
Agreement and as President and Chief Executive Officer of the Corporation;
NOW THEREFORE in consideration of the premises and of the mutual covenants
and agreements hereinafter set forth (the receipt and sufficiency of which is
hereby acknowledged) and for other good and valuable consideration, the parties
agree as follows:
1. Paragraph 4(a) of the Agreement is amended by changing the amount of the
annual management fee of Cdn.$250,000 to Cdn.$275,000 effective as at and from
January 1, 1998.
2. The parties hereto agree that they shall take such steps as may be
required to ensure that upon the completion of the transactions contemplated by
the Combination Agreement from and after the Effective Time on the Effective
Date the Agreement shall be amended to provide that:
(a) Paragraphs 1(a) and 1(b) shall be deleted form the Agreement.
<PAGE>
(b) The annual management fee referred to in paragraph 4(a) of the
Agreement shall be a minimum of U.S. $275,000 for the calendar year 1998,
U.S. $300,000 for the calendar year 1999 and U.S. $335,000 for the calendar
year 2000. The annual management fee may be such higher amount as may be
agreed by the Manager and the Corporation (or one of its affiliates, as the
case may be). During and after the calendar year 2001, the annual a
management fee shall be as agreed by the Manager and the Corporation (or one
of its affiliates, as the case may be).
(c) The minimum annual performance bonus payable pursuant to Paragraph
4(b) of the Agreement shall be not less than U.S. $50,000.
(d) Thomson will be entitled to stock options having no less value and
terms than the options granted to any other employee, officer or director of
Newco or any of its affiliates.
(e) Paragraph 7(b) shall be amended by deleting the words "and
subsection 7(c) does not apply" from the second line thereof and
subparagraphs 7(b)(i)(ii) and (iii) of the Agreement shall be amended by
deleting the first word, "two", in each subsection and inserting the word
"three" therefor.
(f) Paragraph 7(c) shall be deleted from the Agreement.
3. In all other respects the Agreement be and the same is hereby confirmed.
4. All signatures of the parties to this Agreement may be transmitted by
facsimile and each such facsimile shall for all purposes be deemed to be the
original signature of the person whose signature it reproduces and shall be
binding upon that person and on the party on whose behalf that person signed.
5. This Agreement may be executed in one or more counterparts, each of which
so executed shall constitute an original and all of which together shall
constitute one and the same agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the
date first written above.
<TABLE>
<S> <C> <C>
INTERNATIONAL VERIFACT INC.
Per: /s/ PETER ROODE
-----------------------------------------
Peter Roode,
DIRECTOR AND MEMBER OF THE COMPENSATION
COMMITTEE
Per: /s/ GEORGE WHITTON
-----------------------------------------
George Whitton,
CHAIRMAN OF THE BOARD
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
LBT INVESTMENTS INC.
Per: /s/ L. BARRY THOMSON
-----------------------------------------
L. Barry Thomson
Per: /s/ L. BARRY THOMSON
-----------------------------------------
L. Barry Thomson
/s/ P.A. FREEMAN
- ------------------------------
P.A. Freeman
WITNESS
</TABLE>
3
<PAGE>
EXHIBIT 10.6
MASTER ALLIANCE AGREEMENT DATED DECEMBER 5, 1996, BETWEEN INGENICO, S.A. AND
INTERNATIONAL VERIFACT INC.
<PAGE>
THIS MASTER ALLIANCE AGREEMENT made as of the 5th day of December, 1996.
BETWEEN:
"COMPAGNIE INDUSTRIELLE ET
FINANCIERE" INGENICO, SOCIETE
ANONYME under the laws of
France, with capital of 80,559,960
Francs
(hereinafter called "Ingenico")
OF THE FIRST PART
- and -
INTERNATIONAL VERIFACT INC., continued
under the laws of Canada
(hereinafter called "IVI")
OF THE SECOND PART
WHEREAS Ingenico carries on the business of development, distribution,
marketing and manufacturing of transaction terminals with application to payment
systems, loyalty, electronic benefit transfer systems, and terminal systems for
smart card technology, principally in Europe, the Middle East, Africa,
Australia, Asia Pacific and the Americas;
AND WHEREAS Ingenico has developed a unique smart card technology under the
name "Unicapt" which is recognized world wide by major credit card
organizations, including Master Card and VISA;
AND WHEREAS IVI carries on the business of development, distribution,
marketing, and manufacturing of transaction terminals with application to
payment systems, loyalty, electronic benefit transfer systems and terminal
systems for smart card technology principally in the Americas, the Middle East,
Europe, Asia Pacific and Australia;
AND WHEREAS Ingenico and IVI desire to enter into this Master Alliance
Agreement so as to develop and expand their respective businesses on a
world-wide basis;
AND WHEREAS such development and expansion will be achieved through
marketing and distribution arrangements for existing products, certain
technology licensing arrangements, joint arrangements for new product
development, procurement and manufacturing selection, a capital investment by
Ingenico into treasury stock of IVI, and a Latin America joint venture for
product distribution purposes and, in certain circumstances, manufacturing;
AND WHEREAS IVI shall be obligated, following the Closing Date, to integrate
the Unicapt Technology into the Future IVI Smart Card Terminals, as specified in
Section 5.03;
AND WHEREAS Ingenico and IVI desire to establish certain performance
criteria pursuant to which the success and achievements of their distribution
arrangements will be measured from time to time;
AND WHEREAS each of Ingenico and IVI will have primary responsibility in
certain defined territories;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements contained herein, the parties hereto covenant and agree
with each other as follows:
ARTICLE ONE
INTERPRETATION
Section 1.01 DEFINED TERMS: As used in this Agreement, the following terms
shall have the following meanings:
<PAGE>
"Affiliate" has the meaning ascribed thereto in the Canada Business
Corporations Act.
"Agreement" means this Master Alliance Agreement, and all schedules and
instruments supplemental hereto or in amendment or confirmation hereof.
"Business" means either the Ingenico Business or the IVI Business, as the
case may be.
"Closing" means the closing of the transactions provided for herein.
"Closing Date" means December 17th, 1996 or such other date to which the
parties may mutually agree in writing.
"Confidential Information" means all non-public information of Ingenico or
IVI, as the case may be, including but not limited to business plans, products,
marketing, promotion and pricing information, reports, budgets, forecasts,
records, business policies, operations, strategies, methods or practices, know-
how, the names of their respective clients and suppliers and information in
respect of their relationships with such parties, software, documentation,
information received from third parties that either Ingenico or IVI is obligated
to treat as confidential, and all information which is marked as confidential or
proprietary, but excluding all such information which (i) prior to or after the
time of disclosure was or became publicly available without the act or omission
of either IVI or Ingenico as recipient; (ii) is disclosed to the recipient by a
third party under no legal obligation to maintain the confidentiality of such
information; or (iii) is disclosed as required by applicable law or as is
necessary in any arbitration or court proceedings. For greater certainty,
"Confidential Information" includes the Ingenico Technology, Unicapt Technology
and the IVI Technology, as the case may be.
"Effective Date" means January 1, 1997.
"Event of Default" has the meaning set out in Article Thirteen.
"Future IVI Smart Card Terminals" means IVI Future Products which are smart
card-based transactional terminal products.
"Groupe Ingenico" or "Ingenico Group" means Ingenico, and all its Affiliates
from time to time, wherever located, as presently identified in Schedule "S".
"Ingenico Business" means the design, development, marketing, manufacturing,
sale and service throughout the world of transactional payment systems and
related software applications including auxiliary equipment using a card, either
mag stripe and/or smart card as well as cheque reader, cheque encoder and cheque
truncation.
"Ingenico Customer Contracts" means the customer contracts or purchase
orders of Ingenico applicable to the IVI Territory as the same exist on the
Closing Date and those expected to be entered into prior to March 31, 1997, as
described in Schedule "G", together with any other customer contracts or
purchase orders of Ingenico entered into on or before March 31, 1997 applicable
to the IVI Territory.
"Ingenico Future Products" means products, other than Ingenico Products,
developed, solely by Ingenico or with others, or with IVI pursuant to the Joint
Development and Procurement Agreement, in which case they may be referred to as
"Common Future Products", or products which Ingenico contracts IVI to develop or
manufacture, in which case they may be referred to as "Contracted Products",
after the Closing Date.
"Ingenico Intellectual Property" means all intellectual property of any
kind, including without limitation, patents, trade marks, trade names, and
copyrights, whether registered or unregistered, owned by or licensed to
Ingenico, and including without limitation, all applications and registrations
by Ingenico and/or its Affiliates for patents and similar rights for any
Ingenico Technology and Unicapt Technology that are now or may in the future be
adopted, prepared or filed, as the case may be, and all renewals, reissues and
extensions of the foregoing, and including, without limitation, those set forth
in Schedule "O" hereto.
2
<PAGE>
"Ingenico Products" means the existing products and product lines, and
products currently planned, of Ingenico, as described in Schedule "H".
"Ingenico Technology" means the technology described in Schedule "M" and
software, library of applications, data files, object code, know-how, documents,
drawings, computer media, models, prototypes, sketches and designs relating
thereto, as well as licensed third party technology, as the same exists at the
Closing Date and all upgrades, modifications and enhancements to such
technology. "Ingenico Territory" means all of Europe and its related territories
and jurisdictions, Cuba, Africa, Australia, the Middle East, Asia and
Australasia.
"Intellectual Property" means either the Ingenico Intellectual Property or
the IVI Intellectual Property as may be dictated by the context in which such
reference appears.
"Interim Period" means the period of time from execution of this Agreement
to the Closing Date.
"Investment Agreement" means the agreement in the form annexed hereto as
Schedule "D".
"IVI Business" means the design, development, marketing, manufacturing,
sales and service throughout the world of transactional payment systems and
related software applications including auxiliary equipment using a card, either
mag stripe and/or smart card, as well as cheque reader, cheque encoder and
cheque truncation.
"IVI Customer Contracts" means the customer contracts or purchase orders of
IVI applicable to the Ingenico Territory as the same exist on the Closing Date
and those expected to be entered into prior to March 31, 1997, as described in
Schedule "I", together with any other customer contracts of IVI entered into on
or before March 31, 1997 applicable to the Ingenico Territory.
"IVI Future Products" means products, other than IVI Products, developed,
solely by IVI or with others, or with Ingenico pursuant to the Joint Development
and Procurement Agreement, in which case they may also be referred to as "Common
Future Products", or products which IVI contracts Ingenico to develop or
manufacture, in which case they may be referred to as "Contracted Products",
after the Closing Date.
"IVI Group" means IVI, and all its Affiliates from time to time, wherever
located, as presently identified in Schedule "T".
"IVI Intellectual Property" means all intellectual property of any kind,
including without limitation, patents, trade marks, trade names, and copyrights,
whether registered or unregistered, owned by or licensed to IVI, and including
without limitation, all applications and registrations by IVI and/or its
Affiliates for patents and similar rights for any IVI Technology that are now or
may in the future be adopted, prepared or filed, as the case may be, and all
renewals, reissues and extensions of the foregoing, and including, without
limitation, those set forth in Schedule "P" hereto.
"IVI Products" means the existing products and product lines, and products
currently planned, of IVI, as described in Schedule "J".
"IVI License Fee" in respect of the license to the Ingenico Technology and
Unicapt Technology, means US$1,000,000, payable in accordance with Section 5.02.
"IVI Technology" means the technology described in Schedule "N" and includes
software, library of applications, data files, object code, know-how, documents,
drawings, computer media, models, prototypes, sketches, designs relating
thereto, as well as licensed third party technology, as the same exists at the
Closing Date, and all upgrades, modifications and enhancements to such
technology.
"IVI Territory" means, subject to Article Three, all of the Americas,
including, North, South and Central America and the Caribbean, excluding, Cuba
and French territories.
"Joint Development and Procurement Agreement" means the agreement in the
form annexed hereto as Schedule "B".
3
<PAGE>
"Latin America" means all countries in the Western Hemisphere, other than
Canada, U.S.A. and the Caribbean, excluding Cuba and the French territories.
"Latin America Shareholder Agreement" means the Agreement in the form
annexed hereto as Schedule "U".
"Latin Newco" means a limited liability company, to be incorporated pursuant
to the laws of Delaware with its principal office in Miami, Florida, U.S.A.
"Liabilities" means all liabilities, obligations, claims and demands, direct
or indirect, absolute or contingent, of or against the Ingenico Business, or the
IVI Business, as the case may be, including, without limitation, all
liabilities:
(a) in respect of any contracts or leases which comprise part of such
Business and which are not being assigned hereunder;
(b) derived from the Ingenico Customer Contracts or the IVI Customer
Contracts for the period up to and including the Closing Date;
(c) relating to debts, accounts payable or other amounts owing to the
suppliers or creditors of Groupe Ingenico or the IVI Group;
(d) relating to debts or other amounts owing by Groupe Ingenico or the IVI
Group, as the case may be, to banks or any other financial institutions;
(e) for income and other taxes, levies, duties and governmental charges or
assessments and payable by Groupe Ingenico or the IVI Group, whether in
respect of the operation of the Ingenico Business or the IVI Business, or
otherwise;
(f) for claims, demands, penalties or fines made or assessed with respect to
either the Ingenico Business or the IVI Business;
(g) in respect of any employees of Groupe Ingenico or the IVI Group;
(h) for defective products, including inventory, or equipment sold or leased
by either Groupe Ingenico or the IVI Group, provided that any products
manufactured by either Ingenico or IVI shall remain the responsibility of
such manufacturer;
(i) in respect of any claims which relate to possible infringement of
intellectual property rights; and
(j) which arise from current or future litigation against either Groupe
Ingenico or IVI Group.
"Marketing and Distribution Agreement" means the agreement in the form
annexed hereto as Schedule "A".
"Master Alliance Agreement" or "Master Agreement" means this Agreement.
"Parties" means Ingenico and IVI.
"Performance Criteria for Ingenico" means the performance criteria which,
subject to Section 2.02, must be achieved by Ingenico from time to time pursuant
to the Marketing and Distribution Agreement.
"Performance Criteria for IVI" means the performance criteria for Canada and
the U.S.A., to be described in Schedule "R" hereto by the closing date which
must be achieved from time to time by IVI pursuant to the Marketing and
Distribution Agreement.
"Performance Criteria for Latin Newco" means the performance criteria for
Latin America described in Schedule "R" hereto which must be achieved from time
to time by Latin Newco pursuant to the Marketing and Distribution Agreement.
"Product" means either an Ingenico Product, Ingenico Future Product, IVI
Product or IVI Future Product as may be dictated by the context in which such
reference appears.
4
<PAGE>
"Selected IVI Products" means an IVI Product selected pursuant to Section
2.02 and any IVI Future Products selected by Ingenico from time to time, as may
be set forth in Schedule "A" to the Marketing and Distribution Agreement from
time to time.
"Technology" means either the Ingenico Technology, the Unicapt Technology,
or the IVI Technology as may be dictated by the context in which such reference
appears.
"Technology License Agreement" means the agreement in the form annexed
hereto as Schedule "C".
"Territory" means either the Ingenico Territory or the IVI Territory as may
be dictated by the context in which such reference appears.
"Transaction Documents" means this Agreement, the Marketing and Distribution
Agreement, the Joint Development and Procurement Agreement, Latin America
Shareholders' Agreement, the Technology License Agreement and the Investment
Agreement.
"Time of Closing" means the time of closing on the Closing Date.
"Unicapt Technology" means the Unicapt, Simelite and Memotite technology as
described in Schedule "Q", and software, library of applications, object codes,
source codes, know-how, data files, documents, drawings, computer media, models,
prototypes, sketches and designs relating thereto, as well as licensed third
party technology, as the same exists at the Closing Date and all upgrades,
modifications and enhancements to such technology.
Section 1.02 ACCOUNTING TERMS: Accounting terms not specifically defined
herein shall be construed in accordance with United States generally accepted
accounting principles consistently applied.
Section 1.03 INCORPORATION OF SCHEDULES: Schedules and other documents
attached or referred to in this Agreement are an integral part of this
Agreement. The Schedules to this Agreement are the following:
<TABLE>
<S> <C> <C>
Schedule "A" -- Marketing and Distribution Agreement
Schedule "B" -- Joint Development and Procurement Agreement
Schedule "C" -- Technology License Agreement
Schedule "D" -- Investment Agreement
Schedule "E" -- (Intentionally deleted)
Schedule "F" -- (Intentionally deleted)
Schedule "G" -- Ingenico Customer Contracts
Schedule "H" -- Ingenico Products
Schedule "I" -- IVI Customer Contracts
Schedule "J" -- IVI Products
Schedule "K" -- Ingenico Price Lists
Schedule "L" -- IVI Price Lists
Schedule "M" -- Ingenico Technology
Schedule "N" -- IVI Technology
Schedule "O" -- Ingenico Intellectual Property
Schedule "P" -- IVI Intellectual Property
Schedule "Q" -- Unicapt, Simelite Technology
Schedule "R" -- Performance Criteria for IVI and Latin Newco
Schedule "S" -- Groupe Ingenico
Schedule "T" -- IVI Group
Schedule "U" -- Latin America Shareholder Agreement
</TABLE>
Section 1.04 EXTENDED MEANINGS: As used herein, each gender shall include
all genders, and words importing the singular shall include the plural and
vice-versa as the context shall require.
Section 1.05 U.S. CURRENCY: Except as otherwise expressly stated, all
dollar amounts referred to in this Agreement are in United States currency.
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Section 1.06 TRADE TERMS: Undefined words and abbreviations which have
well-known technical trade meanings are used herein in accordance with such
recognized meanings in the electronic funds transfer at point of service
industry.
Section 1.07 CONFLICTING PROVISIONS: Subject to Article Fourteen hereof,
in the event of conflict or discrepancy between the provisions of this Agreement
and any of the ancillary agreements referenced in the Schedules to this
Agreement, the provisions of such ancillary agreement shall govern.
Section 1.08 GROUPE INGENICO AND IVI GROUP: Each of Ingenico and IVI
respectively shall take all steps, undertake all proceedings and enter into all
such agreements as may be necessary in order to cause all entities comprised in
Groupe Ingenico and IVI Group to fulfill all of the obligations of Ingenico and
IVI respectively in this Agreement and in Agreements comprised in the Schedules
to this Agreement, including without limitation pertaining to ownership of
intellectual property, compliance with the terms of technology licenses, and
compliance with confidentiality obligations. Notwithstanding the foregoing,
Ingenico shall be unconditionally responsible for any and all acts of Groupe
Ingenico, and IVI shall be unconditionally responsible for any and all acts of
the IVI Group.
Section 1.09 LANGUAGE: The Parties agree that all communications between
them shall be in the English language.
ARTICLE TWO
MARKETING AND DISTRIBUTION AGREEMENT
Section 2.01 MARKETING AND DISTRIBUTION AGREEMENT: On the Closing Date,
Ingenico and IVI shall enter into the Marketing and Distribution Agreement,
pursuant to which Ingenico shall be granted the exclusive right to market and
distribute the IVI Products, IVI Future Products and the IVI Technology in the
Ingenico Territory, and IVI shall be granted the exclusive right to market and
distribute the Ingenico Products and Ingenico Future Products and Ingenico
Technology and Unicapt Technology which is incorporated in IVI Products or IVI
Future Products only in the IVI Territory.
Section 2.02 RIGHT OF SELECTION OF IVI PRODUCTS: As soon as practicable,
but in any event not later than December 31, 1997, Ingenico shall provide a
written notice to IVI as to which of the IVI Products Ingenico shall market and
distribute in the Ingenico Territory. With respect to any of the IVI Products
which Ingenico has either not elected prior to December 31, 1997 to market, or
alternatively, in the case of Selected IVI Products for which Ingenico has not
generated actual, reoccurring sales in the Ingenico Territory on or before
December 31, 1998, Ingenico shall lose its exclusivity with respect thereto and
IVI shall thereafter be permitted to market and distribute such IVI Products and
IVI Future Products either directly or through such channels of distribution as
IVI in its sole discretion determines. Ingenico shall have the right to select
from time to time IVI Future Products which it wishes to distribute as Selected
IVI Products. With respect to any Selected IVI Products, Ingenico shall commit
resources, to achieve the Performance Criteria for Ingenico. IVI shall provide
that all Selected IVI Products shall conform to market and standards
specification requirements in the Ingenico Territory, failing which the Ingenico
exclusivity shall not be lost with respect to such product. In this regard,
Ingenico's exclusivity shall be lost with respect to IVI Products forthwith upon
Ingenico electing not to proceed with marketing and distribution thereof, or
alternatively if it so elected, by not achieving the required sales as
aforesaid.
In the event that Ingenico does select an IVI Product or IVI Future Product
and thus becomes an exclusive distributor of such Selected IVI Products in the
Ingenico Territory, Ingenico and IVI shall prepare and agree on Performance
Criteria for Ingenico for such Selected IVI Products and such Performance
Criteria shall be reviewed annually, commencing in October of each year, and
approved by the Parties by no later than the following January 31st. Revisions
to the Performance Criteria for Ingenico and for sales and performance targets
for Selected IVI Products in the Ingenico Territory shall be subject to mutual
agreement between the Parties. In the event that the Performance Criteria for
Ingenico are not so mutually agreed by the Parties for any year, they shall, for
each subsequent year, be equal to the
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Performance Criteria for Ingenico established by mutual agreement for the prior
year, increased by 10%. Should the Performance Criteria for Ingenico, or any
mutually agreed sales performance targets not be achieved in any year, IVI shall
notify Ingenico of its recommendations for operational improvements in order to
achieve such targets for the following year. In addition, prior to any loss of
exclusivity for Ingenico based on failure to comply with this Section 2.02 with
respect to sales of the Selected IVI Products in the Ingenico Territory, IVI
shall notify Ingenico on or before each October 1 that the level of sales of IVI
Products are not satisfactory to IVI.
Notwithstanding the foregoing, Ingenico's right to market and distribute the
IVI Products on an exclusive basis shall be terminated in the event that
revenues generated by Ingenico from sales of the Selected IVI Products in the
Ingenico Territory are less than 20%, 50% or 60% of the Performance Criteria for
Ingenico in 1997, 1998 and 1999 respectively, provided that such distribution
rights shall continue on a non-exclusive basis for the remainder of the term of
the Marketing and Distribution Agreement.
Section 2.03 RIGHT OF SELECTION OF IVI TECHNOLOGY: As soon as practicable,
but in any event not later than December 31, 1997, Ingenico shall provide a
written notice to IVI as to whether and to what extent it is electing to utilize
the IVI Technology in the Ingenico Products and Ingenico Future Products
thereafter. To the extent Ingenico does not elect to so utilize the IVI
Technology, IVI shall thereafter be entitled, in its sole discretion, to license
the IVI Technology to such third parties in the Ingenico Territory as IVI shall
determine.
Section 2.04 PERFORMANCE CRITERIA FOR IVI: IVI shall commit resources, to
achieve the Performance Criteria for IVI for 1997, 1998, and 1999 appended
hereto as Schedule "R". The business plan for the sale and marketing of Ingenico
Products in the IVI Territory shall be reviewed annually in October, commencing
October 1997, and approved by the Parties by no later than the following January
31. Revisions to the Performance Criteria for IVI appended hereto as Schedule
"R", and for sales and performance targets for Ingenico Products and Ingenico
Future Products in the IVI Territory thereafter, shall be subject to mutual
agreement between the Parties. In the event that the Performance Criteria for
IVI are not so mutually agreed by the Parties for any year, they shall, for each
subsequent year, be equal to the Performance Criteria for IVI established by
mutual agreement for the prior year, increased by 10%. Should the Performance
Criteria for IVI, or any mutually agreed sales performance targets not be
achieved in any year, Ingenico shall notify IVI of its recommendations for
operational improvements in order to obtain such targets for the following year.
In addition, prior to any loss of exclusivity for IVI based on failure to comply
with this Section 2.04 with respect to sales of the Ingenico Products in Canada
and the U.S.A., Ingenico shall notify IVI on or before each October 1 commencing
October 1, 1997 that the level of sales of Ingenico Products are not
satisfactory to Ingenico.
Notwithstanding the foregoing, IVI's right to market and distribute the
Ingenico Products, Ingenico Future Products, Ingenico Technology and Unicapt
Technology on an exclusive basis in Canada and the U.S.A. shall be terminated in
the event that either:
(a) IVI does not adopt and incorporate the Unicapt Technology into Future
IVI Smart Card Terminals, and actively promote the Unicapt Technology in
Canada and the U.S.A.; or
(b) revenues generated by IVI from sales of the Ingenico Products, Ingenico
Future Products, Ingenico Technology and Unicapt Technology in Canada and
the U.S.A. are less than 20%, 50% or 60% of the Performance Criteria for
IVI in the first, second or third years respectively of the term of the
Marketing and Distribution Agreement;
provided that such distribution rights shall continue on a non-exclusive basis
for the remainder of the term of the Marketing and Distribution Agreement.
Section 2.05 TERM: The Marketing and Distribution Agreement shall be for a
period of ten (10) years, commencing January 1, 1997, and shall be automatically
renewed for subsequent periods of five
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(5) years unless either Party provides written notice of non-renewal to the
other not later than six months, prior to the expiry of the initial ten (10)
year term and the subsequent renewal periods, if any.
Section 2.06 NON-COMPETITION OF IVI: Except as indicated on Schedule "J",
during the term of the Marketing and Distribution Agreement, including any
renewal thereof, IVI shall not, either directly or indirectly, and shall not
permit any member of the IVI Group, to develop, distribute, market or
manufacture any smart card-based transfer system with application to payment
systems, loyalty, electronic benefit transfer systems, or terminal systems for
smart card technology, except utilizing the Unicapt Technology and Ingenico
Technology.
Section 2.07 NON-COMPETITION OF INGENICO: In the event that Ingenico
elects to become an exclusive licensee of Selected IVI Technology, pursuant to
Section 2.03 hereof, it shall not thereafter, either directly or indirectly, and
shall not permit any member of Groupe Ingenico, to develop, distribute, market
or manufacture any products in competition with the Selected IVI Technology
except utilizing either the Ingenico Technology, Unicapt Technology or the
Selected IVI Technology.
Section 2.08 NON-SOLICITATION OF EMPLOYEES: During the term of the
Marketing and Distribution Agreement and for a period of one year thereafter,
neither Ingenico nor IVI shall solicit or induce current employees of the other
to accept employment or provide contract services to any member of the IVI Group
or Groupe Ingenico, except with the mutual written approval of both Ingenico and
IVI. Notwithstanding the foregoing, both Ingenico and IVI consent to the
employment of Jean-Pierre Chabanel by IVI.
Section 2.09 During the term of this Agreement, if an Ingenico Product or
Ingenico Future Product exists which meets the requirements of the IVI Territory
and is provided to IVI by Ingenico at prices which enable IVI to distribute such
product at a price which is competitive in the market and allows IVI to make a
reasonable return on such product, IVI shall not develop or sell its own product
which is identical to the Ingenico Product or Ingenico Future Product and shall
buy such Product from Ingenico.
ARTICLE THREE
LATIN AMERICA
Section 3.01 LATIN AMERICA JOINT VENTURE: On or before the Closing Date,
the Parties shall have incorporated and organized a separate corporation or
limited liability company under Delaware jurisdiction, having its head office in
Miami, Florida, United States, which shall be the corporation responsible for
conducting the marketing, distribution and manufacturing, if necessary, of the
Products and Technology and the carrying out of the related businesses of IVI
and Ingenico, in Latin America. Such corporation shall be owned as to 51% by IVI
and as to 49% by Ingenico and shall be initially capitalized in a mutually
agreeable amount as necessary to meet the proposed business plan, with a
debt-equity ratio sufficient to comply with thin capitalization regulations.
During the term of the Marketing and Distribution Agreement, Ingenico and
IVI shall supply Products and Technology to such joint venture corporation on
transfer pricing terms that are equal to the lesser of a transfer price mutually
agreed, and direct manufacturing costs plus a mark-up of 20%. The business of
Latin Newco may be carried out in one or more of the countries comprising Latin
America either by it directly, through subsidiaries (which may or may not
include the participation of other parties) or through distribution agreements
entered into with distributors in Latin America.
Section 3.02 LATIN AMERICA SHAREHOLDERS' AGREEMENT: On the Closing Date,
the Parties shall enter into the Latin America Shareholders' Agreement in the
form annexed hereto as Schedule "U". Latin Newco shall be organized with respect
to directors, officers, voting rights, banking arrangements and other
organizational particulars as prescribed in the Latin America Shareholder
Agreement.
Section 3.03 MANUFACTURING IN LATIN AMERICA: Ingenico and IVI shall not
permit the manufacturing of Ingenico Products, Ingenico Future Products, IVI
Products or IVI Future Products in any country in
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Latin America without the prior written approval of Latin Newco as prescribed in
the Latin America Shareholder Agreement.
Section 3.04 CHANGE OF SHAREHOLDINGS: If Latin Newco does not achieve the
targets for the Performance Criteria for Latin Newco, set out in Schedule "R",
then Ingenico may elect to acquire 1% of the shares of Latin Newco held by IVI
so that the shareholdings of Latin Newco shall be 50% for each of IVI and
Ingenico.
ARTICLE FOUR
JOINT DEVELOPMENT AND PROCUREMENT AGREEMENT
Section 4.01 DEVELOPMENT: Effective as of the Closing Date, each of
Ingenico and IVI will enter into the Joint Development and Procurement Agreement
and co-operate in order to jointly develop new products with common architecture
and common componentry which would have worldwide application based on the
Ingenico Technology, Unicapt Technology, and the IVI Technology.
Section 4.02 PROCUREMENT: In addition, Ingenico and IVI shall co-operate
and coordinate their supplier relationships in order to maximize their joint
purchasing and procurement abilities for suppliers, all as provided in the Joint
Development and Procurement Agreement and also to choose and locate the most
cost effective manufacturing locations for new products, as agreed with Ingenico
and IVI.
Section 4.03 NEW PRODUCTS: Should either of Ingenico or IVI, after the
Effective Date, desire to develop any IVI Future Product or Ingenico Future
Product (the "New Product"), they shall, prior to implementing development of
any such New Product, extend a written offer to the other to jointly develop
such New Product. Such development would be implemented on the basis of 50% cost
reimbursement to the Party performing such development, provided that such Party
shall be and remain the sole and absolute owner of the New Product, subject to
an exclusive license in favor of the other Party to utilize such product in its
own Territory. A product jointly developed in this manner will be a Common
Future Product. In the case of a Common Future Product, the non-owning party
shall have a right of access to all materials necessary to produce and market
the Common Future Product;
In the event that the recipient either rejects or neglects to exercise the
foregoing right of first refusal, and should the Party which has not initiated
the New Product subsequently desire to have access to it following its
development, it shall be entitled to access to the New Product for marketing and
distribution purposes only in the Ingenico Territory or the IVI Territory (as
the case may be), but only after complete reimbursement to the initiating Party
of the New Product of 65% of all of such party's non-reoccurring engineering
costs to date. In such case, such product will be a Common Future Product.
ARTICLE FIVE
TECHNOLOGY LICENSE
Section 5.01 TECHNOLOGY LICENSE AGREEMENT: On the Closing Date, Ingenico
and IVI shall enter into the Technology License Agreement in the form annexed
hereto as Schedule "C" pursuant to which Ingenico shall license the Unicapt
Technology to IVI for the purposes of incorporating it into Future IVI Smart
Card Terminals and Ingenico and IVI shall cross-license their Technology to the
other on certain terms and conditions.
Section 5.02 IVI PAYMENT: IVI shall pay to Ingenico on the Closing Date
the IVI License Fee amount of US$1,000,000 in consideration of the Technology
License Agreement.
Section 5.03 IVI OBLIGATION TO UTILIZE UNICAPT TECHNOLOGY: From and after
the Closing Date, IVI shall use or incorporate the Unicapt Technology, as
amended and evolved from time to time, in any and all Future IVI Smart Card
Terminals manufactured, sold, or distributed by IVI thereafter, and shall use
the Unicapt trade marks in association therewith. IVI shall, from time to time
upon the written request of
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Ingenico, provide evidence satisfactory to Ingenico, acting reasonably, that the
Unicapt Technology, is incorporated into all Future IVI Smart Card Terminals.
Section 5.04. THIRD PARTY RIGHTS: Each of IVI and Ingenico shall make
available to the other, pursuant to the Technology License Agreement, all third
party technology and/or intellectual property utilized within the Technology or
the Products at cost.
Section 5.05 NATURE OF LICENSE TO IVI: The license for the Ingenico
Technology and Unicapt Technology to IVI in the Technology License Agreement
shall be an irrevocable royalty-free exclusive license for the purpose of using
and incorporating the Ingenico Technology and Unicapt Technology into the IVI
Products and IVI Future Products, but not for manufacturing any Ingenico
Products unless otherwise agreed.
Section 5.06 GROUPE INGENICO AND IVI GROUP: The respective rights and
benefits of IVI and Ingenico under the Technology License Agreement may be
extended by IVI to the IVI Group, and by Ingenico to Groupe Ingenico, provided
that IVI and Ingenico respectively shall remain fully responsible for all of
their duties and obligations prescribed in such Agreement, as specified in
Section 1.08 hereof.
Section 5.07 NON DUPLICATION: The Parties shall not copy or reproduce the
software as well as the electrical and electronic design incorporated within the
Technology nor transfer it to a third party without the other Party's written
consent.
ARTICLE SIX
INVESTMENT BY INGENICO IN IVI
Section 6.01 IVI TREASURY ISSUE: On the Closing Date, Ingenico shall
subscribe for 1,439,00 treasury common shares in the capital stock of IVI
representing approximately 18% of the issued and outstanding share capital of
IVI, assuming the exercise of all outstanding options granted pursuant to the
1994 Employee Stock Option Plan. In consideration for the issuance of such
treasury shares, Ingenico shall pay to IVI Cdn. $6,89, being an amount per share
equal to the simple average closing price of such common shares on The Toronto
Stock Exchange during the 30 trading days prior to the date hereof. Ingenico
may, in its discretion, assign its subscription for up to 479,666 treasury
common shares of IVI to Jean-Jacques Poutrel.
Section 6.02 FUTURE PARTICIPATION RIGHT: Ingenico and IVI acknowledge and
agree that until December 31, 2001, and subject to regulatory approval, Ingenico
is entitled to a future participation right to acquire additional treasury
common shares of IVI at such time as additional treasury shares are offered for
sale, whether to the public or otherwise, in order to preserve its 15% ownership
of all outstanding common shares in IVI.
Section 6.03 TSE APPROVAL: Ingenico and IVI acknowledge that the within
investment by Ingenico requires approval of The Toronto Stock Exchange and
non-disapproval of the National Association of Securities Dealers (U.S.)
("NASD"), and each Party shall co-operate in making all of its necessary filings
as may be required by the Toronto Stock Exchange, NASD, and the Ontario
Securities Commission.
Section 6.04 IVI BOARD OF DIRECTORS: From and after the Closing Date, and
provided Ingenico maintains certain levels of share ownership, Ingenico shall be
entitled to appoint 2 nominees to the board of directors of IVI, which shall be
comprised of 8 directors, and shall be entitled to one representative on the
nominating committee for such directors, which will be comprised of three
members. Another director shall be selected by the nominating committee of IVI
from the payment industry.
Section 6.05 INVESTMENT AGREEMENT: Ingenico and IVI shall enter into the
Investment Agreement in the form annexed hereto as Schedule "D" on the date of
this Agreement.
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ARTICLE SEVEN
INTERIM PERIOD
Section 7.01 INTERIM PERIOD: During the Interim Period each of IVI and
Ingenico shall be entitled to full and complete access to all of the other's
premises, books, contracts and records, respectively, for the purpose of
completing due diligence provided that each Party shall use its best efforts not
to disrupt the ongoing nature of the Ingenico Business, or the IVI Business, as
the case may be.
Section 7.02 OPERATION OF BUSINESS: Each of IVI and Ingenico shall cause
the IVI Business and the Ingenico Business respectively to be carried on in the
normal course of business up to and including the Closing Date.
ARTICLE EIGHT
CLOSING ARRANGEMENTS
Section 8.01 CLOSING: The Closing shall take place at 2:30 p.m. on the
Closing Date at the offices of Ingenico, 9, quai de Dion Bouton, Puteaux, France
or at such other time and place as may be agreed to by the parties hereto.
Section 8.02 CLOSING PROCEDURES:
(a) At or before the Closing, Ingenico and IVI shall complete or cause
to be completed all actions, steps and corporate and regulatory proceedings
necessary or desirable to validly and effectively approve or authorize the
completion of the transactions herein provided for.
(b) Upon fulfillment of all of the conditions set out in Article Nine
that have not been waived in writing as therein provided, each Party shall
execute and deliver to the other at or before Closing:
(i) the Marketing and Distribution Agreement;
(ii) an assignment of all Ingenico Customer Contracts and IVI
Customer Contracts (other than the agreement between Dassault
Automatismes et Telecommunications and IVI dated September 29, 1995), as
the case may be, to the Party carrying on the Business in the applicable
Territory pursuant to the Marketing and Distribution Agreement, and the
written consents to such assignment of the other parties to such
contracts as required. To the extent that any of the Ingenico Customer
Contracts or the IVI Customer Contracts cannot be so assigned, the Party
to such agreements hereby covenants and agrees that from and after the
Closing Date, they shall hold such agreement(s) in trust for the Party
holding the distribution rights in the applicable Territory pursuant to
the Marketing and Distribution Agreement. Such assignment shall provide
that all gross profits, less the assignee's reasonable servicing expenses
as agreed by the assignor, attributable to the Ingenico Customer
Contracts and the IVI Customer Contracts, for firm purchase orders
received before March 31, 1997 with fixed delivery schedules for delivery
before December 31, 1997 shall be remitted quarterly, as received, to
Ingenico by IVI and to IVI by Ingenico, respectively; furthermore with
respect to all of such Customer Contracts or purchase orders not entered
into or accepted by either Ingenico or IVI as of the Closing Date, no
such contract or purchase order shall be executed or accepted following
the Closing Date by a Party without the prior written approval of the
Party in whose Territory the proposed Customer Contract will be serviced;
(iii) the Joint Development and Procurement Agreement;
(iv) the Technology License Agreement;
(v) the Latin America Shareholder Agreement;
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(vi) a certified resolution of the directors of each Party approving
the transactions contemplated herein and designating signing authorities
for all documents required to effect such transactions;
(vii) a certificate of an officer of each Party as to the
representations and warranties contained in this Agreement and confirming
due compliance with or performance of all terms, covenants and agreements
contained in this Agreement;
(viii) a current list of the names and addresses of all customers of
each of the Ingenico Business and IVI Business situated in the opposite
Party's Territory, together with all other records relating to each such
business which are reasonably necessary to carry on the transactions
contemplated in this Agreement;
(ix) all documents necessary to complete closing of the Marketing and
Distribution Agreement, the Joint Development and Procurement Agreement,
the Technology License Agreement, the Investment Agreement and the Latin
America Shareholder Agreement;
(x) subject to Section 8.02(b)(ii), evidence reasonably satisfactory
to each of Ingenico and IVI, as the case may be, that neither IVI nor
Ingenico will be responsible for or assuming any Liabilities of the other
Party;
(xi) consent of the Toronto Stock Exchange and non-disapproval of
NASD to the transactions described in the Investment Agreement, together
with such documentation as is necessary for filing with the Ontario
Securities Commission or other applicable regulatory authorities to
evidence these transactions;
(xii) all other documents that each Party considers reasonably
necessary or desirable to validly and effectively complete the
transactions described herein, including without limitation registered
user agreements with respect to the Ingenico Intellectual Property and
the IVI Intellectual Property in form satisfactory to counsel for each
party;
(xiii) payment by IVI to Ingenico of the IVI License Fee;
(xiv) payment by Ingenico of the subscription price for shares in IVI
pursuant to section 6.01 and the Investment Agreement; and
(xv) confirmation that IVI shall appoint an Ingenico nominee as an
officer of International Verifact Inc. ("U.S.") reporting to the
President of IVI, responsible for coordinating the use and incorporation
of the Ingenico Products and Ingenico Technology by the IVI Group.
ARTICLE NINE
CONDITIONS OF CLOSING
Section 9.01 EACH PARTY'S CONDITIONS OF CLOSING: Each Party shall not be
obliged to complete the transactions herein provided for unless, on the Closing
Date, each of the following conditions shall have been satisfied, which
conditions are for the exclusive benefit of each such Party and may be waived in
whole or in part by such Party at any time:
(a) REPRESENTATIONS AND WARRANTIES: The representations and warranties
of each Party to the other contained in this Agreement shall be true and
correct in all material respects on the Closing Date, and each of Ingenico
and IVI shall have delivered a certificate to the other in this respect.
(b) COMPLIANCE: All of the terms, covenants and agreements set forth in
this Agreement to be complied with or performed by each Party on or before
the Closing Date shall have been complied with or performed by each Party.
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(c) CONSENT OF REGULATORY AUTHORITIES: IVI and Ingenico shall have
obtained the consent of all necessary regulatory authorities to the
transactions contemplated herein, including but not limited to the Toronto
Stock Exchange and NASD.
(d) CONCURRENT TRANSACTIONS: Each of the transactions described in the
Marketing, and Distribution Agreement, the Joint Development and Procurement
Agreement, the Technology License Agreement, the Investment Agreement and
the Latin America Shareholder Agreement shall have closed concurrently on
the Closing Date.
(e) BOARD APPROVALS: The boards of IVI and Ingenico shall, prior to the
expiry of ten days after the date of this Agreement, have approved the
transactions contemplated in this Agreement, provided that each Party shall
forthwith notify the other upon approval or rejection of this Agreement by
its board.
(f) DELIVERY AT CLOSING: Each Party shall have delivered to the others
all of the documents and other materials required to be delivered by a Party
pursuant to Section 8.02(b).
(g) CONFIRMATION: Each Party shall have confirmed the Performance
Criteria for IVI and Performance Criteria for Latin Newco for 1997 and 1998
and each Party's respective price lists.
If any of the foregoing conditions has not been fulfilled on or before the
Closing Date, either Ingenico or IVI may terminate this Agreement by notice in
writing to the other, in which event IVI and Ingenico shall be released from all
obligations under this Agreement, except in respect of Article Twelve hereof.
ARTICLE TEN
REPRESENTATIONS AND WARRANTEES
Section 10.01 REPRESENTATIONS AND WARRANTIES OF IVI AND INGENICO: Each of
IVI and Ingenico represents and warrants to the other, and acknowledges and
confirms that the other (with respect to itself alone) is relying on such
representations and warranties in connection with the transactions described
herein (notwithstanding any due diligence by a Party or its representatives),
that on the date hereof:
(a) GOOD STANDING: Each Party is a corporation (i) duly incorporated and
organized, validly subsisting and in good standing under the laws of its
jurisdiction; (ii) duly authorized and licensed to own its properties and to
carry on its business as presently owned and carried on; (iii) having the
corporate power and authority and right to enter into the transactions
contemplated in this Agreement;
(b) NO BREACH CAUSED BY THIS AGREEMENT: Except as the Parties have
disclosed to each other, neither the execution nor delivery of this
Agreement nor the fulfillment or compliance with any of the terms hereof
will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, the articles and by-laws, as
amended, of the Party or any material agreement or instrument to which the
applicable Business or the Party is subject, or any applicable law, rule,
regulation, order, judgment, injunction, award or decree, or will require
any consent or other action by any administrative or governmental body with
the exception of The Toronto Stock Exchange and NASD.
(c) ENFORCEABILITY: The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of each
Party. This Agreement constitutes a valid and binding agreement of each
Party enforceable in accordance with its terms.
(d) CONTRACTS: There are no material defaults by a Party under the
Customer Contracts which are included in the IVI Customer Contracts or the
Ingenico Customer Contracts respectively, and the Party does not know of any
material default of any other party to such Contracts. No party to any
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material Customer Contract to which the Party is a party has canceled or
threatened to cancel any such Customer Contract. The assigning party with
respect to such Customer Contracts is entitled to all of the right, title
and interest set forth therein including without limitation, the right to
enforce any obligations, warranties, covenants and/or indemnities. The
assigning party has not otherwise assigned or encumbered any of its rights
under such Customer Contracts, and the Customer Contracts in existence of
the date hereof have been duly authorized by, are binding, upon and are
enforceable against the Party thereto.
(e) CONTRACTUAL RELATIONSHIPS AND SUPPLIES:
(i) There are no material unresolved disputes with any
subcontractors, suppliers, shippers, customers or any other party to any
contract, agreement or commitment in respect of the applicable Business;
(ii) In the six months preceding the date of this Agreement, no
suppliers or customers have canceled, modified in any material adverse
respect or notified the Party of their intention to cancel, modify in any
material adverse respect, or terminate their relationship with the
applicable Business; and
(iii) There exists no claim or threatened claim of any Liability or
obligation, absolute or contingent, which arises out of the sale of any
product or performance of any service by the applicable Business and
which may be based on or derived from the failure or alleged failure of
such product or service to conform to specifications or other contract
terms or to satisfy any warranty (express or implied) or arising from
negligence or other failure of the applicable Business or the Party.
(f) TAX MATTERS: Neither Party is in arrears or in default in respect of
the applicable Business in the filing of any required federal, provincial,
state, departmental or municipal tax, remittance, information or other
return; no claim for additional taxes, filing fees or other amounts and
assessments has been made which has not been paid or collected.
(g) LITIGATION: There are no actions, claims or demands or other
proceedings pending or threatened before any court or administrative agency
which would have a material adverse effect on the financial condition or
overall operations of the applicable Business, and no judgment, order or
decree enforceable against the applicable Business which involves or may
involve, or restricts or may restrict, or requires or may require, the
expenditure of money as a condition to or a necessity for the right or
ability of the applicable Business to conduct its business in the manner in
which such business has been carried on prior to the date hereof.
(h) PRODUCT WARRANTY CLAIMS: There are no material product warranty
claims pending, or threatened against either Party with respect to Products
sold by either the IVI Business or the Ingenico Business.
(i) ENVIRONMENTAL: Each of the Ingenico Business and the IVI Business,
as the case may be, have and are being conducted in compliance with all
applicable environmental laws, orders and regulations, whether federal,
provincial or municipal; no investigation has been undertaken by any
governmental or quasi-governmental body with respect to any environmental
infraction; and neither IVI nor Ingenico is aware of and no circumstances
exist which could result in any order of any kind including remedial or
corrective, being requested against IVI or Ingenico with respect to either
the IVI Business or the Ingenico Business.
(j) FULL DISCLOSURE: There is no material information concerning or
affecting the transactions described herein which either Ingenico or IVI has
not disclosed to the other.
(k) DISCLOSURE: The Schedules respectively constitute accurate and
complete lists and disclosure of the matters to be referred in such
Schedules. Except as disclosed on either Schedule "M" or
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<PAGE>
Schedule "N", as the case may be, Ingenico and IVI are and will continue to
be, throughout the term of the Technology License Agreement either exclusive
owners or licensees of the Ingenico Technology, Ingenico Intellectual
Property, Unicapt Technology, IVI Technology and IVI intellectual Property,
as the case may be, and have and will have the exclusive right to use such
technology and have the full and sufficient right and entitlement to grant
the rights and licenses granted herein by good and marketable title, free
and clear of any and all attachments, liens, claims, charges, options,
pledges or other encumbrances;
(l) THIRD PARTY RIGHTS: All third party technology and intellectual
property contained in either the Ingenico Technology, the Unicapt Technology
or the IVI Technology are separately identified in Schedule "M", "N" and "Q"
respectively. Ingenico and IVI have duly obtained the right and license to
use, copy, modify and distribute the third party technology and intellectual
property contained in their respective technologies; other than as disclosed
respectively in the aforesaid Schedules, neither the Ingenico Technology,
Unicapt Technology nor the IVI Technology contain other software or
intellectual property components in which any third party may claim superior
or joint ownership, other than as disclosed on Schedules "M" and "N"
respectively; neither the Ingenico Technology nor the IVI Technology
constitute derivative works of any other intellectual property not owned in
their entirety respectively by either Ingenico or IVI as the case may be;
(m) PROCEDURES FOR COPYRIGHT PROTECTION: Schedule "M" and Schedule "N"
respectively set forth the form and placement of the proprietary legends and
copyright notices displayed in or on the published Ingenico Technology,
Unicapt Technology and IVI Technology including, without limitation,
software programs. In no instance has the eligibility of the Ingenico
Technology, Unicapt Technology or the IVI Technology for protection under
applicable copyright law been forfeited to the public domain by omission of
any required notice or any other action;
(n) PROCEDURES FOR TRADE SECRET PROTECTION: Ingenico and IVI have used
their best efforts to adhere to and enforce the trade secret protection
programs respectively disclosed by each Party to the other. Neither Ingenico
nor IVI have reason to believe that there, has been a material violation of
such program by any person;
(o) ABSENCE OF CLAIMS: No claims have been asserted by any person to the
use of the Ingenico Technology, Unicapt Technology or the IVI Technology as
the case may be and neither Ingenico nor IVI know of any valid basis for any
such claim. The use of the Ingenico Technology and Unicapt Technology by
Ingenico, IVI, their sublicensees or end-users, does not and will not
infringe on the rights of any person. The use of the IVI Technology by IVI,
Ingenico, their sublicensees or end-users, does not and will not infringe on
the rights of any person;
(p) AGREEMENTS: Except as disclosed by the respective parties on either
Schedule "G" or Schedule "I", there are no agreements or arrangements in
effect with respect to the marketing, distribution, licensing or promotion
of any of the Ingenico Technology, Unicapt Technology or Ingenico Products
or the IVI Technology or IVI Products by any independent sales person,
distributor, sublicensor or other remarketer or sales organization in the
IVI Territory or the Ingenico Territory, as the case may be.
(q) CONFORMITY, PERFORMANCE AND COMPLIANCE: The specifications, program
code and documentation to be delivered by the parties to each other
hereunder have been prepared in a workmanlike manner and with professional
diligence and skill, will function on the appropriate equipment and
operating systems for which they are designed, and will conform to the
specifications and functions relating thereto.
The foregoing representations and warranties are in addition to the
representations and warranties of IVI to Ingenico contained in the Investment
Agreement,
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<PAGE>
ARTICLE ELEVEN
COVENANTS
Section 11.01 COVENANTS OF EACH PARTY: Each Party covenants and agrees
with the other, as follows:
(a) PARTY'S OBLIGATION TO COMPLETE TRANSACTION: Each Party shall take
all necessary steps and proceedings to permit the transactions described
hereunder to be duly and validly completed, and shall do all acts necessary
in order to cause the representations and warranties in Section 10-01 hereof
to be or remain true and correct on and as of the Closing Date and to cause
to be satisfied the conditions in Article Nine.
(b) CORPORATE APPROVAL: On or before the Closing Date each Party shall
take all necessary corporate action for the purpose of approving the
transactions described hereunder.
(c) CONSENTS: Each Party shall obtain and deliver, where required,
consents of all requisite parties to the assignment of the Ingenico Customer
Contracts and IVI Customer Contracts.
(d) RECORDS: Each Party shall provide the other, or its representatives,
access to the records of the Business during normal business hours and upon
reasonable advance notice.
(e) SCHEDULES: At least two days prior to the Closing Date each Party
shall provide the other, with revised Schedules G, H, I, J, K, L, M, N, Q
and R reflecting any changes during the Interim Period or settlement of the
terms of the Schedule in the case of Schedules I, L and R which changes
shall be made only in the ordinary course of the applicable Business and, if
material, shall only be made with the prior consent of the other Party.
(f) CONSENTS OF REGULATORY AUTHORITIES: Each of Ingenico and IVI shall
use their best efforts to obtain all necessary regulatory consents to the
transactions contemplated herein required to be obtained.
Section 11.02 INTELLECTUAL PROPERTY: Nothing contained in this Agreement
or in any of the Schedules hereto shall confer upon or result in Ingenico
obtaining any title or ownership to the IVI Intellectual Property, nor IVI
obtaining any title or ownership to the Ingenico Intellectual Property, which
intellectual property shall remain, both during the term of this Agreement in
any of the Schedules hereto and thereafter the absolute property of the owner
thereto subject to no claims or entitlement whatsoever by the other Party,
except the use thereof as specifically permitted in this Agreement.
ARTICLE TWELVE
INDEMNIFICATION
Section 12.01 INDEMNIFICATION BY INGENICO AND IVI: Each of Ingenico and
IVI (the "Indemnifying Party") covenants and agrees to indemnify and hold
harmless the other and any member of Groupe Ingenico or the IVI Group
respectively (the "Indemnified Party") from and against all ("Claims") demands,
claims, actions or causes of action, assessments, losses, damages, liabilities,
deficiencies, taxes, costs and expenses including, without limitation, interest,
penalties and solicitors' fees and expenses asserted against, relating to,
imposed upon or incurred by the Indemnified Party or its successors or permitted
assigns for any reason in connection with this transaction, including without
limitation:
(a) a breach of any representation, warranty or covenant of IVI and
Ingenico contained in or made pursuant to this Agreement or the schedules
hereto;
(b) the operation of the IVI Business by IVI, or the Ingenico Business
by Ingenico, for the period both before and after the Closing Date; and
(c) the assertion against IVI or Ingenico of any Liabilities of the
other.
16
<PAGE>
(collectively, an "Indemnity Event").
In the event that IVI or Ingenico becomes aware of any actual or contingent
Indemnity Event, it shall notify the other of such Indemnity Event and the other
shall forthwith assume all responsibility for such Indemnity Event and shall
reimburse IVI or Ingenico (as the case may be) for any amounts expended by them
with respect to such Indemnity Event. The obligations of IVI or Ingenico to
indemnify the other with respect to an Indemnity Event shall be subject to the
following:
(a) the Indemnifying Party shall have been given a reasonable
opportunity to dispute such Indemnity Event;
(b) the Indemnifying Party shall be entitled to conduct such defense as
it deems appropriate with respect to any Indemnity Event, and in this regard
the Party seeking indemnification shall provide all reasonable assistance
and co-operation to the Indemnifying Party and their duly appointed agents,
including without limitation, access to all relevant books and records
relating to the subject matter of the Indemnifying Event and the right to
make copies thereof as may be reasonably necessary in order that the
Indemnifying Party may properly defend, settle or contest the same; and make
available to the Indemnifying Party all witnesses and original records,
materials and information which may be reasonably required to properly
conduct any litigation or defense relating to an Indemnity Event;
(c) neither Ingenico nor IVI shall be entitled to indemnification prior
to actually sustaining the loss, damage, liability, claim, deficiency,
costs, expense or expenditure so identified in the notice of Indemnity
Event; and
(d) concurrent with payment of the indemnification, such liability or
claim relating to the Indemnity Event shall have been assigned to the
Indemnifying, Party, should it so desire.
Section 12.02 THRESHOLD AMOUNT: A Party shall only be entitled to make a
Claim against the other pursuant to this Article Twelve if the aggregate amount
claimed, together with all amounts previously claimed by the Party so claiming
as applicable exceeds $100,000, in which event the total amount of such Claim
shall be due and owing by the Indemnifying Party.
ARTICLE THIRTEEN
EVENTS OF DEFAULT
Section 13.01 EVENTS OF DEFAULT: This Agreement may be terminated by
Ingenico or IVI, as the case may be, on written notice to the other, in each and
every of the following circumstances (an "Event of Default"):
(a) if either Party fails to make payment of any material amounts owing
hereunder and the same shall continue unremedied for a period of thirty days
following written notice from the other Party; or
(b) if either Party shall admit its inability to pay its debts generally
as they become due or otherwise acknowledge its insolvency or if an order
shall be made or an effective resolution passed for the winding up of either
Party or if a Party shall make an assignment for the benefit of its
creditors or if a receiver or a receiver and manager or liquidator or a
trustee in bankruptcy of a Party shall be appointed or if a Party shall make
a proposal to its creditors under a bankruptcy statute; or
(c) if a proceeding shall be instituted for the winding up a Party or a
petition in bankruptcy presented against a Party under any bankruptcy
statute and if in either case such a proceeding or petition shall not, not
less than three days prior to the date fixed for the hearing of the same,
have been dismissed or withdrawn; or
(d) a Party shall make default (for such purposes a loss of exclusivity
of any rights granted pursuant to the Transaction Documents shall not be
considered to be a default) in observing or
17
<PAGE>
performing any covenant or condition in this Agreement on its part to be
observed or performed, including, without limitation, sections 2.06, 2.07,
2.09 and 5.07 and if such default shall continue for a period of sixty days
after a notice in writing, has been given by the other Party to the
nonperforming Party, specifying such default; or
(e) there occurs any change of control of a Party, such that a third
party engaged in business directly competitive to the Ingenico Business or
the IVI Business, as the case may be, takes control of a Party such that it
obtains direct or indirect ownership of not less than 40% of a Party's
outstanding voting shares and the ability to elect not less than a majority
of its Board of Directors; or
(f) a "take-over bid", as defined in Part XX of the Securities Act
(Ontario), is completed for a Party by any third party which is engaged in a
business directly competitive with the Ingenico Business or the IVI
Business, as the case may be; or
(g) the amalgamation or merger of a Party with any other corporation or
entity which is at arm's-length with such Party and which is engaged in a
business directly competitive with the Ingenico Business or the IVI
Business, as the case may be.
Section 13.02 REMEDIES ON AN EVENT OF DEFAULT: If an Event of Default
shall occur and be continuing, the non-defaulting Party may in its sole
discretion terminate this Agreement on written notice to the defaulting Party.
The Parties shall forthwith upon termination, or as soon as is practicable
thereafter;
(a) pay over to the other Party all monies collected and held for the
account of such other Party pursuant to the Agreement or any of the
Schedules hereto;
(b) effect a final and complete accounting to the other Party of all
amounts as may be due and owing under this Agreement, and any of the
Transaction Documents which the non-defaulting Party elects to terminate in
accordance with Section 14.01.
(c) deliver to, and where applicable, transfer into the name of the
other Party (or as it may direct in writing) all property, documents and
agreements of such other Party held in the name or possession of the
transferring Party;
(d) unless the non-defaulting Party has exercised the buy sell clause
contained in the Latin America Shareholder Agreement, dissolve Latin Newco,
such that its net assets (after satisfaction of all of its liabilities)
shall be distributed to the Parties in proportion to their respective
shareholdings of Latin Newco, all property, information and technology
belonging to a Party shall be returned to it by Latin Newco;
(e) return all Confidential Information of either Party to such Party;
(f) subject to Section 13.03, retransfer and reassign all rights to the
Ingenico Technology or the IVI Technology, and return all Products or; and
(g) take all necessary steps to discontinue use of the Intellectual
Property of the other Party.
Following any such termination, each Parry shall provide ongoing product
support and spare parts to the other with respect to any Products sold by the
other prior to termination.
Section 13.03 CHANGE OF CONTROL OR TAKE-OVER BID: Notwithstanding Section
13.02(f), in the event of termination of this Agreement due to an Event of
Default as described in subsection 13.01(e), 13-01(f) or 13.01(g), the
defaulting Party shall not be obliged to retransfer and reassign all rights to
the Ingenico Technology or the IVI Technology, or return all Ingenico Products
or IVI Products, but in such event the defaulting Party shall:
18
<PAGE>
(a) offer in writing to repurchase from the non-defaulting Party on a
cash basis all equity interests, including without limitation any shares in
IVI acquired pursuant to the Investment Agreement, at a price equal to the
cost base thereof to the non-defaulting Party, and upon acceptance by the
other Party of such offer, complete such purchase; and
(b) pay to the non-defaulting Party, as liquidated damages and not as a
penalty, a lump sum payment in an amount equal to three times the dollar
value of targeted sales volumes for the Products of the non-defaulting Party
in the Territory of the defaulting Party pursuant to the applicable
Performance Criteria for the most recently completed fiscal year;
provided that, in addition, the non-defaulting Party may, in its sole
discretion and at any time, elect to sell its equity interest or tender into any
take-over bid for the equity securities of the other Parry.
ARTICLE FOURTEEN
CROSS DEFAULT
Section 14.01 CROSS DEFAULT: Each of Ingenico and IVI acknowledge and
agree that any Event of Default by either of them pursuant to the provisions of
this Agreement, or any material default by either of them under the Marketing
and Distribution Agreement, the Technology License Agreement, the Latin America
Shareholder Agreement or the Investment Agreement, shall for all purposes be
deemed to constitute an Event of Default by such defaulting party under this
Agreement and each of such other agreements with the result that the
non-defaulting Party shall be entitled, at its election, to exercise all rights
and remedies available to it under any and all of such agreements. Each of
Ingenico and IVI acknowledge and agree that this cross-default provision is a
fundamental component of the transactions contemplated herein, and accordingly
waive all defenses to strict enforcement of each and every agreement in the
event of an Event of Default by either of them.
ARTICLE FIFTEEN
NO PARTNERSHIP
Section 15.01 NO PARTNERSHIP: Nothing contained in this Agreement shall
constitute IVI and Ingenico as partners, and from and after the Closing Date,
Ingenico shall carry on the Ingenico Business and IVI shall carry on the IVI
Business. No Party shall have or shall represent that it has the authority or
power to act for or to undertake or create any obligation or responsibility on
behalf of the other Party, or shall represent that it is the agent or legal
representative of the other Party, except as otherwise specifically provided in
this Agreement.
ARTICLE SIXTEEN
GENERAL
Section 16.01 EXPENSES: Each party hereto is responsible for its own
legal, audit and due diligence fees and other charges incurred in connection
with the preparation of this Agreement, all negotiations between the parties
hereto, and the consummation of the transactions contemplated hereby.
Section 16.02 TIME OF THE ESSENCE: Time shall be of the essence in respect
of this Agreement and the agreements and transactions contemplated herein.
Section 16.03 FURTHER ASSURANCES: Each of the parties hereto shall from
time to time at the other's request and expense and without further
consideration, execute and deliver such other instruments of transfer,
conveyance and assignment and take such further action as the other may require
to more effectively complete any matter provided for herein.
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Section 16.04 ENTIRE AGREEMENT: This Agreement, together with the
Schedules hereto, constitutes the entire agreement between the parties and,
except as herein stated and in the instruments and documents to be executed and
delivered pursuant hereto, contains all of the representations and warranties of
the respective parties. There are no oral representations or warranties among
the parties of any kind. This Agreement may not be amended or modified in any
respect except by written instrument signed by all parties hereto.
Section 16.05 APPLICABLE LAW: This agreement shall be interpreted in
accordance with the laws of the State of New York, United States of America, and
shall be treated in all respects as a New York contract.
Section 16.06 NOTICES: Any notices required or permitted to be given
hereunder shall be in writing and shall be effectively given by delivering same
by prepaid mail, delivery by courier or sending same by telecopy or other
similar form of electronic communication, addressed:
(a) if to Ingenico, to it at:
Ingenico Societe Anonyme
9, quai de Dion Bouton
92816 Puteaux Cedex
France
Telecopy: 33(l) 47 72 56 95
Attention: Jean-Jacques Poutrel, President du Conseil
with a copy to:
R. G. S. Hull
Smith Lyons
Suite 5800, Scotia Plaza
40 King Street West
Toronto, Ontario, Canada
M5H 3Z7
(b) if to IVI, to it at:
International Verifact Inc.
79 Torbarrie Road
Toronto, Ontario
Canada M3L lG5
Telecopy: (416) 245-9896
Attention: L. Barry Thomson
President and CEO
with a copy to:
Mark A. Convery
Meighen Demers
Barristers and Solicitors
Box 11, Merrill Lynch Canada Tower
1100-200 King Street West
Toronto, Ontario, Canada
M5H 3T4
Telecopy: (416) 977-5239
20
<PAGE>
Any such notice if sent by prepaid mail or courier shall be deemed to have been
received by the addressee seven days and two days, respectively, following the
day on which the notice was so sent, or if by telecopy or other similar form of
communication on the day following the day on which the notice was so sent
provided that an acknowledgment of transmission is received by the sender. Any
party hereto or others mentioned above may change any particulars of its address
for notice from time to time by notice to the others in the manner aforesaid.
Section 16.07 SUCCESSORS AND ASSIGNS: This Agreement inures to the benefit
of and is binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
Section 16.08 ASSIGNMENT: Subject to the rights of Groupe Ingenico and the
IVI Group specified herein, this Agreement may not be assigned by either Party
hereto without the prior written consent of the other.
Section 16.09 SEVERABILITY: The invalidity or unenforceability of any
particular provision of this Agreement shall not affect or limit the validity or
enforceability of the remaining provisions of this Agreement.
Section 16.10 SURVIVAL: All of the representations and warranties of each
of IVI and Ingenico contained herein shall survive the Closing and not merge,
and shall further continue in full force and effect for the benefit of each
other until December 31, 1999 with the following exceptions:
(a) the representations and warranties contained in the Marketing and
Distribution Agreement, the Joint Development and Procurement Agreement, the
Technology License Agreement, the Investment Agreement and the Latin America
Shareholder Agreement shall survive the Closing Date for the period
described therein;
(b) the covenants and agreements described in Article Twelve hereof
shall survive the Closing Date and continue in full force and effect for the
concurrent period of time as the underlying representation, warranty,
covenant or agreement of Ingenico or IVI which is so indemnified; and
(c) the covenants and obligations of each Party described in this
Agreement and the Marketing and Distribution Agreement, the Joint
Development and Procurement Agreement, the Technology License Agreement, the
Investment Agreement and the Latin America Shareholder Agreement shall
survive the Closing Date and remain in full force and effect concurrent with
the duration of such agreements.
Section 16.11 CONFIDENTIALITY:
(a) the covenants and agreements contained in this Agreement shall be
maintained in strict confidence by each of Ingenico and IVI, and no public
announcement, disclosure or notification to any third parties with respect
to the terms and conditions hereof shall be made prior to the Closing Date
without the prior written consent of both Ingenico and IVI, provided that
both Parties acknowledge that the other is subject to regulatory
requirements and may accordingly be required to disclose the existence of
this Agreement if determined necessary to comply with such regulatory
requirements.
(b) Each Party shall disclose to the other Party such Confidential
Information as is necessary for the purpose of this Agreement including
Confidential Information on security. Such Confidential Information shall be
used only for the purpose of this Agreement and for no other purpose without
the prior written permission of the owner of the Confidential Information.
(c) Each Party to this Agreement shall not disclose at any time any
Confidential Information of the other Party which the Party obtains during
the Term of this Agreement, without the prior written authorization of the
Party.
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(d) The confidentiality obligations set out above shall survive the
termination of this Agreement and remain in force so long as the particular
information remains confidential.
Section 16.12 ARBITRATION:
(a) Best Endeavours to Settle Disputes: In the event of any dispute,
claim, question or difference arising between Ingenico and IVI in respect of
the provisions, the subject matter, the interpretation, or the effect of
this Agreement or any breach hereof, the Parties shall use their best
endeavours to settle such dispute, claim, question or difference. To this
effect, they shall consult and negotiate with each other, in good faith and
understanding of their mutual interests, to reach a just and equitable
solution satisfactory to both Parties;
(b) Arbitration: Except as is expressly otherwise provided in this
Agreement, if the parties do not reach a solution pursuant to Section
16.12(a) within a period of 30 days, then upon written notice by either
Party to the other, the dispute, claim, question or difference shall be
finally settled by arbitration in accordance with the America Arbitration
Association Rules for the conduct of Arbitrations in effect at the date of
commencement of such arbitration, based upon the following:
(i) the arbitration tribunal shall consist of one arbitrator
appointed by each of the Parties who is qualified by education and
training, to pass upon the particular matter to be decided, together with
a third arbitrator appointed by the first two-selected arbitrators;
(ii) the arbitrators shall be instructed that time is of the essence
in proceeding with their determination of any dispute, claim, question or
difference and, in any event, the arbitration award must be rendered
within 30 days of the submission of such dispute to arbitration;
(iii) the arbitration shall take place in New York, New York;
(iv) the arbitration award shall be given in writing and shall be
final and binding on the Parties, not subject to any appeal, and shall
deal with the question of costs of arbitration and all matters related
thereto; and
(v) judgment upon the award rendered may be entered in any court
having jurisdiction, or, application may be made to such court for a
judicial recognition of the award or an order of enforcement thereof, as
the case may be.
Section 16.13 All taxes imposed as a result of the existence of this
Agreement or the performance of the parties hereunder shall be borne and paid by
the party required to do so by applicable law; provided that if so required by
applicable law and relevant tax treaty, a Party shall withhold the amount of any
income taxes levied by the applicable governmental authority on any payment to
be made by such Party to the other Party pursuant to this Agreement, shall
promptly effect payment thereof to the appropriate tax authorities of such
government and shall transmit to the other Party official tax receipts or other
evidence issued by said tax authorities as support for the other Party to claim
any national or federal income tax credit in respect of any such taxes so
withheld and paid by the first party to the applicable governmental authority.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as
of the date first above written.
INGENICO
Per: /s/______________________________________
Per: /s/______________________________________
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<PAGE>
INTERNATIONAL VERIFACT INC.
Per: /s/______________________________________
Per: /s/______________________________________
For purposes of Section 2.9 of the Master Alliance Agreement dated December
5, 1996, a "reasonable return" to IVI shall be in excess of the average gross
margin for the prior twelve month period on Ingenico Products and/or Ingenico
Future Products as the case may be.
Dated at Puteaux this 17th day of December, 1996
INGENICO S.A.
Per: /s/______________________________________
INTERNATIONAL VERIFACT INC.
Per: /s/______________________________________
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<PAGE>
EXHIBIT 10.7
LATIN AMERICA UNANIMOUS SHAREHOLDERS' AGREEMENT DATED DECEMBER 17, 1996, BETWEEN
INGENICO, S.A., INTERNATIONAL VERIFACT INC. AND IVI INGENICO INC.
<PAGE>
INGENICO
-AND -
INTERNATIONAL VERIFACT INC.
-AND -
IVI INGENICO INC.
LATIN AMERICA UNANIMOUS SHAREHOLDERS' AGREEMENT
DECEMBER 17, 1996
MEIGHEN DEMERS SMITH LYONS
<PAGE>
LATIN AMERICA UNANIMOUS SHAREHOLDERS' AGREEMENT
THIS AGREEMENT made as of the 17th day of December, 1996 AMONG:
INGENICO, incorporated under the laws of France and having its head
office in the City of Puteaux Cedex, France
(hereinafter called "Ingenico")
OF THE FIRST PART
- and -
INTERNATIONAL VERIFACT INC., a corporation continued under the laws
of Canada and having its head office in the City of North York,
Ontario, Canada
(hereinafter called "IVI")
OF THE SECOND PART
- and -
IVI INGENICO INC., a body corporate incorporated under the laws of
the State of Delaware and having its head office in the City of Coral
Gables, Florida
(hereinafter called "Latin Newco")
OF THE THIRD PART
WITNESSES THAT:
WHEREAS Ingenico and IVI have entered into a Master Alliance Agreement dated
December 5, 1996, to which this Latin America Unanimous Shareholders' Agreement
constitutes Schedule "U" (the "Master Agreement");
AND WHEREAS Ingenico carries on the business of development, distribution,
marketing and manufacturing of terminals with application to payment systems,
loyalty, electronic benefit transfer systems, and terminal systems for smart
card technology, principally in Europe, the Middle East, Africa, Australia,
Asia, Pacific and the Americas;
AND WHEREAS IVI carries on the business of development, distribution,
marketing and manufacturing of transaction terminals with application to payment
systems, loyalty, electronic benefit transfer systems and terminal systems in
the Americas, Europe, Asia Pacific and Australia;
AND WHEREAS Ingenico and IVI have incorporated Latin Newco as their mutual
vehicle for carrying on the IVI Business and the Ingenico Business and other
related business of Ingenico and IVI in all countries of Latin America;
AND WHEREAS the authorized share capital of the corporation is 1,000,000
common shares, such that the issued and outstanding shares of Latin Newco are
owned as follows:
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES PERCENTAGE
------------------------------- ---------------
<S> <C> <C>
IVI.................................................... 51 51%
Ingenico............................................... 49 49%
</TABLE>
AND WHEREAS the parties desire to enter into this Latin America Unanimous
Shareholders' Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties covenant and agree with one another as follows:
2
<PAGE>
ARTICLE 1.00--INTERPRETATION
1.1 DEFINITIONS
In this agreement, unless the context shall otherwise require, the following
definitions shall apply:
(a) "Act" means the General Corporation Law of the State of Delaware;
(b) "Annual Business Plan" has the meaning ascribed to it in Section 2.4
(b);
(c) "Business" has the meaning ascribed to it in section 2.04 (a);
(d) "Control" means the power to direct or cause the direction of the
management and policies of a corporation through legal and beneficial
ownership of a majority of shares in the corporation entitled to vote;
(e) "Fiscal Year" means the fiscal year of Latin Newco ending December
31, or as otherwise determined by the Shareholders;
(f) "Master Agreement" means the Master Alliance Agreement between
Ingenico and IVI dated December 5, 1996;
(g) "Net Profits" means the profits of Latin Newco as determined by
generally accepted accounting principles on a consolidated basis as the same
may be established from time to time, applied on a consistent basis, after
deducting all costs and expenses incurred by Latin Newco for the period in
question;
(h) "Parties" means all the parties to this agreement including any
person subsequently agreeing to be bound by this agreement;
(i) "Permitted Transferee" has the meaning ascribed to it in Section
4.1;
(j) "Schedules" means the schedules annexed hereto which are
incorporated herein by reference, being:
Schedule "A"--Certificate of Incorporation and By-Laws of Latin Newco
(k) "Shareholder" or "Shareholders" means Ingenico, IVI and their
permitted successors and assigns;
(l) "Shares" means any and all shares of Latin Newco; and
(m) "30 Day Libor Rate" means, on any day, the annual rate of interest
expressed on the basis of a 360 day year (round upwards, if necessary, to
the nearest whole multiple of 1/16th of 1%) established by Latin Newco to be
the simple average of the rates, expressed as a rate of interest per annum
on the basis of a 360 day year, at which deposits in U.S. dollars are
offered by leading banks in the London Interbank Eurocurrency Market, for
delivery on the first day of any 30 day period, as determined at or about
10:00 a.m. (New York time) two business days before the first day of such
month in an amount substantially equal to the principal amount.
All other capitalized terms used in this Agreement and not defined herein
have the meanings ascribed thereto in the Master Agreement.
1.2 CURRENCY
All dollar amounts referred to herein shall, unless otherwise expressly
stated, mean United States of America dollars.
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1.3 GOVERNING LAW AND ATTORNMENT
This agreement shall be governed by and construed in accordance with the
laws of the State of New York and the parties hereto hereby attorn to such
jurisdiction.
ARTICLE 2.00--BUSINESS AND OPERATION OF LATIN NEWCO
2.1 GENERAL
Each of the Shareholders of Latin Newco covenants and agrees to vote its
Shares at all times and to cause its nominee or nominees to the board of
directors of Latin Newco to act at all times in order that the provisions of
this Agreement shall govern the Business and affairs of Latin Newco to the
maximum extent permitted by law, notwithstanding any conflicting provision in
the certificate of incorporation or by-laws of Latin Newco and, in the case of
conflict between the provisions of this Agreement and the provisions of the said
certificate of incorporation and/or by-laws, the provisions hereinafter set
forth shall, to the maximum extent permitted by law, at all times prevail.
2.2 TERM
Subject to express provisions herein to the contrary, the provisions of this
Agreement shall remain in effect unless and until terminated by mutual agreement
of the Shareholders or until such time as all of the Shares are held by one
Shareholder.
2.3 CERTIFICATE OF INCORPORATION
The Certificate of Incorporation and by-laws of Latin Newco are and shall
remain in the form annexed as Schedule "A" to this Agreement unless and until
amended by unanimous written approval of the Shareholders.
2.4 BUSINESS OF LATIN NEWCO
(A) The business of Latin Newco shall be the marketing, distribution and
manufacturing, if necessary, of the IVI Products, Ingenico Products, IVI
Future Products, Ingenico Future Products, Ingenico Technology, IVI
Technology and Unicapt Technology in Latin America and the carrying out of
the related business of Ingenico and IVI. It is acknowledged by the parties
hereto that the business of Latin Newco may be carried out in one or more of
the countries comprising Latin America either by it directly, through
subsidiaries (which may or may not include the participation of other
parties) or through distribution agreements entered into with distributors
in Latin America.
(B) In conducting the Business, Latin Newco and the Shareholders shall
adhere to and implement a business plan approved annually by the Board of
Directors of Latin Newco (the "Annual Business Plan"). Each of the officers
of Latin Newco and the Board if Directors shall act at all times in order
that the Annual Business Plan shall regulate the business and affairs of
Latin Newco.
2.5 DIRECTORS
(A) The Shareholders shall vote their Shares at all times and act in all
other respects in connection with the corporate proceedings of Latin Newco
so as to ensure the election and maintenance in office as directors of Latin
Newco one nominee designated by IVI and one nominee designated by Ingenico
and to ensure that the maximum number of directors of Latin Newco shall be
two persons. In the event of the death, incapacity, resignation or
disqualification of a nominee of or director nominated by any Shareholder,
the Shareholder that designated such nominee shall have the right to
designate another person (hereinafter called the "replacement nominee") as
its nominee for
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the position of director of Latin Newco to replace the nominee or director
who ceased to act as a director of Latin Newco and the Shareholders of Latin
Newco agree to vote their Shares of Latin Newco at all times so as to ensure
the prompt election of the replacement nominee as director of Latin Newco.
Any Shareholder may at any time replace a nominee designated by the
Shareholder wishing to replace such nominee and such Shareholder may
designate another person as its nominee for the position of director of
Latin Newco and the Shareholders agree to vote their Shares of Latin Newco
at all times so as to ensure the removal of any such director and the
election and maintenance in office as director of Latin Newco of such
nominee. The initial directors of Latin Newco shall be Gerard Compain and L.
Barry Thomson.
(B) The quorum for meetings of the directors shall be both directors
then in office. No meeting of the directors shall continue with the
transaction of business in the absence of a quorum.
(C) All questions before the directors shall be decided by unanimous
approval of the directors, whether at a meeting or by written resolution
signed by all directors. The chairman of the meeting of the directors shall
not have a second or casting vote.
(D) Directors shall be reimbursed all reasonable costs of transportation
and lodging in connection with attendance at Board meetings and fulfillment
of their duties as directors.
(E) The directors of Latin Newco shall meet not less frequently than
quarterly, with conference telephone participation permitted. Board meetings
may be called by any director on not less than 21 days prior written notice
to the other directors.
2.6 DAILY MANAGEMENT
Other than as prescribed in this Agreement, all daily management and
operations of Latin Newco shall be directed by IVI.
2.7 POWERS OF DIRECTORS AND OFFICERS
During the term hereof, all of the officers of Latin Newco shall be
appointed by the Board of Directors, provided that Ingenico agrees to cause its
nominee on the Board of Directors to approve the appointment of the individual
nominated by IVI for the office of President and Chief Executive Officer and IVI
agrees to cause its nominees on the Board of Directors to approve the
appointment of the individual nominated by Ingenico for the office of Chairman
of the Board of Directors. The Board of Directors will be consulted on the
hiring of any senior management. Each of the officers shall have all the powers,
rights, duties and obligations of such office as set out in the By-Laws of Latin
Newco, or as otherwise established by the Board of Directors from time to time.
The remuneration of the Executive Vice-President and General Manager shall be
based upon the objectives of Latin Newco as established by the Board of
Directors from time to time, and successful attainment of those objectives. The
Board of Directors shall employ an officer for product and technical support
proposed by Ingenico. The initial officers of Latin Newco shall be as follows:
<TABLE>
<S> <C>
Chairman of the Board Gerard Compain
President and CEO L. Barry Thomson
Executive Vice-President Jorge Fernandez
and
General Manager
</TABLE>
The officers of Latin Newco shall have full power to direct and cause to be
carried out all of the operations of Latin Newco provided, however, that
notwithstanding Section 2.5, none of the following actions shall be taken
without an authorizing resolution of the Board of Directors of Latin Newco which
has been unanimously approved by the Board of Directors.
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By the Board of Directors :
(A) the entering into of any joint venture or business combination with any
third party;
(B) other than as expressly provided herein, the entering into of any
contract with any Shareholder or any Affiliate of a Shareholder outside
of the ordinary course of business or on terms not comparable to those
available from arm's length parties;
(C) the making of any loans to a Shareholder, or any Affiliate of a
Shareholder;
(D) any borrowing by Latin Newco not within authorized lines of credit
previously established by the Board of Directors, other than as
specifically provided herein;
(E) the committing of Latin Newco to any capital disposition or capital
expenditure, or series of related capital dispositions or capital
expenditures out of the ordinary course of business or not contemplated
in the Annual Business Plan of Latin Newco;
(F) any material change in the Business not contemplated in the Annual
Business Plan;
(G) any alteration of capital of Latin Newco, whether issued or unissued,
including any allotment, issue, purchase, exchange or redemption of
shares;
(H) the entering into by Latin Newco of any guarantee, indemnity or similar
obligation or agreement to an Affiliate or a Shareholder;
(I) the committing of Latin Newco to any acquisition of a business, or
series of business acquisitions involving any expenditures;
(J) any transfer of shares except as permitted by this Agreement;
(K) any increase in the number of directors;
(L) approval of the Annual Business Plan; and
(M) the granting of approval for Ingenico and/or IVI to manufacture Ingenico
Products, IVI Products, Ingenico Future Products or IVI Future Products
in Latin America; and
(N) any appointment or designation of the authorized signing officers of
Latin Newco.
2.8 POWERS OF SHAREHOLDERS
None of the following actions concerning Latin Newco shall be taken without
a unanimous authorizing resolution of the Shareholders:
(A) any matter requiring Shareholder approval pursuant to the Act;
(B) subject to Section 3.5, the allotment or issue of additional Shares, or
the granting of rights or options to purchase or receive any Shares;
(C) the transfer by a Shareholder of Latin Newco of any Shares not made
pursuant to the provisions of this Agreement; or
(D) any amendment of Latin Newco's Certificate of Incorporation or by-laws.
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2.9 NET PROFITS DISTRIBUTIONS
The Parties acknowledge and agree that, unless otherwise determined by the
Board of Directors, Latin Newco shall pay and remit Net Profits of Latin Newco
in a timely fashion and in the following order of priority:
(A) firstly, in payment of outstanding interest due and owing with respect
to all arm's length, third party debt financing of Latin Newco;
(B) secondly, in payment of any outstanding interest and principal with
respect to loans from Shareholders;
(C) thirdly, in payment of dividends and distributions to the Shareholders;
(D) fourthly, as a reserve (as determined by the directors) to fund future
operations of Latin Newco.
2.10 OPERATION PLANS
Management of Latin Newco shall complete and submit for approval by the
Board of Directors an Annual Business Plan including a one-year capital budget
with respect to the 1997 Fiscal Year within 60 days of the Closing Date. Such
Annual Business Plan shall be reviewed annually in November, commencing November
1997, and approved by the Board of Directors of Latin Newco by no later than the
following January 31st. Following such approval, each of the Shareholders shall
fund or make mutually agreed arrangements to fund the Annual Business Plan
promptly through shareholder loans or capital as required in accordance with the
terms of such budget, in accordance with Section 3.5.
2.11 (INTENTIONALLY DELETED)
2.12 BANKING
All cheques, withdrawals and monetary transfers by Latin Newco require two
signatures, in accordance with such procedures and limits as determined by the
Board of Directors from time to time.
2.14 Notwithstanding the foregoing, if revenues generated by Latin Newco from
sales of the Ingenico Products in Latin America are less than 20%, 50% or 60% of
the Performance Criteria for Latin Newco in the first, second or third calendar
years respectively of the term of the Marketing and Distribution Agreement, then
Ingenico shall have the right, but not the obligation, to acquire 1% of the
issued and outstanding Shares of Latin Newco held by IVI for an aggregate
purchase price of $1.00, in order that the shareholdings shall then be 50% for
each of IVI and Ingenico. If Ingenico exercises such right, the daily
management, as contemplated in Section 2.6, shall be directed by Ingenico and,
under Section 2.7, the Chairman shall be a nominee of IVI, and the President and
CEO and the Executive Vice-President and General Manager shall be a nominee of
Ingenico. In such circumstances, all other terms of this Agreement shall remain
in force, unamended.
2.15 FINANCIAL STATEMENTS
Audited financial statements will be prepared and distributed to each
Shareholder within 60 days following Fiscal Year end. Unaudited monthly profit
and loss statements shall be distributed to each Shareholder within 30 days of
each month end, including a written report on business conditions and any
material variance from Latin Newco's Annual Business Plan prepared pursuant to
Section 2.10. In addition, the Parties shall provide forecasts on a quarterly
basis within thirty (30) days of the end of a fiscal quarter.
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ARTICLE 3.00--OPERATIONS OF LATIN NEWCO
3.1 EMPLOYMENT AND CONTRACTING
Latin Newco shall hire, from time to time, such permanent employees and
retain such third party independent contractors as determined by the Board of
Directors, or the Annual Business Plan. In addition, Latin Newco may retain from
time to time, with the approval of the Board of Directors, additional employees
or third party contractors on a project basis to service and advance a
particular project of the Business. Any employees seconded, in whole or in part,
to Latin Newco by the Shareholders shall be provided at the cost of the
providing Shareholder.
3.2 MARKETING AND DISTRIBUTION AGREEMENT
On the Closing Date, Latin Newco shall enter into the Marketing and
Distribution Agreement.
3.3 TRANSFER PRICING
During the term of the Marketing and Distribution Agreement, IVI and
Ingenico shall supply the IVI Products, IVI Future Products, IVI Technology,
Ingenico Products, Ingenico Future Products, Ingenico Technology and Unicapt
Technology respectively, to Latin Newco on transfer pricing terms that are equal
to the lesser of a transfer price mutually agreed to by the Parties, and direct
manufacturing costs plus a markup of 20%. It is the Parties' interest that the
transfer price should enable Latin Newco and the products distributed by Latin
Newco to be and continue to be extremely competitive where marketed. The
Shareholders agree that the cost structure of Latin Newco shall also be and
continue to be such that it enables Latin Newco to be extremely competitive.
3.4 MANUFACTURING LICENSE IN LATIN AMERICA
Subject to Section 2.7(m), Ingenico and IVI hereby agree not to grant a
manufacturing license of Ingenico Products, IVI Products, Ingenico Future
Products or IVI Future Products in any country in Latin America without the
prior written approval of the Board of Directors of Latin Newco and in the event
a manufacturing license of Ingenico Products, IVI Products, Ingenico Future
Products or IVI Future Products takes place for any reason Ingenico or IVI, as
the case may be, shall take all steps necessary to terminate such manufacturing
license
3.5 ADDITIONAL CAPITAL
(A) If the Board of Directors determines that Latin Newco requires
additional funds, then the Board of Directors may request, by issuance of
a notice (a "Funding Notice") to the Shareholders, that the Shareholders
each contribute, within 15 days after the issuance of the Funding Notice
(the "Funding Period"), additional capital to Latin Newco PRO RATA based
upon the number of Shares held by the Shareholders, by way of
subscription for Shares or loan, as determined by the Board of Directors
and set forth in the Funding Notice.
(B) If additional capital is to be contributed, pursuant to subsection (a),
by way of subscription for Shares, the subscription price for each such
Share shall be as determined by the Board of Directors and set out in the
Funding Notice, and Latin Newco shall issue to each Shareholder making a
contribution of capital pursuant to the Funding Notice, out of its
treasury, such number of Shares as shall be equal to the number (rounded,
if necessary, to the nearest lower whole number) obtained by dividing the
amount of the contribution required to be made by such Shareholder by the
per Share subscription price, upon receipt by Latin Newco of the amount
of such contribution.
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(C) If additional capital is to be advanced pursuant to subsection (a) by
way of loan, each such loan shall be made on such terms (including
security, rate of interest and repayment terms) as the Board of Directors
shall determine PROVIDED THAT the terms of all such loans made pursuant
to the same Funding Notice (other than the principal amounts) shall be
the same for all Shareholders.
(D) if any Shareholder (a "Defaulting Shareholder") fails to contribute its
PRO RATA portion of funding as required pursuant to a Funding Notice,
then the other Shareholder (an "Excess Subscribing Shareholder") may, but
shall not be obliged to, within 10 days after the expiry of the Funding
Period, advance to Latin Newco all or any portion of the amount which the
Defaulting Shareholder failed to advance (such additional amount advanced
by the Excess Subscribing Shareholder being referred to as the "Excess
Advance").
(E) Such Excess Advance made by such Excess Subscribing Shareholder must be
repaid by Latin Newco within 6 months from the date such Excess Advance
is made and, until repaid, the amount outstanding from time to time shall
bear interest at a rate per annum equal to 300 basis points above the 30
Day Libor Rate, compounded monthly, which shall be payable at the same
time as the repayment of principal.
(F) If the Excess Advance is not repaid by Latin Newco within 6 months from
the date it is made, such Excess Advance shall be repayable on demand by
the Excess Subscribing Shareholder or the Excess Subscribing Shareholder
shall be entitled, at any time, upon notice to Latin Newco, to convert
all or part of such Excess Advance into additional common shares of Latin
Newco. If the additional capital contributed pursuant to subsection (a)
was by subscription for Shares, then the conversion price for each Share
under this subsection shall be equal to 85% of the subscription price set
out in the Funding Notice. If the additional capital advanced pursuant to
subsection (a) was by way of loan, then the conversion price for each
Share under this subsection shall be equal to 85% of the fair market
value of such Share as determined by the Board of Directors. Forthwith
upon such determination of the conversion price, Latin Newco shall issue
to such Shareholder from authorized but unissued shares, such number of
Shares as shall be equal to the number (rounded, if necessary, to the
nearest lower whole number) obtained by dividing the amount of the Excess
Advance made by such Shareholder which such Shareholder has elected to so
convert by the conversion price.
ARTICLE 4.00--SHARE TRANSFERS
4.1 RESTRICTION ON TRANSFER OR PLEDGE OF SHARES
(A) Except as provided in this Agreement, no Shares (or any part thereof) or
this Agreement or any interest herein may be sold, exchanged, transferred
(which shall be deemed to include any transfer by operation of law),
disposed of, encumbered, assigned, pledged, mortgaged, hypothecated or
given, and no agreement or commitment will be made to do any of the same
except in each case pursuant to the applicable provision of this
Agreement, and any attempt to do so shall be void.
(B) No sale, exchange, transfer, disposition, encumbrance, pledge, mortgage,
hypothecation or gift of Shares nay be made by any Shareholder, other
than to an Affiliate, without the prior written consent of the other,
which consent may be withheld in such Shareholder's sole discretion.
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(C) Notwithstanding the foregoing, a Shareholder may on notice to the other
Shareholders transfer all or part of the Shares owned by it to a
corporation which is then controlled by such Shareholder (a "Permitted
Transferee") subject to the limitations that:
(I) the Shareholder shall at all times Control the Permitted Transferee;
and
(II) the transferring Shareholder shall:
A. be appointed by the Permitted Transferee as its proxy to attend
and vote at all meetings of the Shareholders; and
B. give notice to the other Shareholders of the shareholdings and
any proposed changes in the shareholdings of the Permitted
Transferee from time to time upon the request of any other
Shareholder.
(D) No transfer shall be effective unless and until the proposed Permitted
Transferee has executed an Adoption Agreement, as defined below.
(E) Each Shareholder transferring its Shares shall continue to be bound by
this Agreement notwithstanding any transfer of Shares to such Permitted
Transferee and shall at all times cause such Permitted Transferee of
which it owns shares to carry out the provisions of this Agreement and
any agreement entered into pursuant to this Agreement.
(F) The Shareholder and the Permitted Transferee shall represent and warrant
as at the date of the transfer and shall be deemed to represent and
warrant to the other Shareholders throughout the term of this Agreement
that the Shareholder Controls the Permitted Transferee.
(G) The Permitted Transferee shall not directly or indirectly sell, assign,
give, mortgage, charge, pledge, create a security interest in, or
otherwise encumber or dispose of any Shares owned by it, other than to
the Shareholder which controls such Permitted Transferee.
(H) No Shareholder shall give up direct or indirect Control of any Permitted
Transferee that holds any Shares. For greater certainty, a Shareholder
shall be entitled to cause the Permitted Transferee to transfer any
Shares held by such Permitted Transferee back to such Shareholder or to
another Permitted Transferee in accordance with the terms of this
Agreement.
(I) Any purported sale, assignment, gift, mortgage, charge, pledge, creation
of security interest, encumbrance or disposal of any Shares in violation
of the provisions of this Agreement shall be null,, void and of no force
or effect, and shall not be reflected in the records of Latin Newco
relating to ownership of Shares.
4.2 PLEDGE OF SHARES
Neither Shareholder, nor any of their permitted assigns or successors, shall
be entitled to pledge, charge, mortgage, hypothecate or create any lien on their
Shares at any time without the prior written consent of all other holders of
Shares, which consent may be withheld for any reason whatsoever. Notwithstanding
the foregoing, a Shareholder may pledge its Shares to a financial institution in
support of its borrowings, so long as (i) the Shareholder continues to exercise
all voting rights attaching to such Shares and (ii) any sale or realization of
such Shares by the financial institution shall be subject to the provisions of
this Agreement.
4.4 LEGEND ON SHARE CERTIFICATES
All certificates for Shares shall have conspicuously marked thereon the
following legend:
"SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF AN
AGREEMENT DATED AS OF DECEMBER 17, 1996 BETWEEN THE SHAREHOLDERS OF
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THE CORPORATION AND THE CORPORATION AND ARE NOT TRANSFERABLE EXCEPT UPON
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE SAID AGREEMENT. SUCH
SHARES HAVE BEEN ACQUIRED IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933 (THE "ACT") AND CANNOT BE
RESOLD OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER THE ACT OR
PURSUANT TO AN EXEMPTION THEREFROM"
4.5 DEFAULT
Notwithstanding anything to the contrary herein provided, should any of the
Shareholders (herein referred to as the "defaulting party") commit an Event of
Default (as defined in the Master Agreement), provided that in no circumstances
shall clause 13.01(a) of the Master Agreement nor a failure to achieve the
Performance Criteria for Latin America be considered to be an Event of Default,
the non-defaulting Shareholder shall have the option to purchase all or part of
the defaulting party's Shares (such option to be exercised by notice in writing
to the defaulting party, its successors or assigns, wherein the Shareholder(s)
exercising the same shall indicate the number of Shares which they or it desires
to take up), the whole at a price equal to the book value thereof as determined
and certified by Price Waterhouse or its successor as at the last day of the
month immediately preceding such Event of Default, but without taking goodwill
into account, if any, such price to be payable to the extent of 50% thereof, on
the date of purchase and, to the extent of the remaining 50% thereof, within 3
years from the date of purchase, payable in 3 equal annual installments, the
unpaid principal balance of which shall bear interest at a rate equal to a 30
Day Libor Rate plus 100 basis points.
ARTICLE 5.00--DEADLOCK AND SALE OF SHARES PROCEDURES
5.1 INTENT OF PARTIES
Each of the Parties affirms that it is entering into this Agreement in a
true sense of cooperation. Each Party recognizes and values the contribution of
the other to the success of the Business conducted by Latin Newco. Each of the
Parties also affirms its desire and intention that its association with the
other Parties as contemplated herein be an amicable long-term relationship with
no intended or foreseeable termination date. Each Party pledges to work in good
faith for the resolution of any disputes which may arise between the Parties.
5.2 COOLING-OFF PERIOD
In the event that a fundamental dispute between the Shareholders has not
been resolved to their mutual satisfaction as evidenced by a written
acknowledgment within 30 days after delivery by either Shareholder to the other
of written notice of dispute referencing this Section 5.2 (the "Cooling-Off
Period"), either Shareholder shall be entitled to invoke the arbitration
procedure described in Section 7.2. During the Cooling-off Period and the period
contemplated in Section 7.2(a) and during any arbitration proceeding, the
Shareholders shall cause their nominees on the Board of Directors to continue to
attend meetings of the Board of Directors and carry out their legal and
fiduciary duties in order for Latin Newco to carry out business in the normal
course.
5.3 BUY-SELL
At any time after January 1, 1999, and following expiry of a Cooling-Off
Period and a period of sixty (60) days from the delivery of a notice by one
party to the other pursuant to Section 7.2(b) during which no mutual written
agreement has been reached by the Shareholders, either Shareholder may deliver a
second written notice to the other of a fundamental deadlock or dispute and
referencing this Section 5.3, and provided that such fundamental deadlock or
dispute has not been resolved to the satisfaction of both
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Shareholders within a further 30-day period, then any Shareholder ("A") may
thereafter by notice require the remaining Shareholder ("B") to (i) buy from A
on the terms set out in this section all (but not less than all) of A's Shares,
or (ii) sell to A all (but not less than all) of B's Shares, in each case at the
price per share ("Option Price") specified by A. The procedure is as follows:
(A) A shall offer all A's Shares in writing to B at the Option Price and on
the terms set out in this section;
(B) the offer shall state: the total number of A's Shares; that the Shares
are being irrevocably offered at the Option Price pursuant to and on and
subject to the terms set out in this section (which shall be incorporated
by reference); the deadline for acceptance (which shall be a date not
more than thirty (30) days after the date of the offer); the closing date
(which shall be a date not more than sixty (60) days after the date of
the offer); that if all A's Shares are not purchased A shall purchase all
of B's Shares at the Option Price pursuant to and on the terms set out in
this section; and that if B desires to accept the offer it shall
communicate its reply to A;
(C) if B accepts the offer A shall sell all (but not less than all) of A's
Shares and B shall buy them at the Option Price and in accordance with
Section 5.4;
(D) if under clause (c) B does not accept the offer as to all (but not less
than all) A's Shares within the time allowed, B shall sell and A shall
buy all (but not less than all) of B's Shares at the Option Price and in
accordance with Section 5.4; and
(E) notwithstanding any other provision of this Section, if any effective
offers properly made under this Section are in conflict, only the
earliest offer shall be effective.
5.4 APPLICATION TO OTHER SALES
The provisions of Sections 5.5 to 5.10 inclusive shall apply to any
transaction of purchase and sale pursuant to this Agreement, without limitation,
pursuant to Sections 2.14, 4.5 and 5.3, subject to any express provisions to the
contrary.
5.5 VENDOR FAILING TO COMPLETE TRANSACTION OF PURCHASE AND SALE
(A) If the vendor fails to complete the transaction of purchase and sale on
the Closing Date, the purchaser may, in addition to any other rights or remedies
he may have, complete the transaction of purchase and sale in accordance with
the provisions of this Section.
(B) If that portion of the purchase price due on the Closing Date is
deposited into an account at a branch of Latin Newco's bankers in the name of
Latin Newco in trust for the vendor and if a promissory note in favor of the
vendor for the balance of the purchase price is lodged with the auditors of
Latin Newco, then from and after the date of such deposit and lodgment, and even
though the certificates evidencing the Shares held by the vendor have not been
delivered to the purchaser, the purchase of the Shares owned by the vendor shall
be deemed to have been fully completed and all right, title, benefit and
interest, both at law and in equity, in and to such Shares shall be conclusively
deemed to have been transferred and assigned to and become vested in the
purchaser and all right, title, benefit and interest, both at law and in equity,
of the vendor in and to the Shares shall cease; subject to the limitation that
the purchaser shall deposit to such account the balance of the purchase price
from time to time as and when due and the vendor shall be entitled to receive
the purchase price so deposited from time to time as and when due, without
interest. Any interest on the deposited funds shall accrue for the benefit of
the purchaser.
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(C) The vendor hereby irrevocably constitutes and appoints the purchaser as
his true and lawful attorney-in-fact and agent for, in the name of and on behalf
of the vendor to execute and deliver in the name of the vendor all such
documents or instruments as may be necessary to transfer and assign the Shares,
or any part thereof, to the purchaser, or his nominee or nominees, on the books
of Latin Newco. Such appointment and power of attorney, being coupled with an
interest, shall not be revoked by the insolvency, bankruptcy, death or
incapacity of the vendor and the vendor hereby ratifies and confirms and agrees
to ratify and confirm all that the purchaser may lawfully do or cause to be done
by virtue of the provision of this Section.
(D) The vendor shall be entitled to receive that portion of the purchase
price deposited with the bankers of Latin Newco upon delivery to Latin Newco of
certificates evidencing the Shares so purchased duly endorsed in blank for
transfer.
5.6 OUTSTANDING INDEBTEDNESS
Concurrently with the completion of a transaction of purchase and sale
pursuant to this Agreement:
(A) the selling Shareholder shall repay, or cause to be repaid, to Latin
Newco any indebtedness then owing by that Shareholder (including in the case of
a Permitted Transferee any indebtedness owing by the Shareholder who owns shares
of that Permitted Transferee) whether or not the indebtedness is then due and
payable and the purchasing Shareholder may discharge such indebtedness out of
the purchase price payable to the selling Shareholder;
(B) Latin Newco shall repay to the selling Shareholder any indebtedness then
owing to the selling Shareholder, whether or not the indebtedness is then due
and payable or the purchasing Shareholder shall purchase and pay for such
indebtedness from the selling Shareholder against delivery of an assignment of
the indebtedness by the selling Shareholder; and
(C) if at the Closing Date the selling Shareholder is responsible for any
guarantee of, and/or has given any security for Latin Newco's debts or
liabilities, the purchasing Shareholder shall use its best efforts to cause the
selling Shareholder to be released from all such guarantees and security,
failing which the purchasing Shareholder shall indemnify the selling Shareholder
from all claims arising out of such guarantees and security.
5.7 TITLE TO SHARES FREE AND CLEAR
(A) The selling Shareholder shall represent and warrant to the purchasing
Shareholder that it legally and beneficially owns, and has good and marketable
title to, the Shares being sold, free and clear of all liens, pledges,
mortgages, charges, encumbrances, security interests and claims of others. This
representation and warranty shall survive the Closing Date until the later of:
(I) 24 months after the Closing Date; and
(II) payment of the purchase price in full.
(B) The obligation of a purchasing Shareholder to complete a purchase of
Shares is subject to the conditions that:
(I) the representation and warranty of the selling Shareholder under
Section 5.7(a) is true and correct as at the Closing Date; and
(II) any necessary regulatory approvals have been obtained.
These conditions are for the exclusive benefit of the purchasing Shareholder
and may be waived in whole or in part by it.
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5.8 PAYMENT OF PURCHASE PRICE AND DELIVERY OF CERTIFICATES
Except in the circumstances contemplated Section 5.5, the purchase price or
any part thereof due on the Closing Date shall be paid by certified cheque or
bank draft against receipt by the purchaser of the share certificate or
certificates representing the Shares being purchased and sold, duly endorsed in
blank for transfer or with appropriately executed stock transfer powers,
together with signed and dated resignations by the vendor and its nominees as
directors and officers of Latin Newco.
5.9 PAYMENTS
All other payments required to be made in connection with a transaction of
purchase and sale shall be by certified cheque or bank draft.
5.10 TIME AND PLACE OF CLOSING
Unless otherwise agreed by the parties to the transaction of purchase and
sale, the closing of such transaction shall take place at the office of Latin
Newco at 11:00 a.m. local time on the Closing Date.
ARTICLE 6.00--DISSOLUTION
6.1 DISSOLUTION
In the event that the Shareholders determine, on unanimous written approval,
to dissolve Latin Newco, the Parties shall proceed to liquidate all of the
assets and liabilities of Latin Newco, and on the effective date of such
dissolution, Latin Newco shall distribute to the Shareholders the net assets of
Latin Newco (after payment of all liabilities) proportionate to the respective
shareholdings of the Shareholders in Latin Newco. Any and all property,
information, technology and products belonging to either Shareholder shall be
returned to the owner thereof, and from and after the effective date of such
dissolution.
ARTICLE 7.00--MISCELLANEOUS
7.1 NOTICE
Any notice required or permitted to be given hereunder or any tender or
delivery of documents my be sufficiently given by personal delivery, or by
sending the same by prepaid registered mail, return receipt requested, or by
telefax, to the parties at the following addresses or telex numbers (as the case
may be):
(A) if to Ingenico at the following address:
Ingenico
9, quai de Dion Bouton
92816 Puteaux
France
Telecopy: 33(1) 47 72 56 95
Attention: Jean-Jacques Poutrel, President du Conseil
with a copy to:
R.G.S. Hull
Smith Lyons
Suite 5800, Scotia Plaza
40 King Street West
Toronto, Ontario, Canada
M5H 3Z7
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(B) if to IVI, to it at:
International Verifact Inc.
79 Torbarrie Road
Toronto, Ontario
Canada M3L 1G5
Telecopy: (416) 245-9896
Attention: L. Barry Thomson
President and CEO
with a copy to:
Mark A. Convery
Meighen Demers
Barristers and Solicitors
Box 11, Merrill Lynch Canada Tower
1100-200 King Street West
Toronto, Ontario, Canada
M5H 3T4
Telecopy: (416) 977-5239
(C) if to Latin Newco, to each of Ingenico and IVI as described above,
or at such other address or telefax number of any party as such party may advise
the other by notice in writing. Any notice or other document, if personally
delivered at such address during normal business hours, shall be deemed to have
been given on the date of delivery, and if mailed, as aforesaid, shall be deemed
to have been given on the date of delivery by postal authorities, or if sent by
telefax, delivery shall be deemed to have occurred on the date following receipt
of the telefax, provided that an acknowledgment of transmission is received by
the sender.
7.2 ARBITRATION
(A) Best Endeavours to Settle Disputes: In the event of any dispute, claim,
question or difference arising between the parties hereto in respect of the
provisions, the subject matter, the interpretation, or the effect of this
Agreement (other than Article Seven) or any breach hereof, the parties shall use
their best endeavours to settle such dispute, claim, question or difference. To
this effect, they shall consult and negotiate with each other, in good faith and
understanding of their mutual interests, to reach a just and equitable solution
satisfactory to all Parties.
(B) Arbitration: Except as is expressly provided in this Agreement, if the
parties do not reach a solution pursuant to Section 7.2(a) within a period of 30
days, then, subject to Section 5.3, upon written notice by either Party to the
other, the dispute, claim, question or difference shall be finally settled by
arbitration in accordance with the American Arbitration Association Rules for
the conduct of arbitrations in effect at the date of commencement of such
arbitration, based upon the following:
(i) the arbitration tribunal shall consist of one arbitrator appointed
by each of the Parties who is qualified by education and training to pass
upon the particular matter to be decided, together with a third arbitrator
appointed by the first two-selected arbitrators;
(ii) the arbitrators shall be instructed that time is of the essence in
proceeding with their determination of any dispute, claim, question or
difference and, in any event, the arbitration award must be rendered within
30 days of the submission of such dispute to arbitration;
(iii) the arbitration shall take place in New York, New York;
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(iv) the arbitration award shall be given in writing and shall be final
and binding on the Parties, not subject to any appeal, and shall deal with
the question of costs of arbitration and all matters related thereto; and
(v) judgment upon the award rendered may be entered in any court having
jurisdiction, or, application may be made to such court for a judicial
recognition of the award or an order of enforcement thereof, as the case may
be.
7.3 SUCCESSORS AND ASSIGNS
This agreement shall enure to the benefit of and be binding upon the parties
hereto, their respective successors and permitted assigns, as owners of the
Shares.
7.4 RELATIONSHIP OF PARTIES
This Agreement does not constitute a partnership and nothing herein
contained is intended to constitute, nor shall it be construed to constitute,
the parties as partners of each other or of Latin Newco. Nothing contained
herein shall constitute either Shareholder or Latin Newco as agent of either
Shareholder or Latin Newco.
7.5 SEVERABILITY
The inability or unenforceability of any provision of this Agreement or any
covenant herein contained on the part of any party shall not affect the validity
or enforceability of any other provision or covenant hereof or herein contained.
7.6 ASSIGNMENT
This Agreement is not assignable by any party hereto without the prior
written consent of the others.
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IN WITNESS WHEREOF the parties have executed these presents.
INGENICO
Per: /s/___________________________c/s
Per: /s/______________________________
INTERNATIONAL VERIFACT INC.
Per: /s/___________________________c/s
Per: /s/______________________________
IVI INGENICO INC.
Per: /s/ L. Barry Thomson c/s
L. Barry Thomson
Per: /s/ Gerard Compain
Gerard Compain
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EXHIBIT 10.8
TECHNOLOGY LICENSE AGREEMENT DATED DECEMBER 17, 1996, BETWEEN INGENICO, S. A.
AND
INTERNATIONAL VERIFACT INC.
<PAGE>
THIS TECHNOLOGY LICENSE AGREEMENT made as of the 17th day of December 1996.
BETWEEN:
INGENICO, incorporated under the laws of
France
(hereinafter called "Ingenico")
OF THE FIRST PART
- and -
INTERNATIONAL VERIFACT INC. continued
under the laws of Canada
(hereinafter called "IVI")
OF THE SECOND PART
WHEREAS Ingenico and IVI have entered into a Master Alliance Agreement made
as of the 5th day of December, 1996,
AND WHEREAS such Master Alliance Agreement contemplates Ingenico and IVI
entering into a Technology License Agreement,
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements contained herein, and the funds referred to in
paragraph 5.02 of the Master Alliance Agreement, the parties hereto covenant and
agree with each other as follows:
ARTICLE ONE
INTERPRETATION
1.1 DEFINED TERMS: The terms used in this Agreement have the meanings
given to them in the Master Alliance Agreement, except as set out below, where
the following terms shall have the following meanings:
"Agreement" means this Technology License Agreement, and all schedules and
instruments supplemental hereto or in amendment or confirmation hereof.
"Term" means the term provided in Section 6.1
ARTICLE TWO
GRANT OF LICENSES AND OBLIGATIONS WITH RESPECT TO UNICAPT
TECHNOLOGY
2.1 For the consideration set out in Section 5.02 of the Master Alliance
Agreement and the mutual licenses granted in this Agreement, in accordance with
the terms of this Agreement, Ingenico hereby grants to IVI:
(A) the irrevocable, royalty-free (subject to Section 2.6) exclusive license
to use and incorporate the Unicapt Technology and the Ingenico Intellectual
Property relating to the Unicapt Technology into IVI Products and IVI Future
Products manufactured by or for IVI worldwide, or used or marketed and
distributed pursuant to the Marketing and Distribution Agreement;
(B) the irrevocable, royalty-free (subject to Section 2.6) exclusive license
to use the Unicapt Technology and the Ingenico Intellectual Property relating to
the Unicapt Technology to develop, support and
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maintain applications for the Ingenico Products, Ingenico Future Products, IVI
Products and IVI Future Products incorporating the Unicapt Technology in the IVI
Territory;
(C) to the extent the Unicapt Technology and Ingenico Intellectual Property
relating to Unicapt Technology include or in any way rely upon any third party
technology and/or intellectual property, the current licenses, for which are
listed in Schedules "O" to the Master Alliance Agreement, together with all
renewals, novations and substitutions, the sub-license, and if possible, the
exclusive sub-license to use, modify, enhance and incorporate into IVI Products
and IVI Future Products, third party owned technology and intellectual property
incorporated into the Ingenico Products and Ingenico Future Products, which
sub-licenses shall be provided at the cost set out in Schedule "O" to the Master
Alliance Agreement, or in the case of future sub-licenses, at the cost, on the
same terms and conditions, of Ingenico for such sub-licenses, all of which costs
shall be paid by IVI to Ingenico;
(D) to the extent required, the right to sub-license the rights in
subparagraphs (a), (b) and (c) to the IVI Group, provided that the IVI Group
assumes the same duties and responsibilities as IVI under this Agreement as
required by Section 1.08 of the Master Alliance Agreement;
(E) the right to sub-license the rights in subparagraphs (a), (b) and (c),
to or on behalf of end user customers including original equipment manufacturers
("OEM"), of IVI Products, IVI Future Products, Ingenico Products and Ingenico
Future Products, other than these customers (including OEMs) who are a direct
competitor of the Business; and
(F) the irrevocable, royalty-free (subject to Section 2.6) license to use
the Unicapt Technology and the Ingenico Intellectual Property relating to the
Unicapt Technology to co-operate with Ingenico to develop individually or
jointly new products with common architecture and common technology which would
have worldwide application based on the Ingenico Technology, including without
limiting the generality of the foregoing, the Unicapt Technology.
2.2 Subject to the terms of this Agreement and any escrow agreement
entered into pursuant to section 2.10 this license does not grant to IVI the
license to manufacture any Ingenico Products.
2.3 Ingenico reserves the right to license the Ingenico Technology,
Ingenico Intellectual Property and Unicapt Technology to others in businesses
other than the IVI Business.
2.4 IVI shall:
(G) from and after the Closing Date, use or incorporate the Unicapt
Technology, as modified and enhanced from time to time, in any and all IVI
Future Smart Card Terminals. IVI shall not be obliged to incorporate such
technology into IVI Products or IVI Future Products other than IVI Future Smart
Card Terminals;
(H) IVI shall use the Unicapt trade mark or marks on IVI Future Smart Card
Terminals or their packaging; and
(I) from time to time, upon the written request of Ingenico, provide
evidence satisfactory to Ingenico, acting reasonably, that the Unicapt
Technology is incorporated into all IVI Future Smart Card Terminals.
2.5 If IVI loses its exclusive distribution rights under the Marketing
and Distribution Agreement, then Ingenico shall have the right to revoke said
exclusive license provided that such revocation shall be in substitution for a
non-exclusive license which is identical in all respects, save and except for
exclusivity.
2.6 Notwithstanding any other provision of this Agreement, Ingenico shall
sell at a transfer price which includes a reasonable charge for Unicapt
Technology, and deliver to IVI and the IVI Group, Memotite chip sets ("Unicap
chips") including, without limitation, all upgrades, enhancements, new releases
and/or replacements thereof to IVI in a timely fashion when such Unicapt chips
are ordered by IVI or the IVI Group. This transfer price will be determined on
the basis of quantity and shall reflect chip set cost reduction over time and is
as out in Schedule "K" to the Master Alliance Agreement. It is the
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Parties' intention that the transfer price for Unicapt chips will enable the IVI
Products and IVI Future Products to be and continue to be extremely competitive
where marketed.
2.7 Ingenico shall provide maintenance services, including, all technical
support reasonably requested by IVI, and all enhancement, upgrades and new
releases, other than those referred to in sections 2.8 and 2.9, to IVI for the
Unicapt Technology at no charge to IVI.
2.8 Ingenico shall make all modifications, enhancements and upgrades
requested by IVI for the purposes of adapting the Unicapt Technology to the IVI
Territory at no charge to IVI, as long as they correspond to the global market
requirements, and as agreed by the Parties from time to time.
2.9 Ingenico shall make all modifications, enhancements and upgrades
requested by IVI for the purposes of customization of the Unicapt Technology for
reasons other than those contemplated in Section 2.8 and which will be solely to
the benefit of IVI, at the cost of IVI, provided such costs are reasonable, and
all such modifications, enhancements and upgrades shall be the property of
Ingenico, provided that such modifications, enhancements and upgrades shall be
included in the license granted to IVI under Subsection 2.1 hereof.
2.10 Ingenico shall, on or before the Closing Date, place a copy of all
materials (the "Escrowed Materials") needed to replicate the Unicapt Technology
and to use, enhance, modify, manufacture, produce and market it, including,
without limitation, all materials listed on Schedule "Q" to the Master
Agreement, the source code, all know-how, schematics, lists of suppliers of
components, object code, and related documentation, in escrow in accordance with
the provisions of such reasonable agreements as may be required by the escrow
agent which shall be referable to the triggering events in (i) and (ii) below
and which shall be subject to timely update and verification in respect of all
upgrades, enhancements and new releases. The Escrowed Materials shall be
released to IVI in the event that:
(i) Ingenico is in breach or default of its obligations hereunder; or
(ii) there has been an Event of Default (other than that described in
Section 13.01 (a) of the Master Alliance Agreement) by Ingenico.
The Parties shall enter into an escrow agreement at a location and with an
escrow agent mutually agreed at the shared cost of Ingenico and IVI.
2.11 Ingenico hereby grants a royalty-free license to IVI to use the
Unicapt trade marks listed in Schedule "O" to the Master Alliance Agreement, in
the IVI Territory in association with the IVI Products and IVI Future Products
which incorporate Unicapt Technology. IVI acknowledges that the Unicapt trade
marks are the property of Ingenico. On all products or packaging bearing Unicapt
trade marks, IVI shall place notices regarding the ownership of the Unicapt
trade marks.
ARTICLE THREE
GRANT OF LICENSES AND OBLIGATIONS WITH RESPECT TO INGENICO
TECHNOLOGY
3.1 For the consideration set out in Section 5.02 of the Master Alliance
Agreement and the mutual licenses granted in this Agreement, in accordance with
the terms of this Agreement, Ingenico hereby grants to IVI for the Term:
(A) the royalty-free exclusive license to use, and incorporate the Ingenico
Technology and the Ingenico Intellectual Property into IVI Products and IVI
Future Products manufactured by or for IVI worldwide, or used or marketed and
distributed pursuant to the Marketing and Distribution Agreement;
(B) the irrevocable, royalty-free exclusive license to use the Ingenico
Technology and the Ingenico Intellectual Property to develop, support and
maintain applications for the Ingenico Products and IVI Products and IVI Future
Products in the IVI Territory;
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(C) to the extent the Ingenico Technology and Ingenico Intellectual Property
include or in any way rely upon any third party technology and/or intellectual
property, the current licenses, for which are listed in Schedule "O" to the
Master Alliance Agreement, together with all renewals, novations and
substitutions, the sub-license, and if possible the exclusive sub-license, to
use and incorporate into IVI Products and IVI future Products, third party owned
technology and intellectual property incorporated into the Ingenico Products,
and Ingenico Future Products, which sub-licenses shall be provided at the cost
set out in Schedule "O" to the Master Alliance Agreement, or in the case of
future sub-licenses, at the cost, on the same terms and conditions, of Ingenico
for such sub-licenses, all of which costs shall be paid by IVI to Ingenico;
(D) the right to sub-license the rights in subparagraphs (a), (b) and (c) to
the IVI Group, provided that the IVI Group assumes the same duties and
responsibilities as IVI under this Agreement as required by Section. 1.08 of the
Master Alliance Agreement;
(E) to the extent required, the right to sub-license the rights in
subparagraphs (a), (b) and (c) if required, to or on behalf of end user
customers, including original equipment manufacturers ("OEM") of IVI Products,
IVI Future Products, Ingenico Products and Ingenico Future Products, other than
customers (including OEMs) who are a direct competitor of the Business; and
(F) the royalty-free license to use, modify and enhance the Ingenico
Technology and the Ingenico Intellectual Property to co-operate with Ingenico to
develop individually or jointly new products with common architecture and common
components which would have worldwide application based on the Ingenico
Technology, including without limiting the generality of the foregoing, the
Unicapt Technology.
3.2 Ingenico reserves the right to license the Ingenico Technology and
Ingenico Intellectual Property to others in businesses other than the IVI
Business.
3.3 If IVI loses its exclusive distribution rights under the Marketing
and Distribution Agreement, then Ingenico shall have the right to revoke said
exclusive license provided that such revocation shall be in substitution for a
non-exclusive license which is identical in all respects, save and except for
exclusivity.
3.4 Notwithstanding any other provision of this Agreement, Ingenico shall
sell to and deliver to IVI and the IVI Group, in a timely fashion, any
proprietary components, or other elements of the Ingenico Technology at the
transfer price (including the royalty or sub-license of any third party at cost)
when such components or elements are ordered by IVI or the IVI Group, provided
that there shall be no charge for object code for software.
3.5 Ingenico shall provide maintenance services, including, all technical
support reasonably requested by IVI and all enhancement, upgrades and new
releases, as agreed to by the Parties from time to time, other than those
referred to in sections 3.6 and 3.7, to IVI for the Ingenico Technology at no
charge to IVI.
3.6 Ingenico shall make all modifications, enhancements and upgrades
requested by IVI for the purposes of adapting the Ingenico Technology to the IVI
Territory, at no charge to IVI as long as they correspond to the global market
requirements and as agreed to by the Parties from time to time.
3.7 Ingenico shall make all modifications, enhancements and upgrades
requested by IVI for the purposes of customization of the Ingenico Technology
for reasons other than those contemplated in Section 3.6 and which will be
solely to the benefit of IVI, at the cost of IVI, provided such costs are
reasonable, and all such modifications, enhancements and upgrades shall be the
property of Ingenico, provided that such modifications, enhancements and
upgrades shall be included in the license granted to IVI.
3.8 Ingenico hereby grants a royalty-free license for the Term to IVI to
use the Ingenico trade marks listed in Schedule "O" to the Master Alliance
Agreement, in the IVI Territory in association with the IVI Products and IVI
Future Products which incorporate Ingenico Technology. IVI acknowledges that
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the Ingenico trade marks are the property of Ingenico. On all products or
packaging bearing Ingenico trade marks, IVI shall place notices regarding the
ownership of the Ingenico trade marks.
ARTICLE FOUR
GRANT OF LICENSES AND OBLIGATIONS WITH RESPECT TO IVI TECHNOLOGY
4.1. For the Consideration set out in the Master Alliance Agreement and
the mutual licenses granted in this Agreement, IVI hereby grants to Ingenico for
the Term:
(a) the royalty-free exclusive license to use and incorporate the IVI
Technology and the IVI Intellectual Property, selected by Ingenico (the
"Selected IVI Technology") by written notice to IVI as soon as practicable, but
in any event not later than December 31, 1997, in Ingenico Products and Ingenico
Future Products, manufactured by or for Ingenico worldwide, or used or marketed
and distributed pursuant to the Marketing and Distribution Agreement;
(b) the royalty-free exclusive license to use and incorporate the Selected
IVI Technology and the IVI Intellectual Property relating to the Selected IVI
Technology into Ingenico Products and Ingenico Future Products to develop,
support and maintain applications for the Ingenico Products and Ingenico Future
Products incorporating the Selected IVI Technology in the Ingenico Territory;
(c) to the extent the Selected IVI Technology and IVI Intellectual Property
relating to the Selected IVI Technology, include or in any way rely upon any
third Party technology and/or intellectual property, the current licenses for
which are listed in Schedule "P" to the Master Alliance Agreement, together with
all renewals, novations and substitutions, the sub-license, and if possible the
exclusive sub-license to use and incorporate into Ingenico Products and Ingenico
Future Products, third party owned technology and intellectual property
incorporated into the IVI Products, and IVI Future Products, which sub-licenses
shall be provided at the cost set out in Schedule "P" to the Master Alliance
Agreement, or in the case of future sub-licenses, at the cost, on the same terms
and conditions of IVI for such sub-licenses, all of which costs shall be paid to
IVI by Ingenico;
(d) the right to sub-license the rights in subparagraphs (a), (b) and (c) to
the Ingenico Group, provided that the Ingenico Group assumes the same duties and
responsibilities as Ingenico under this Agreement as required by Section 1.08 of
the Master Alliance Agreement;
(e) to the extent required, the right to sub-license the rights in
subparagraphs (a), (b) and (c), to or on behalf of end user customers, including
original equipment manufacturers ("OEM'), of Ingenico Products, Ingenico Future
Products and IVI Products and IVI Future Products other than customers
(including OEMs) who are a direct competitor of the Business; and
(f) the royalty-free license to use, modify and enhance the Selected IVI
Technology and the IVI Intellectual Property relating to the Selected IVI
Technology, to co-operate with IVI to develop individually or jointly new
products with common architecture and common componentry which would have
worldwide application based on the Ingenico Technology, the Unicapt Technology
and the Selected IVI Technology as provided for in the Joint Development and
Procurement Agreement.
4.2 Subject to the terms of this Agreement, this license does not grant
to Ingenico any rights with respect to the source code of the IVI Technology nor
the license to manufacture any IVI Products.
4.3 IVI reserves the right to license the IVI Technology including the
Selected IVI Technology, and IVI Intellectual Property to others in businesses
other than the Ingenico Business.
4.4 If Ingenico loses its exclusive distribution rights under the
Marketing and Distribution Agreement, then IVI shall have the right to revoke
said exclusive license, provided that such revocation shall be in substitution
for a non-exclusive license which is identical in all respects, save and except
for exclusivity.
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4.5 Notwithstanding any other provision in this Agreement, IVI shall sell
to and deliver to Ingenico and the Ingenico Group, in a timely fashion, any
proprietary components, or other elements of the Selected IVI Technology at the
transfer price, (including the royalty or sub-license of any third party at
cost), when such components or elements are ordered by Ingenico or the Ingenico
Group, provided that there shall be no charge for object code for software.
4.6 IVI shall provide maintenance services, including all technical
support reasonably requested by Ingenico and all enhancements, upgrades and new
releases, as agreed to by the Parties from time to time, other than those
referred to in sections 4.7 and 4.8, to Ingenico for the IVI Technology at no
charge to Ingenico.
4.7 IVI shall make all modifications, enhancements and upgrades requested
by Ingenico for the purposes of adapting the IVI Technology to the Ingenico
Territory, at no charge to Ingenico as long as they correspond to the global
market requirements and as agreed by the Parties from time to time.
4.8 IVI shall make all modifications, enhancements and upgrades requested
by Ingenico for the purposes of customization of the IVI Technology for reasons
other than those contemplated in Section 4.7, and which will be solely to the
benefit of Ingenico at the cost of Ingenico, provided such costs are reasonable,
and all such modifications, enhancements and upgrades shall be the property of
IVI provided that such modifications, enhancements and upgrades shall be
included in the license granted to Ingenico.
4.9. To the extent that Ingenico does not elect to incorporate IVI
Technology into Ingenico Products, IVI shall thereafter be entitled, in its sole
discretion, to sell or lease IVI Products or IVI Future Products or license the
IVI Technology and IVI Intellectual Property to such third parties in the
Ingenico Territory as IVI shall determine.
4.10 If Ingenico does not incorporate any particular IVI Technology or
IVI Intellectual Property on or before December 31, 1998, then thereafter,
Ingenico shall have a non-exclusive license, for the Term of this Agreement, to
use, modify, enhance and incorporate such IVI Technology or IVI Intellectual
Property into Ingenico Products manufactured by or for Ingenico worldwide, used
or marketed and distributed in the Ingenico Territory or distributed pursuant to
the Marketing and Distribution Agreement.
4.11 IVI hereby grants a royalty-free license to Ingenico for the Term to
use the IVI trade marks listed in Schedule "P" to the Master Alliance Agreement,
in the Ingenico Territory in association with the Ingenico Products and Ingenico
Future Products incorporating the Selected IVI Technology or Intellectual
Property relating to the Selected IVI Technology. Ingenico acknowledges that the
IVI trade marks are the property of IVI. On all products or packaging bearing
IVI trade marks, Ingenico shall place notices regarding the ownership of the IVI
trade marks.
ARTICLE 5
INTELLECTUAL PROPERTY PROTECTION
5.1 Both Parties shall disclose, timely and fully, and make available,
from time to time, to the other Party their respective Technology, including,
without limitation, all elements of their Technology sub-licensed from third
parties and the cost of such elements, and documentation and information
concerning their intellectual property rights, including the actions taken to
protect the same.
5.2. Each Party to this Agreement shall notify the other Party as soon as
possible upon any claim being made against the Party that its use of the
Intellectual Property or Technology is alleged to be an infringement of the
intellectual property rights of others or that someone has threatened to or is
infringing the Intellectual Property of the other Party to this Agreement.
5.3. (A) It is acknowledged that each Party shall decide how and where to
protect and enforce its Intellectual Property in its Territory and in the other
Party's Territory.
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(B) In the event that a Party decides not to file patent applications,
register copyright or trade marks for its Intellectual Property in the other
Party's Territory, the other Party shall have the option and right to take such
steps as are necessary, on behalf of the Party owning the Intellectual Property
rights, at its own expense, to file and prosecute patent applications or
maintain patents, register copyright and register and maintain trade mark
registrations. The Party owning the intellectual property rights shall assist
the other in protecting or maintaining those rights.
(C) In the event that a Party does not initiate legal proceedings against
infringers in the other Party's Territory, the other Party shall have the right
to conduct such litigation, on behalf of and in the name of the Party whose
Intellectual Property rights have been infringed, at its own cost, and have
carriage of such litigation and recover damages or profits and legal costs on
behalf of the owner of the Intellectual Property. The Party owning the
Intellectual Property rights agrees to be joined as a Party to the litigation,
if necessary, and shall do everything reasonable to assist and support the Party
bringing the suit. All reasonable legal costs and disbursements of the Party
owning the Intellectual Property rights shall be paid for by the other Party.
ARTICLE 6
TERM
6.1 The Term of this Agreement shall be for a period of ten (10) years,
commencing January 1, 1997, and shall be automatically renewed for subsequent
periods of five (5) years unless either Party provides written notice of
non-renewal to the other not later than six months prior to the expiry of the
initial ten (10) year Term and the subsequent renewal periods, if any.
ARTICLE 7
GENERAL
7.1 The terms of Articles 1 (Interpretation) 10 (Warranties), 12
(indemnification), 15 (No Partnership) and 16 (General) of the Master Alliance
Agreement are incorporated into this Agreement by reference.
7.2 No Party shall copy, nor reproduce, totally or in part, the software
as well as the electrical and electronic design incorporated within the
Technology, nor transfer or transmit them to a third party, nor give them to a
third party, nor give them to anyone for using them, without the prior consent
of the other Party. No Party shall reverse compile, analyze, assemble or reduce
on a totally different form, humanly decipherable, the software as well as the
electrical and electronic design, without the prior consent of the other Party.
7.3 The licenses, covenants and agreements set forth in Article Two,
Article Five and Article Seven shall survive the expiry of the Term or other
termination of this Agreement, provided that with respect to Article Two,
termination of the licenses granted thereunder shall terminate in the event of a
material breach of Section 7.2 by IVI.
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IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as
of the date first above written.
INGENICO
Per: ________/S/______________________
Per: ________/S/______________________
INTERNATIONAL VERIFACT INC.
Per: ________/S/______________________
Per: ________/S/______________________
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<PAGE>
EXHIBIT 10.9
JOINT DEVELOPMENT AND PROCUREMENT AGREEMENT DATED DECEMBER 17, 1996, BETWEEN
INGENICO, S. A. AND INTERNATIONAL VERIFACT INC.
<PAGE>
JOINT DEVELOPMENT AND PROCUREMENT AGREEMENT
THIS AGREEMENT made as of the 17th day of December, 1996
AMONG:
INGENICO, a body corporate
incorporated under the laws of France
and having its head office in the City
of Puteaux Cedex, France
(hereinafter called "Ingenico")
OF THE FIRST PART
- and -
INTERNATIONAL VERIFACT INC., a
corporation continued under the laws
of Canada and having its head office
in the City of North York, Ontario,
Canada
(hereinafter called "IVI")
OF THE SECOND PART
WITNESSES THAT:
WHEREAS Ingenico and IVI have entered into a Master Alliance Agreement dated
December 5, 1996, to which this Joint Development and Procurement Agreement
constitutes Schedule "B" (the "Master Agreement");
AND WHEREAS Ingenico carries on the business of development, distribution,
marketing and manufacturing of transaction terminals with application to payment
systems, loyalty, electronic benefit transfer systems, and terminal systems for
smart card technology, principally in Europe, the Middle East, Africa,
Australia, Asia, Pacific and the Americas;
AND WHEREAS IVI carries on the business of development, distribution,
marketing and manufacturing of transaction terminals with application to payment
systems, loyalty, electronic benefit transfer systems and terminal systems in
the Americas, the Middle East, Europe, Asia pacific and Australia;
AND WHEREAS the parties therefore desire to enter into this Joint
Development and Procurement Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties covenant and agree with one another as follows:
ARTICLE ONE
INTERPRETATION
Section l.01 DEFINITIONS: In this agreement, unless the context shall
otherwise require, the following definitions shall apply:
(A) "Advisory Committee" has the meaning set out in Section 2.02;
(b) "Effective Date" means January 1, 1997;
(c) "Master Agreement" means the Master Alliance Agreement between Ingenico
and IVI dated December 5, 1996;
(d) "Parties" means all the parties to this agreement including any person
subsequently agreeing to be bound by this agreement;
(e) "Procurement and Manufacturing Team" has the meaning set out in Section
3.02.
<PAGE>
(f) "Product Development Plan" means the annual product plan described in
Section 2.03;
(g) "Procurement Plan" has the meaning ascribed in Section 3.05.
(h) "Related Materials" means any and all information, documentation, tools,
manufacturing equipment and related devices, marketing materials,
artwork, schematics, software, raw materials, molds, bill of materials,
product testing tools, manufacturing procedure manuals, operation
manuals, and any other material of any kind necessary to produce and
market the Common Future Product, in any form, on any media, which
pertains to the use and exploitation of any Party's ownership interest or
license in any Common Future Product, but not including any Common Future
Product.
All other capitalized terms used in this Agreement and not defined herein
have the meanings ascribed thereto in the Master Agreement.
Section 1.02 CURRENCY: All dollar amounts referred to herein shall, unless
otherwise expressly stated, mean United States of America dollars.
Section 1.03 GOVERNING LAW AND ATTORNMENT: This agreement shall be
governed by and construed in accordance with the laws of New York, U.S.A. and
the parties hereto hereby attorn to such jurisdiction.
ARTICLE TWO
DEVELOPMENT
Section 2.01 JOINT DEVELOPMENT OF COMMON FUTURE PRODUCTS
(A) The Parties shall use their best efforts to implement a new, worldwide
standard alternative to their competitors, by complying with Europay Mastercard
Visa ("EMV") requirements and maximizing the Unicapt Technology, Ingenico
Technology, the IVI Technology and the resources of both Ingenico and IVI by
developing Common Future Products with common architecture and componentry. The
Parties acknowledge that they intend to reduce their respective development
costs by maximizing and coordinating their joint resources, expediting timing of
product development, and optimizing the geographic location of their operations.
The Parties shall, from and after the Effective Date, be jointly represented
before worldwide standards bodies such as EMV, SET, American Express, Smart Card
Form, and similar organizations, provided that each Party shall continue to
represent itself before local standards bodies;
(B) During the term of this Agreement, the Parties will jointly conduct, if
decided:
(I) product management, namely planning, support, documentation and
training;
(II) design, development, validation and qualification of both basic
platform (i.e. mother board, peripheral, operating systems and tool, and
management of the library of international applications; and
(III) introduction of Common Future Products.
Section 2.02 ADVISORY COMMITTEE: The Advisory Committee shall be comprised
of seven individuals, including the two Presidents of IVI and Ingenico, namely
four nominees of Ingenico and three nominees of IVI. The business of the
Advisory Committee shall include reviewing the Product Development Plan, product
definition and planning, definition of Library of International Applications,
allocation of the available funding and resources, proposing Common Future
Products, determining mechanisms to determine ownership rights in Common Future
Products and related transfer prices and reporting to the Parties.
Section 2.03 PRODUCT DEVELOPMENT PLAN: At least sixty days prior to the
commencement of each year, the Parties through the Advisory Committee shall
complete a Product Development Plan for
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Common Future Products. Each such Product Development Plan shall be submitted to
the Parties for their approval prior to the commencement of each calendar year
and shall be approved by the Board of Directors of each of IVI and Ingenico by
January 31. For the 1997 calendar year, the Advisory Committee shall complete
the Product Development Plan and obtain the approval of the Parties by March 31,
1997. Such Product Development Plan will identify product definition, resource
requirements, funding requirements, timetable, estimated product costs, volume,
ownership, use and transfer arrangements. Following such joint approval, each of
the Parties shall fund the Product Development Plan budget requirements promptly
as required in accordance with the terms of such plan.
Section 2.04 CONTRACTING: From and after the Effective Date, the Parties
shall second sufficient employees, in whole or in part, as the Advisory
Committee determines, and as set out in the Product Development Plan, is
required for high level product management, core technical skills, procurement
and manufacturing management, marketing management and the secondary technical
level support. Any employees seconded, in whole or in part, for these purposes
by the Parties shall be provided at the direct cost of the providing Party.
Section 2.05 DISTRIBUTION OF COMMON FUTURE PRODUCTS: The Parties agree
that both Parties shall have the right to distribute any Common Future Products
in their respective Territory, pursuant to the terms of the Marketing and
Distribution Agreement, mutadis mutandis. Each Party shall be able to acquire a
Common Future Product from the manufacturer at cost, which for such purposes
shall not include any research and development expenses.
Section 2.06 ESCROW FOR COMMON FUTURE PRODUCTS: An agreement to escrow the
Related Materials and any other materials relating to the Common Future Products
with terms and conditions similar to that contemplated in Section 2.10 of the
Technology License Agreement shall be entered into with respect to the Common
Future Products.
Section 2.07 CONTRACTED PRODUCTS: The Parties agree that each shall have
the ability to contract the other at any time to develop and manufacture a
product (a "Contracted Product") to the specifications of the requesting Party.
In such cases the payment of research and development costs, if any, by the
requesting Party, shall be as negotiated and agreed by the Parties at such time.
Any Contracted Product shall be sold to the requesting Party at a transfer price
negotiated and agreed by the Parties at such time. The ownership of the
Contracted Product shall reside with the Party which develops and manufactures
the Contracted Product. The distribution and marketing of any Contracted Product
shall be subject to the Marketing and Distribution Agreement. An agreement to
escrow the Related Materials and any other materials relating to the Contracted
Products with terms and conditions similar to that contemplated in Section 2.10
of the Technology License Agreement shall be entered into with respect to the
Contracted Products.
ARTICLE THREE
OPERATIONS
Section 3.01 OPERATIONS: The Parties shall combine their procurement of
supplies, jointly select and certify competitive suppliers and manufacturers,
and negotiate with suppliers, so as to increase the available product lines and
gross margins on product sales for each Party.
Section 3.02 PROCUREMENT AND MANUFACTURING TEAM: The Procurement and
Manufacturing Team shall consist of a minimum of five people consisting of the
Presidents of IVI and Ingenico and the Senior procurement and manufacturing
officers of each of IVI, Ingenico (France) and Ingenico (Australia). The Team
leader will rotate on a yearly basis between an Ingenico nominee and an IVI
nominee. The team leader for 1997 will be an IVI nominee. The business of the
Procurement and Manufacturing Team shall include the development and maintenance
of a common service center for both Parties which includes a
3
<PAGE>
data base of approved suppliers and manufacturers, functional specifications for
all products, a forecasting system, the identification and selection of
suppliers and manufacturers and the negotiation with suppliers and manufacturers
on behalf of each of Ingenico and IVI. The Parties agree to jointly fund
resources as set out in the Procurement Plan expense budget to provide local
procurement and quality control supervision in Europe, North America and Asia
Pacific.
Section 3.03 MANUFACTURING: The Procurement and Manufacturing Team shall
determine, together with the Advisory Committee, the most cost effective basis
for manufacturing of Common Future Products and manufacturing locations for all
Products. Each of the Parties shall, however, be entitled in its own discretion
to determine the location and terms and conditions of its own manufacturing
operations, provided that the Procurement and Manufacturing Team shall be
consulted and review all manufacturing propositions of each of the Parties and
endeavour to arrange manufacturing operations which are mutually satisfactory to
both Parties in order to reduce the manufacturing cost for both Parties.
Section 3.04 PROCUREMENT: Each of Ingenico and IVI shall utilize, to the
extent practicable, common procurement of all goods and services required for
the manufacture and assembly of the Ingenico Products, IVI Products, Ingenico
Future Products, IVI Future Products and Common Future Products. All goods and
services so procured shall be made available to Ingenico and IVI at cost. The
Procurement and Manufacturing Team is authorized to act on behalf of and
represent both Parties in any negotiations with suppliers and manufacturers,
subject to the ultimate approval of the Parties.
Section 3.05 PROCUREMENT PLANS: At least sixty days prior to the
commencement of each year, the Parties, through the Procurement and
Manufacturing Team, shall complete a Procurement Plan which shall include terms
relating to the exchange of information and designate responsibility to one of
the Procurement and Manufacturing Team members as common procurement manager for
each particular product which shall be determined by the Procurement and
Manufacturing Team. Each such Procurement Plan shall be submitted to the Parties
for their approval, prior to the commencement of each calendar year and shall be
approved by the Board of Directors of each of IVI and Ingenico by January 31.
For the 1997 calendar year the Procurement and Manufacturing Team shall complete
the Procurement Plan and obtain the approval of the Parties by March 31, 1997.
Following such approval, each of the Parties shall fund the procurement plan
expense budget requirements promptly as required in accordance with the terms of
such plan.
ARTICLE FOUR
RIGHT OF FIRST REFUSAL
Section 4.01 RIGHT OF FIRST REFUSAL ON NEW PRODUCTS: From and after the
Effective Date, should either of Ingenico or IVI desire or intend to develop any
IVI Future Product or Ingenico Future Product (any such product is hereafter
referred to as a "New Product"), such party (the "Initiating Party") shall,
prior to implementing any development of such New Product, extend by way of
initiating notice in writing accompanied by a proposed specific product
development plan, an offer to the other party (the "Recipient Party") to develop
such New Product jointly pursuant to the provisions of this Agreement. Should
the Recipient Party determine to accept the offer set forth in the initiating
notice, such party shall notify the Initiating Party of its acceptance within
thirty (30) days of delivery of the initiating notice and shall agree to the
payment of fifty per cent (50%) of the costs as set out in the proposed specific
Product development plan. Upon acceptance of such offer the New Product shall be
considered to be a Common Future Product. Upon and at all times after such
acceptance, the Initiating Party shall be and remain the sole and absolute owner
of all intellectual property rights in the Common Future Product subject to any
applicable third party rights in third party components, and subject to a
license in favour of the Recipient Party as set forth in the Technology License
Agreement. Should the Recipient Party not respond to the initiating notice
within the aforesaid thirty (30) day period, the Recipient Party shall be deemed
to have waived its rights
4
<PAGE>
pursuant to this subsection and the Initiating Party shall thereafter be
entitled to develop such New Product at its own initiative and expense and for
its own account. All initiating notices delivered pursuant to this section 4.01
shall describe the New Product and its cost in such detail that the Recipient
Party shall have sufficient basis to make an informed decision and response.
Section 4.02 RIGHTS OF ACCESS: In the event of completion of the offer and
acceptance provided for pursuant to section 4.01 above, the Common Future
Product shall be developed jointly by the Parties pursuant to the provisions of
this Agreement. To the extent that either Party (the "Owner") has any interests
of any kind, whether by ownership, license or other right, at any time or times,
in any Related Material of any Common Future Product which has been accepted for
joint development pursuant to the provisions hereunder, such Party grants and
assigns to the other Party (the "Non-Owner") an unlimited, unilateral right of
physical access and use of the Related Materials and access to the suppliers of
all parts, components and technology provided by third parties, provided that,
to the extent the nature of certain Related Materials may make simultaneous
access by both Parties impractical, the Parties shall arrive at such
arrangements as to use and access as shall be reasonable in all of the
circumstances, subject to arbitration in accordance with the provisions of the
Master Alliance Agreement in the event of disagreement. All Related Materials
shall be placed in escrow in accordance with the provisions of such reasonable
agreements as may be required by the escrow agent which shall be referrable to
the triggering events below and which shall be subject to timely update and
verification in respect of all upgrades, enhancements and new releases. The
Parties shall enter into an escrow agreement with a New York, New York escrow
agent, at the cost of both Parties shared equally. Such escrowed materials shall
be released to the non-Owner in the event that:
(i) the Owner is in breach or default of its obligation hereunder;
(ii) there has been an Event of Default (other than that described in
Section 13.01 (a) of the Master Alliance Agreement) by the Owner; or
(iii) the Non-Owner is denied reasonable physical access and use of the
Related Materials and access to suppliers by the Owner.
Section 4.03 DISTRIBUTION RIGHT OF FIRST REFUSAL: In the event the
Recipient Party either rejects or is deemed to have waived its right of first
refusal pursuant to Section 4.01, it shall nevertheless be entitled at any time
after the expiry of the aforesaid thirty (30) day notice period, to purchase and
have such New Product become a Common Future Product, upon payment of sixty-five
per cent (65%) of the non-recurring engineering costs incurred by the Initiating
Party up to the date of such purchase, the right to market and distribute such
New Product in its respective Territory in accordance with all of the provisions
of the Marketing and Distribution Agreement, provided that such distribution
rights shall be subject always to any conflicting arrangements which the
Initiating Party may have made independently during the interval between the
expiry of the time for exercise of the aforesaid right of first refusal and the
point in time at which the Recipient Party gives notice to the Initiating Party
of the Recipient Party's wish to distribute the New Product.
ARTICLE FIVE
GENERAL
Section 5.01 TERM: Subject to express provisions herein and in the Master
Alliance Agreement to the contrary, the provisions of this Agreement shall
remain in effect unless and until terminated by mutual agreement of the Parties.
Section 5.02 INTENT OF PARTIES: Each of the parties affirms that it is
entering into this Agreement in a true sense of cooperation. Each party
recognizes and values the contribution of the others to the success of the
Business. Each of the parties also affirms its desire and intention that its
association with the other
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Parties as contemplated herein be an amicable long-term relationship with no
intended or foreseeable termination date. Each Party pledges to work in good
faith for the resolution of any disputes which may arise between the Parties.
Section 5.03 NOTICE: Any notice required or permitted to be given
hereunder or any tender or delivery of documents may be sufficiently given by
personal delivery, or by sending the same by prepaid registered mail, return
receipt requested, or by telefax, to the parties at the following addresses or
telex numbers (as the case may be):
(A) if to Ingenico at the following address:
Ingenico.
9, quai de Dion Bouton
92816 Puteaux Cedex
France
Telecopy: +33(1) 47 72 56 95
Attention: Jean-Jacques Poutrel, President du Conseil
with a copy to:
R.G.S. Hull
Smith Lyons
Suite 5800, Scotia Plaza
40 King Street West
Toronto, Ontario, Canada
M5H 3Z7
(B) if to IVI, to it at:
International Verifact Inc.
79 Torbarrie Road
Toronto, Ontario
Canada M3L 1G5
Telecopy: (416) 245-9896
Attention: L. Barry Thomson, President and CEO
with a copy to:
Mark A. Convery
Meighen Demers
Barristers and Solicitors
Box 11, Merrill Lynch Canada Tower
1100-200 King Street West
Toronto, Ontario, Canada
M5H 3T4
Telecopy: (416) 977-5239
or at such other address or telefax number of any party as such party may advise
the other by notice in writing. Any notice or other document, if personally
delivered at such address during normal business hours, shall be deemed to have
been given on the date of delivery, and if mailed, as aforesaid, shall be deemed
to have been given on the date of delivery by postal authorities, or if sent by
telefax, delivery shall be deemed to have occurred on the date following receipt
of the telefax, provided that an acknowledgment of transmission is received by
the sender.
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Section 5.04 ARBITRATION:
(a) BEST ENDEAVOURS TO SETTLE DISPUTES: In the event of any dispute, claim,
question or difference arising between the parties hereto in respect of
the provisions, the subject matter, the interpretation, or the effect of
this Agreement or any breach hereof, the parties shall use their best
endeavours to settle such dispute, claim, question or difference. To this
effect, they shall consult and negotiate with each other, in good faith
and understanding of their mutual interests, to reach a just and
equitable solution satisfactory to all parties;
(b) ARBITRATION: Except as is expressly provided in this Agreement, if the
parties do not reach a solution pursuant to Section 5.03(a) within a
period of 30 days, then upon written notice by either party to the other,
the dispute, claim, question or difference shall be finally settled by
arbitration in accordance with Section 16.12 of the Master Agreement;
Section 5.05 SUCCESSORS AND ASSIGNS: This agreement shall inure to the
benefit of and be binding upon the parties hereto, their respective successors
and permitted assigns, as owners of the Shares.
Section 5.06 RELATIONSHIP OF PARTIES: This Agreement does not constitute a
partnership and nothing herein contained is intended to constitute, nor shall it
be construed to constitute, the parties as partners of each other or of the
Corporation. Nothing contained herein shall constitute either party or the
Corporation as agent of either party or the Corporation.
Section 5.07 SEVERABILITY: The inability or unenforceability of any
provision of this Agreement or any covenant herein contained on the part of any
party shall not affect the validity or enforceability of any other provision or
covenant hereof or herein contained.
Section 5.08 Assignment: This Agreement is not assignable by any party
hereto without the prior written consent of the others.
IN WITNESS WHEREOF the parties hereto have executed these presents.
INGENICO
Per: __________/S/____________________
Per: __________/S/____________________
INTERNATIONAL VERIFACT INC.
Per: __________/S/____________________
Per: __________/S/____________________
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EXHIBIT 10.10
INVESTMENT AGREEMENT DATED DECEMBER 5, 1996, BETWEEN INGENICO, S.A. AND
INTERNATIONAL
VERIFACT INC., AS AMENDED BY THE AMENDMENT TO INVESTMENT AGREEMENT, DATED
DECEMBER 17, 1996, BETWEEN INGENICO, S.A. AND INTERNATIONAL VERIFACT INC.
<PAGE>
December 5, 1996
TO: INTERNATIONAL VERIFACT INC.
79 Torbarrie Road
Toronto, Ontario
M3L lG5
Attention: L. Barry Thomson, President and CEO
Dear Sirs:
SUBSCRIPTION FOR SHARES
Subject to the terms and conditions set forth herein, Ingenico, (the
"Subscriber") hereby subscribes for 1,439,000 treasury common shares more or
less, with the precise number to be that number of common shares in
International Verifact Inc. ("IVI") constituting fifteen (15%) percent of the
issued and outstanding share capital of IVI, assuming the exercise of all
outstanding options granted pursuant to the 1994 Employee Stock Option Plan, as
of the Closing Date (the "Purchased Shares").
The purchase price for the Purchased Shares shall be Cdn $6.89 being an
amount per share equal to the simple average closing price of the Purchased
Shares of IVI on The Toronto Stock Exchange for each of the 30 trading days
prior to the date hereof, subject to approval of such price by The Toronto Stock
Exchange (the "Subscription Price").
The Subscriber may, in its sole discretion, allocate and assign this
subscription as to not more than one-third of the Purchased Shares to
Jean-Jacques Poutrel (for the purposes of this Agreement, an "Affiliate"). In
such event, all references herein to Subscriber shall thereafter be deemed to
include such Affiliate.
DELIVERY AND PAYMENT
Delivery and payment for all of the Purchased Shares shall be completed at
the offices of Ingenico in Puteaux Hauts de Seine, France at 2:30 p.m. (Paris
time) on December 17, 1996 or at such other time on that or such other date or
dates as may be mutually agreed upon by IVI and the Subscriber (the "Closing
Date").
IVI agrees that certificates representing the Purchased Shares subscribed
for by the Subscriber will be available for delivery to the Subscriber or its
agent on the Closing Date, against payment by the Subscriber to IVI of the
Subscription Price by wire transfer in Canadian funds.
FUTURE PARTICIPATION RIGHT
IVI grants the Subscriber, without payment of any further consideration, the
irrevocable right and option (the "Future Participation Right") to purchase from
IVI additional common shares in IVI so as to retain ownership of not less than
fifteen (15%) percent of the issued and outstanding voting, participating share
capital of IVI on a non diluted basis. The terms and conditions of the Future
Participation Right are as follows:
(a) Ingenico shall be entitled to participate pro rata in any issue (a
"Large Offering") of treasury common shares by IVI which is not pursuant to
an employee stock option plan or upon the exercise of the Redeemable
Warrants at the same time and on the identical basis to any subscribers
therefor or otherwise on such terms as may then be approved by The Toronto
Stock Exchange;
(b) With respect to the issuance of any treasury common shares by IVI
which do not constitute a Large Offering, other than the issuance of common
shares upon the exercise of options granted under the 1994 Employee Stock
Option Plan, IVI shall notify Ingenico not later than 5 days after the last
day of March, June, September and December during each year as to the number
of common shares issued from treasury by IVI during the immediately
preceding three month period. Subject to compliance with the Securities Act
(Ontario) (the "Act"), Ingenico shall be entitled, during the thirty trading
days following receipt of such notice, to exercise its Future Participation
Right at a price equal
<PAGE>
to the simple average closing price of such shares on The Toronto Stock
Exchange during the thirty days preceding the written notice from IVI to
Ingenico. In the event that such Future Participation Right cannot be so
exercised in accordance with an available prospectus exemption under the
Act, it may be deferred and extended by Ingenico to subsequent fiscal
quarter ends until such time as a prospectus exemption is available to
Ingenico, provided that the exercise price at that time of the Future
Participation Right shall be based on the simple average closing price of
such securities on the Toronto Stock Exchange, on the thirty trading days
preceding completion of the Purchase.
(c) Ingenico shall, following the Closing Date, apply to the Ontario
Securities Commission pursuant to Section 74(1) of the Act for an exemption
order permitting the Future Participation Right in so far as it applies to a
distribution under the Act, which is not a Large Offering, to be exercised
forthwith, as applicable, at the end of each fiscal quarter.
(d) The Future Participation Right is subject to approval of The Toronto
Stock Exchange and NASD. In the event that either organization requires
modifications to the Future Participation Right, such modifications shall be
made to the extent possible so as to grant to Ingenico the participation
ability described herein, and each of Ingenico and IVI shall execute all
such ancillary documentation as may be necessary in this regard.
(e) The Future Participation Right shall not be assignable or
transferable by Ingenico other than to an affiliate of the Subscriber within
the meaning of the CANADA BUSINESS CORPORATIONS ACT.
(f) The Future Participation Right shall expire on December 31, 2001.
ANTI-DILUTION
If and whenever while the Future Participation Right is outstanding:
(a) the outstanding Common Shares are subdivided or are consolidated
into a greater or lesser number of Common Shares, respectively,
(b) the Common Shares are reclassified, exchanged for or converted into
other shares, securities or property,
(c) a stock dividend has been declared and paid on the Common Shares,
(d) there has been an amalgamation, merger, consolidation or other
reorganization affecting IVI, to the extent such event results in any of the
events described in subsections (a), (b) or (c) above, or
(e) there has been a transfer of all or substantially all of the
undertaking or assets of IVI to another corporation or entity to the extent
such event results in any of the events described in subsections (a), (b) or
(c) above,
(any of such events being referred to in this paragraph as a "Change"), then
Ingenico shall be notified by IVI in writing of such Change prior to the record
or effective date of such Change (such notice being an "Adjustment Notice"). The
Adjustment Notice delivered by IVI to Ingenico in respect of each such Change
shall specify the adjustments required to the Future Participation Right.
Ingenico, in exercising this Future Participation Right, whether in whole or in
part, after the effective date of the Change shall be entitled to receive and
shall accept and IVI shall deliver upon such exercise in accordance with this
agreement, in lieu of the number of Common Shares deliverable prior to the
effective date, the aggregate number and kinds of shares or other securities or
amount of property which Ingenico would have been entitled, if any, to as a
result of the Change if, on the effective date thereof, it had been the
registered holder of the number of Common Shares it would have received had it
exercised this Future Participation Right or relevant portion hereof immediately
before the effective date of the Change. The adjustments provided for in this
paragraph shall be cumulative. The necessary adjustment shall be made in the
application of the provisions of this agreement with respect to the rights and
options of Ingenico after any
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Change to the end that the provisions hereof shall thereafter correspondingly
apply, as nearly as may reasonably be, in relation to any Common Shares or other
securities or property to which Ingenico is entitled on the exercise of the
Future Participation Right granted hereunder. In the event that Ingenico
disagrees with an adjustment set forth in any Adjustment Notice, the adjustment
shall be determined conclusively by IVI's auditors at the shared expense of IVI
and Ingenico.
RELATED TRANSACTIONS
Ingenico and IVI acknowledge that contemporaneously herewith they have
entered into a Master Alliance Agreement dated as of the date hereof (the
"Master Agreement") to which this Investment Agreement constitutes Schedule D.
All capitalized terms not otherwise defined herein have the meanings
ascribed thereto in the Master Agreement.
REPRESENTATIONS AND WARRANTIES OF IVI
By its acceptance of this subscription, IVI represents and warrants to
Ingenico those representations and warranties set forth in Schedule "A" appended
hereto. By completing the transactions contemplated hereby, accepting the
subscription funds of Ingenico and completing the issuance of the Purchased
Shares, IVI shall be deemed, as of the Closing Date, to have represented and
warranted that all of such representations and warranties are true and correct
as of and with effect from the Closing Date. IVI acknowledges that Ingenico is
relying on such representations and warranties, and that such representations
and warranties shall survive the Closing Date until December 31, 1999. IVI shall
indemnify and save Ingenico harmless of, from and against any breach of such
representations and warranties, provided that no claims may be made by Ingenico
against IVI unless the aggregate amount of such claims exceeds $100,000. If the
aggregate claims of Ingenico exceed such threshold amount, however, the
indemnity obligation of IVI shall apply for the full amount of such claims.
INGENICO'S CONDITIONS
The Subscriber's obligation to take up and pay for the Purchased Shares
subscribed for is conditional upon the fulfillment at or before the Closing Date
of each of the following conditions, unless waived in writing by Ingenico:
(a) regulatory approval of The Toronto Stock Exchange to the
transactions described in this Agreement, and no disapproval having been
issued by NASD;
(b) IVI and Ingenico shall have entered into the Master Agreement, and
all related agreements contemplated thereby, including without limitation,
the Marketing and Distribution Agreement, the Joint Development and
Procurement Agreement, the Technology License Agreement and the Latin
America Shareholder Agreement:
(c) Management of IVI shall or cause others to take all steps and
proceedings reasonably requested by Ingenico to give effect to the
reconstitution of the board of directors of IVI such that the board of IVI
shall be comprised of eight members, two of whom shall be nominees of
Ingenico and IVI agrees to use its best efforts to (i) cause the nominating
committee of the Board of Directors to nominate two members of Ingenico for
election to the Board of Directors at all annual shareholders' meeting of
IVI for so long as the Subscriber owns not less than fifteen percent (15%)
of the issued and outstanding Common Shares (on a non-diluted basis; for the
purpose of such calculation there shall be included any rights of the
Subscriber under the Future Participation Right to subscribe for shares
which are unexercised and have not lapsed) ("the Subscriber Interest"), (ii)
nominate for election at the next annual shareholders' meeting at least one
member of the board of directors of IVI who will be an independent
representative from the payment industry; and (iii) to cause the nominating
3
<PAGE>
committee for the Board of Directors of IVI to be comprised of three
members, one of whom shall be a representative of Ingenico, at the first
meeting of the Board of Directors following the Closing Date.
Should the Subscriber Interest decrease to a percentage of less than
15%, on a non diluted basis but not less than 5%, on a non diluted basis
then Ingenico shall during such period be entitled to one nominee only on
the Board of IVI. Prior to such reduction to one nominee, IVI shall give
written notice to Ingenico at such time as IVI becomes aware, based on
information readily available to it, that Ingenico's Subscriber Interest has
decreased to below 15%, on a non diluted basis. Ingenico shall have a period
of 10 days after receiving such notice to advise IVI in writing as to
whether Ingenico intends to increase its Subscriber Interest to 15%, on a
non diluted basis and Ingenico shall have a period of 90 days from receipt
of the notice from IVI to do so, failing which Ingenico shall be entitled
contractually to one nominee only on the Board of IVI, and shall forthwith
cause one of its nominees to immediately submit his resignation.
Should the Subscriber Interest decrease below 5%, on a non diluted
basis, Ingenico shall no longer have the contractual ability to elect a
director of IVI, and shall forthwith cause any remaining nominees to
immediately submit their resignation; and
(d) IVI shall have caused its counsel to deliver to Ingenico and its
counsel an opinion with respect to IVI and the completion of the
transactions contemplated hereby in the form of Schedule "B".
The obligations of IVI described in Subsection (c) above shall not merge on
the Closing Date and shall survive as specified therein.
For so long as the Subscriber is entitled to one or more nominees on the
Board of Directors of IVI pursuant to paragraph (c)(i) above, the Subscriber
shall not, at any shareholders' meeting of IVI, vote against the slate of
directors put forward by the nominating committee unless and until the nominee
directors proposed by the Subscriber to the board of IVI shall have resigned
from such board of directors. Should the Subscriber desire at any time to vote
its Common Shares for directors other than those nominated by the nominating
committee, it shall have first caused its nominee directors to resign following
which it may vote with respect to the election of directors of IVI as Ingenico
in its sole discretion shall determine.
IVI COVENANTS
Provided that Ingenico has at least one nominee on the Board of Directors of
IVI from and after the Closing Date, and in consideration of the subscription
herein, IVI covenants and agrees with Ingenico to promptly advise Ingenico in
writing at the same time as the Board of Directors is notified that IVI is
entering into any negotiations concerning a potential "take-over bid", as
defined in Part XX of the Securities Act (Ontario).
In addition, in the event that IVI either desires to sell all or
substantially all of its assets outside the ordinary course of its business, or
receives a bona fide offer to sell all or substantially all of its assets
outside of the ordinary course of its business, IVI hereby grants to Ingenico a
right of first refusal to acquire such assets by notifying Ingenico in writing
of such event together with a description of the proposed terms and conditions.
Within thirty (30) days following written notification from IVI to Ingenico of
the proposed terms and conditions of any such transaction, Ingenico may notify
IVI in writing that it desires to acquire such assets at the price and on the
terms and conditions described in such notice, in which event such transactions
shall close with Ingenico as purchaser but otherwise on identical terms and
conditions within a further period of thirty (30) days.
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<PAGE>
NO RESTRICTION ON FURTHER INGENICO PURCHASES
Nothing contained herein or in the Master Agreement or any of the schedules
thereto shall restrict, prohibit or limit in anyway the ability of Ingenico or
its Affiliates to acquire from time to time additional shares in IVI in its sole
discretion, subject to regulatory compliance.
INGENICO REPRESENTATION
Ingenico represents and warrants to IVI that it and its Affiliates including
Jean-Jacques Poutrel and his associates and his affiliates own, directly or
indirectly, not more than 18,800 common shares in IVI as of the date hereof.
Ingenico shall provide a bring-down certificate with respect to this
representation as at and on the Closing Date.
GOVERNING LAW, EXECUTION AND ASSIGNMENT
This agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario. It may be executed in one or more counterparts,
each of which shall be deemed an original and all of which, taken together,
shall constitute one and the same instrument. This agreement may also be
executed by any party by facsimile and shall be valid, binding and effective in
respect of such party if so executed as if originally signed. None of the rights
or obligations hereunder shall be assignable or transferable by any party
without the prior written consent of the other parties, except as expressly
provided herein.
ENTIRE AGREEMENT
This Agreement, together with the Master Agreement and the other agreements
attached or referred to therein, constitutes the entire agreement between the
parties hereto with respect to the matters referred to herein and supersedes all
prior agreements and understandings, written or oral, pertaining to the subject
matter hereof.
FURTHER ASSURANCES
The parties shall also, with reasonable diligence, do all such things and
provide all such reasonable assurances that may be required to consummate the
transactions contemplated hereto, and each party shall provide such further
documents or instruments required by any of the other parties as may be
reasonably necessary or desirable to effect the purpose of this Agreement and
carry out its provisions, whether before or after the Closing Date.
<TABLE>
<S> <C> <C>
INGENICO
Per: /s/ JEAN-JACQUES POUTREL
-----------------------------------------
Jean-Jacques Poutrel
PRESIDENT DU CONSEIL
</TABLE>
This Investment Agreement is confirmed and accepted as of the 5th day of
December, 1996.
<TABLE>
<S> <C> <C>
INTERNATIONAL VERIFACT INC.
Per: /s/ L. BARRY THOMSON
-----------------------------------------
L. Barry Thomson
PRESIDENT AND CEO
</TABLE>
5
<PAGE>
AMENDMENT TO INVESTMENT AGREEMENT
December 17, 1996
International Verifact Inc.
79 Torbarrie Road
Toronto, Ontario M3L 1 G5
Attention: L. Barry Thomson, President & C.E.O.
Dears Sirs:
Further to our letter agreement of December 5, 1996 (the "Investment
Agreement"), we wish to amend certain parts of that letter to reflect changes
required by The Toronto Stock Exchange (the "TSE") as contemplated in paragraph
(d) on page 2 of the Investment Agreement. Specifically, we wish to amend the
part of the letter dealing with the Future Participation Right to reflect the
change to the pricing formula required by the TSE and to clarify that the Future
Participation Right is proportionate to Ingenico's shareholdings at the time of
exercise of the Future Participation Right. Accordingly, the section of the
Investment Agreement headed "Future Participation Right" should be amended to
read as follows:
FUTURE PARTICIPATION RIGHT
IVI grants the Subscriber, without payment of any further consideration, the
irrevocable right and option (the "Future Participation Right") to purchase from
IVI additional common shares in IVI so as to retain ownership of not less than
fifteen (15%) percent of the issued and outstanding voting, participating share
capital of IVI on a non diluted basis, or, if ownership falls below fifteen
(15%) per cent of the issued and outstanding voting, participating share capital
of IVI on a non-diluted basis, then to retain ownership of that percentage held
immediately prior to any exercise of the Future Participation Right. The terms
and conditions of the Future Participation Right are as follows:
(a) Ingenico shall be entitled to participate pro rata (being that proportion,
to a maximum of fifteen (15%) percent, which its common shares constitute of
the issued and outstanding common shares immediately prior to the Large
Offering) in any issue (a "Large Offering") of treasury common shares by IVI
which is not pursuant to an employee stock option plan or upon the exercise
of the Redeemable Warrants at the same time and on the identical basis to
any subscribers therefor or otherwise on such terms as may then be approved
by The Toronto Stock Exchange;
(b) With respect to the issuance of any treasury common shares by IVI which do
not constitute a Large Offering, other than the issuance of common shares
upon the exercise of options granted under the 1994 Employee Stock Option
Plan, IVI shall notify Ingenico not later than 5 days after the last day of
March, June, September and December during each year as to the number of
common shares issued from treasury by IVI during the immediately preceding
three month period, except for the notice for the period ended March 31,
1997, which shall be for the period beginning on December 13, 1996. Subject
to compliance with the Securities Act (Ontario) (the "Act"), Ingenico shall
be entitled, during the thirty days following receipt of such notice, to
exercise its Future Participation Right for the lesser of fifteen (15%)
percent of such number of common shares or that proportion which its common
shares constitute of the issued and outstanding common shares immediately
prior to the exercise of the Future Participation Right at a price equal to
the -weighted average trading price of such shares on The Toronto Stock
Exchange during the thirty trading days preceding the written notice from
IVI to Ingenico. In the event that such Future Participation Right cannot be
so exercised in accordance with an available prospectus exemption under the
Act, it may be deferred and extended by Ingenico to subsequent fiscal
quarter ends until such time as a prospectus exemption is available to
Ingenico, provided that the exercise price at that time of the Future
Participation Right shall be based on the
6
<PAGE>
weighted average trading price of such securities on the Toronto Stock
Exchange, on the thirty trading days preceding completion of the Purchase.
(c) Ingenico shall, following the Closing Date, apply to the Ontario Securities
Commission pursuant to Section 74(l) of the Act for an exemption order
permitting the Future Participation Right in so far as it applies to a
distribution under the Act, which is not a Large Offering, to be exercised
forthwith, as applicable, at the end of each fiscal quarter.
(d) The Future Participation Right is subject to approval of The Toronto Stock
Exchange and NASD. In the event that either organization requires
modifications to the Future Participation Right, such modifications shall be
made to the extent possible so as to grant to Ingenico the participation
ability described herein, and each of Ingenico and IVI shall execute all
such ancillary documentation as may be necessary in this regard.
(e) The Future Participation Right shall not be assignable or transferable by
Ingenico other than to an affiliate of the Subscriber within the meaning of
the Canada Business Corporations Act.
(f) The Future Participation Right shall expire on December 31, 2001.
All other provisions contained in the Investment Agreement remain otherwise
unamended and in full force and effect.
<TABLE>
<S> <C> <C>
INGENICO
Per: /s/ JEAN-JACQUES POUTREL
-----------------------------------------
Jean-Jacques Poutrel
PRESIDENT DU CONSEIL
</TABLE>
This Amendment to the Investment Agreement is confirmed and accepted as of
the 17th day of December, 1996.
<TABLE>
<S> <C> <C>
INTERNATIONAL VERIFACT INC.
Per: /s/ L. BARRY THOMSON
-----------------------------------------
L. Barry Thomson
PRESIDENT AND CEO
</TABLE>
7
<PAGE>
EXHIBIT 10.11
MARKETING AND DISTRIBUTION AGREEMENT DATED DECEMBER 17, 1996, BETWEEN INGENICO,
S.A., INTERNATIONAL VERIFACT INC. AND IVI INGENICO INC.
<PAGE>
MARKETING AND DISTRIBUTION AGREEMENT
THIS AGREEMENT MADE AS OF THE 7TH DAY OF DECEMBER, 1996.
B E T W E E N:
INGENICO
incorporated under the laws of France,
(hereinafter called "Ingenico")
OF THE FIRST PART
- -AND-
INTERNATIONAL VERIFACT INC.
continued under the laws of Canada,
(hereinafter called "IVI")
OF THE SECOND PART
- -AND-
IVI INGENICO INC.
(hereinafter called "Latin Newco")
OF THE THIRD PART.
WHEREAS Ingenico and IVI have entered into a Master Alliance Agreement dated
of even date herewith (the "Master Alliance Agreement");
AND WHEREAS such Master Alliance Agreement contemplates Ingenico and IVI
entering into a Marketing and Distribution Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements contained herein, the parties hereto covenant and agree
with each other as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS. Unless otherwise defined herein, all of the terms having
initial capital letters and defined in the Master Alliance Agreement shall have
the meanings ascribed to them therein. In addition to the definitions
incorporated herein by reference as aforesaid or defined in the text hereof, the
following terms shall have the following meanings:
(A) "Agreement" means this Marketing and Distribution Agreement, and all
schedules and instruments supplemental hereto or any amendment or
confirmation hereof.
(B) "Delivery Point" means the delivery point into a Distributor's
Territory of ordered Products, as specified by the Distributor with respect
to each Product order.
(C) "Distributor" means either Party (or Latin Newco) in its capacity as
distributor vis a vis the other Party acting in the capacity of Supplier.
(D) "Future Products" means either IVI Future Products or Ingenico
Future Products as may be dictated by the context in which such reference
appears.
(E) "Group" means either Groupe Ingenico or IVI Group as may be dictated
by the context in which such reference appears.
(F) "Performance Criteria" means either the Performance Criteria for
Ingenico, the Performance Criteria for IVI or the Performance Criteria for
Latin Newco as may be dictated by the context in which such reference
appears.
<PAGE>
(G) "Person" means an individual, partnership, joint venture, trustee,
trust, corporation, division of a corporation, unincorporated organization
or other entity or a government, state or agency or political subdivision
thereof, and pronouns have a similarly extended meaning.
(H) "Supplier" means either Party in its capacity as manufacturer,
vendor or source of supply vis a vis the other party acting in the capacity
of Distributor.
(I) "Term" means the term of this Agreement including renewals.
1.2 ACCOUNTING TERMS. Accounting terms shall be construed in accordance
with United States generally accepted accounting principles consistently
applied.
1.3 INCORPORATION OF SCHEDULES. Schedules and other documents attached or
referred to in this Agreement are an integral part of this Agreement, as they
may be amended from time to time. The Schedules to this Agreement are the
following:
Schedule "A" Selected IVI Products
1.4 EXTENDED MEANINGS. As used herein, each gender shall include all
genders, and words importing the singular shall include the plural and vice
versa as the context shall require.
1.5 U.S. CURRENCY. Except as otherwise expressly stated, all dollar
amounts referred to in this Agreement are in United States currency.
1.6 TRADE TERMS. Undefined words and abbreviations which have well-known
technical trade meanings are used herein in accordance with such recognized
meanings in the electronic funds and benefits transfer at point of service
industry.
1.7 GROUPE INGENICO AND IVI GROUP. Each of Ingenico and IVI respectively
shall take all steps, undertake all proceedings and enter into all such
agreements as may be necessary in order to cause all entities comprised in
Groupe Ingenico and IVI Group to fulfill all of the obligations of Ingenico and
IVI respectively in this Agreement and in agreements comprised in the Schedules
to this Agreement, including without limitation pertaining to ownership of
intellectual property, compliance with the terms of technology licenses, and
compliance with confidentiality obligations. Notwithstanding the foregoing,
Ingenico shall be unconditionally responsible for any and all acts of Groupe
Ingenico and IVI shall be unconditionally responsible for any and all acts of
the IVI Group.
ARTICLE 2
APPOINTMENT AND ACCEPTANCE
2.1 INGENICO APPOINTMENT OF IVI. Subject to the terms hereof, Ingenico
appoints IVI as distributor, and IVI hereby accepts, to market, distribute, sell
and/or lease the Ingenico Products, Ingenico Future Products, Ingenico
Technology and Unicapt Technology in the IVI Territory during the Term. IVI
shall not have the right to manufacture any Ingenico Product in the IVI
Territory or elsewhere, unless a license to manufacture is granted except in
furtherance of its rights to use for manufacturing and other purposes any
escrowed materials released in accordance with the provisions of any escrow
agreement entered into by the Parties pursuant to the Technology License
Agreement.
2.2 IVI APPOINTMENT OF INGENICO. Subject to the terms hereof, IVI appoints
Ingenico as distributor, and Ingenico hereby accepts, to market, distribute,
sell and/or lease the IVI Products, IVI Future Products and IVI Technology in
the Ingenico Territory during the Term. Ingenico shall not have the right to
manufacture any IVI Product in the Ingenico Territory or elsewhere, unless a
license to manufacture is granted.
2.3 EXCLUSIVITY
2
<PAGE>
(A) Subject to the paragraphs below, the rights granted to a Distributor
under either subsection 2.1 or 2.2 above shall be exclusive with respect to
the Ingenico Products, Ingenico Future Products, Ingenico Technology and
Unicapt Technology in the case of IVI and the Selected IVI Products in the
case of Ingenico.
(B) A Supplier shall have the right to enter into any arrangement with
any other Person to market, distribute and sell any Product and Future
Products, either jointly with a Distributor as agent, or independently or in
any other capacity whatsoever:
(I) outside the other Party's Territory at any time; and
(II) A- in the case of IVI as Supplier, inside the Ingenico
Territory, in the event that Ingenico is in default of the
Performance Criteria for Ingenico; and
B- in the case of Ingenico as Supplier, in Canada and the U.S.A
only, in the event that IVI in default of the Performance
Criteria for IVI.
(C) Notwithstanding the provisions of subsections (a) and (b) above, and
subject to Section 2.7, IVI's exclusive right to market and distribute the
Ingenico Products, Ingenico Future Products, Ingenico Technology and Unicapt
Technology, on an exclusive basis shall be terminated in the event that
either:
(I) IVI does not adopt and incorporate the Unicapt Technology into
Future IVI Smart Card Terminals in accordance with the provisions of the
Technology License Agreement, and actively promote the Unicapt Technology
in the IVI Territory or
(II) revenues generated by IVI from sales of the Ingenico Products,
Ingenico Future Products, Ingenico Technology and Unicapt Technology in
Canada and the U.S.A are less than 20%, 50% or 60% of the Performance
Criteria for IVI in the first, second or third calendar years
respectively of the Term;
provided that such distribution rights shall continue on a
non-exclusive basis for the remainder of the Term.
(D) In addition to any rights it may have pursuant to (b) above, IVI
retains the right to market distribute, sell and/or lease worldwide and to
permit others to market, distribute, sell and/or lease worldwide:
(I) IVI Products and IVI Technology, which are not identified by
Ingenico on or before December 31, 1997, as Selected IVI Products or
Selected IVI Technology and IVI Future Products which are not selected by
Ingenico; and
(II) Selected IVI Products for which Ingenico has not generated
actual reoccurring sales in the Ingenico Territory on or before December
31, 1998, except for IVI Products and IVI Future Products containing
Unicapt Technology.
(E) Notwithstanding the foregoing, and subject to Section 2.5,
Ingenico's exclusive right to market and distribute the Selected IVI
Products on an exclusive basis shall be terminated in the event that
revenues generated by Ingenico from sales of the Selected IVI Products in
the Ingenico Territory are less than 20%, 50% or 60% of the Performance
Criteria for Ingenico in any year of the Term of this Agreement, provided
that such distribution rights shall continue on a non-exclusive basis for
the remainder of the Term of this Agreement.
(F) Notwithstanding the foregoing, Ingenico shall not market and
distribute in the IVI Territory, Ingenico Products or Ingenico Future
Products incorporating IVI Technology, except through IVI or Latin Newco.
3
<PAGE>
2.4 LATIN NEWCO. The Parties agree that marketing and distribution of
their respective Products in Latin America shall be conducted by Latin Newco as
Distributor on behalf of both Ingenico and IVI in their capacity as Suppliers in
accordance with the provisions of the Latin America Shareholder Agreement and
this Agreement, MUTATIS MUTANDIS.
2.5 RIGHT OF SELECTION OF IVI PRODUCTS: As soon as practicable, but in any
event not later than December 31, 1997, Ingenico shall provide a written notice
to IVI as to which of the IVI Products Ingenico shall market and distribute in
the Ingenico Territory, pursuant to this Agreement. A Schedule "A" to this
Agreement setting out the Selected IVI Products shall be attached to this
Agreement at such time. IVI shall advise Ingenico of any IVI Future Products and
in such cases Ingenico may also select such products to become IVI Selected
Products. Any such IVI Future Products which are selected by Ingenico shall be
set out in Schedule "A" to this Agreement.
In the event that Ingenico does become an exclusive distributor of Selected
IVI Products in the Ingenico Territory a business plan for the marketing of
Selected IVI Products in the Ingenico Territory shall be reviewed annually,
commencing in October of each year, and approved by the Parties by no later than
the following January 31st. Revisions to the Performance Criteria for Ingenico,
and for Sales and performance targets for Selected IVI Products shall be subject
to mutual agreement between the Parties. Ingenico shall commit resources to
achieve the Performance Criteria for Ingenico for 1997, 1998 and 1999. In the
event that the Performance Criteria for Ingenico are not so mutually agreed by
the Parties for any year, they shall, for each subsequent year, be equal to the
Performance Criteria for Ingenico established by mutual agreement for the prior
year, increased by 10% for each of the successive years during the term of this
Agreement. Notwithstanding Clause 2.3(e) should the Performance Criteria for
Ingenico, or any mutually agreed sales performance targets not be achieved in
any year, IVI shall notify Ingenico of its recommendation for optional
improvements in order to obtain such targets the following year. In addition,
prior to any loss of exclusivity for Ingenico based on failure to comply with
this Section 2.5 with respect to sales of the Selected IVI Products in the
Ingenico Territory, IVI shall notify Ingenico on or before each October 1, that
the level of sales of Selected IVI Products are not satisfactory to IVI.
Ingenico shall commit resources, supported by IVI to achieve the Performance
Criteria for Ingenico at such time and to the extent Ingenico selects IVI
Products and IVI Future Products.
2.6 RIGHT OF SELECTION OF IVI TECHNOLOGY: As soon as practicable, but in
any event not later than December 31, 1997, Ingenico shall provide a written
notice to IVI as to whether and to what extent it is electing to utilize the IVI
Technology in the Ingenico Products thereafter. To the extent Ingenico does not
elect to so utilize the IVI Technology IVI shall thereafter be entitled, in its
sole discretion, to license the IVI Technology to such third parties in the
Ingenico Territory as IVI shall determine.
2.7 PERFORMANCE CRITERIA FOR IVI: IVI shall commit resources to achieve
the Performance Criteria for IVI for 1997, 1998 and 1999. The business plans for
the sale and marketing of Ingenico Products in the IVI Territory shall be
reviewed annually in October, commencing October 1997, and approved by the
Parties by no later than the following January 31. Revisions to the Performance
Criteria for IVI, and Performance Criteria for Latin Newco, and for sales and
performance targets for Ingenico Products in the IVI Territory thereafter, shall
be subject to mutual agreement between the Parties. In the event that the
Performance Criteria for IVI, or the Performance Criteria for Latin Newco are
not so mutually agreed by the parties for any year, they shall, for each
subsequent year, be equal to the Performance Criteria for IVI or Performance
Criteria for Latin Newco, as the case may be, established by mutual agreement
for the prior year, increased by 10%, for each of the successive years during
the term of the Marketing and Distribution Agreement. Notwithstanding clause
2.3(c)(ii) should the Performance Criteria for IVI, or Performance Criteria for
Latin Newco, as the case may be, or any mutually agreed sales performance
targets not be achieved in any year, Ingenico shall notify IVI of its
recommendations for operational improvements in order to achieve such targets
for the following year. In addition, prior to any loss of exclusivity for IVI,
which may only occur with respect to Canada and the United States, based on
failure to comply with this Section 2.7 with respect to sales of the Ingenico
Products in Canada and the United
4
<PAGE>
States, Ingenico shall notify IVI on or before each October 1 commencing October
1, 1997 that the level of sales of Ingenico Products in Canada and the United
States is not satisfactory to Ingenico.
ARTICLE 3
NON-COMPETITION
3.1 NON-COMPETITION OF IVI: Except as indicated on Schedule "J" to the
Master Alliance Agreement, during the term of this Agreement, including any
renewal thereof, IVI shall not, either directly or indirectly, and shall not
permit any member of the IVI Group, to develop, distribute, market or
manufacture any smart card-based transactional system with application to
payment systems, loyalty, electronic benefit transfer systems, or terminal
systems for smart card technology, except utilizing the Ingenico Technology and
Unicapt Technology. IVI shall not, either directly or indirectly, and shall not
permit any member of the IVI Group, to develop, distribute or market, in the
Ingenico Territory, any IVI Future Products, which incorporates Unicapt
Technology, other than those that become a Selected IVI Product.
3.2 NON-COMPETITION OF INGENICO: In the event that Ingenico elects to
become an exclusive licensee of Selected IVI Technology pursuant to Section 2.6
hereof, it shall not thereafter, either directly or indirectly, and shall not
permit any member of Groupe Ingenico, to develop, distribute, market or
manufacture any products in competition with IVI Technology except utilizing
either the Ingenico Technology, Unicapt Technology or the IVI Technology
3.3 NON-SOLICITATION OF EMPLOYEES: During the term of the Agreement and
for a period of one year thereafter, neither Ingenico nor IVI shall solicit or
induce current employees of the other to accept employment or provide contract
services to any member of the IVI Group or Groupe Ingenico, except with the
mutual written approval of both Ingenico and IVI. Notwithstanding the foregoing,
both Ingenico and IVI consent to the employment of Jean-Pierre Chabanel by IVI.
3.4 EXTRA-TERRITORIAL SALES: Each party, in its capacity as Distributor,
shall not through any agents sell any of the Products of the Supplier outside
the Distributor's Territory or, knowingly, or, if it has reason, to believe that
such Products might be so resold, to first notify in writing the other Party of
that fact and in such event the Parties agree to enter into mutually
satisfactory arrangements which ensure that the customer's interests are
satisfied and the objectives, and terms and conditions of this Agreement are
respected. Each Party, acting as Supplier, shall not through any agents sell any
of the Supplier's Products to be sold by the Distributor hereunder within the
Distributor's Territory or if it has reason to believe that such Products might
be so resold, to first notify in writing the other Party of that fact and in
such event the Parties agree to enter into mutually satisfactory arrangements
which ensure that the customer's interests are satisfied and the objectives, and
terms and conditions of this Agreement are respected.
ARTICLE 4
MARKETING RESPONSIBILITIES
4.1 DISTRIBUTOR'S OBLIGATIONS. In its capacity as Distributor of the other
Party's Products, each Party agrees to dedicate its commercially reasonable best
efforts to promote in every reasonable manner at its own expense the sale of the
respective Supplier's Products throughout the Distributor's Territory and to
comply with the Supplier's policy as made known from time to time to the
Distributor regarding advertising and sales promotion.
4.2 SUPPLIER'S OBLIGATIONS. Each Party, insofar as it is the Supplier of
Products, agrees to assist the other party as Distributor in the marketing of
such Products in the Distributor's Territory by:
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(F) ensuring that sales brochures, parts catalogues, service manuals and
other literature relative to the Products, including advertising artwork (in
all media, but only to the extent owed by the Supplier), are made available
to the Distributor at no charge, together with such sales and service
training as a Distributor may reasonably request for its sales and service
personnel; and
(G) acquainting the Distributor with such new methods of selling and new
applications for the Products as may be recommended by the Supplier.
4.3 In its capacity as Distributor of the other Party's Products, each party
agrees to dedicate its commercially reasonable best efforts to localize the
Product to comply with regulatory approvals for their Territory.
4.4 All technical and marketing documentation shall be provided by the
Supplier to the Distributor in the English language and such other languages as
may be available.
ARTICLE 5
SPECIAL OBLIGATIONS OF THE PARTIES
5.1 JOINT OBLIGATIONS: Each party agrees that it will dedicate its
commercially reasonable best efforts to achieve the following joint objectives
in cooperation with the other Party:
(H) as Distributor, to:
(I) market and distribute the other Party's Products in the
applicable Territory in accordance with this Agreement;
(II) furnish end users such instructions as to the operation, routine
maintenance and use of the Supplier's Products as the Supplier shall have
provided to the Distributor in accordance with the provisions hereof;
(III) to meet or exceed its respective Performance Criteria;
(I) as Supplier, to:
(i) ensure that its Products comply with market requirements,
standards, pricing and functionality;
(ii) make available a reasonable supply of parts and support for the
Supplier's Products in the Distributor's Territory based on each
Distributor's reported sales of the Supplier's Products in each region of
the Distributor's Territory,
(c) develop a marketing strategy, in the case of IVI for smart card
products and technologies, and in the case of Ingenico for the Selected IVI
Products, and to propose effective resources and organization in support of
such strategy in order to become a leader in those respective domains.
5.2 During the term of this Agreement, if an Ingenico Product or Ingenico
Future Product exists which meets the requirements of the IVI Territory and is
provided to IVI by Ingenico at prices which enable IVI to distribute such
product at a price for the payment of all customs, duties and other taxes and
fees, whether payable in local or foreign currency. The Distributor shall also
be responsible for further transportation of the Products which is competitive
in the market and allows IVI to make a reasonable return on such product, IVI
shall not develop or sell its own product which is identical to the Ingenico
Product or Ingenico Future Product and shall buy such product from Ingenico.
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ARTICLE 6
CONTRACT RESPONSIBILITIES
6.1 ASSUMPTION OF CONTRACT RESPONSIBILITIES. The assignment and assumption
of contract responsibilities in respect of all Ingenico Customer Contracts and
IVI Customer Contracts, (other than the agreement between Dassault Automatismes
et Telecommunications and IVI dated September 29, 1995) as the case may be,
including the administration of such Contracts and transmission of proceeds
shall be governed by the provisions of the Master Alliance Agreement including,
without limitation, the provisions of section 8.02(b)(ii). The Parties agree to
take all steps necessary to terminate the Distribution Agreement between
Ingenico and La Societe J.R.C. Marketing Inc. ("JRC") dated April 6, 1995
forthwith, and in any event no later than April 30, 1997, in a manner which is
fair to all concerned. The Parties agree to share equally all reasonable costs
incurred with respect to such termination.
ARTICLE 7
CUSTOMER ASSISTANCE
7.1 ENQUIRIES. In view of the mutual interests of the Parties in
maintaining high standards of service to the customer, each Party, insofar as it
is a Distributor, shall remain knowledgeable concerning the Products of the
Supplier and shall be responsive to all customer inquiries respecting the
Products, in accordance with the Supplier's reasonable instructions. To this
end, each Party, insofar as it is a Supplier, shall provide, in accordance with
the Distributor's request, reasonable technical support, selling assistance,
application support to the Distributor at the cost of the Supplier, however the
Distributor shall pay all reasonable, pre-approved out of pocket expenses,
including, without limitation, travel expenses. If any such services are
required for special situations, then the total cost of the services shall be
negotiated by the Supplier and the Distributor.
7.2 PROCEDURES. Each party shall, in its capacity as Distributor:
(a) carry out all procedures laid down by the Supplier from time to time
governing pre-delivery preparation and delivery installation (if required)
for all Products supplied by it;
(b) ensure, in respect of all Products supplied by it, that the proposed
user thereof is fully and properly instructed in all aspects of the
operation and maintenance thereof and is provided with sufficient
information in order that it may obtain the greatest benefit from the use of
the Products; and
(b) make the Distributor capable of installing, servicing, maintaining,
and repairing to Supplier's Products in the Distributor's Territory and make
available such installation, service, maintenance and repair in accordance
with the standards, guidelines, techniques and inspections designated from
time to time in the Supplier's instructions manuals, service manuals,
operation and maintenance manuals and operating instructions furnished to
the Distributor in accordance with the provisions of this Agreement.
ARTICLE 8
ORDERS, SHIPMENT AND PAYMENT
8.1 FORECAST. To assist the other Party as Supplier in the production
scheduling for the manufacture and supply of each Product, each Distributor
shall provide to the Supplier monthly during the Term, a twelve-month rolling
forecast of the Distributor's estimated requirements for such Product together
with a report on the respective Distributor's sales of such Product during the
immediately preceding quarter, all in such form as the Supplier shall reasonably
require.
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8.2 MINIMUM ORDER. All orders for Products shall be in the minimum order
amount specified for each such Product by the Supplier from time to time, acting
reasonably, and given in writing in such form as reasonably reflects the
provisions of this Agreement.
8.3 TERMS OF DELIVERY. Each Party in its capacity as Supplier shall use
its commercially reasonable best efforts to supply Products ordered in
accordance with this Agreement. The terms of delivery for Ingenico Products
distributed by IVI shall be set forth in the Ingenico Price List set forth in
Schedule "K" to the Master Alliance Agreement, and the terms of delivery for
Selected IVI Products distributed by Ingenico shall be set forth in the IVI
Price List set forth in Schedule "L" to the Master Alliance Agreement. The
Supplier shall arrange for the delivery of all Products to the Delivery Point
and shall arrange for all insurance in connection with such delivery. The
Distributor shall have the opportunity to approve in advance the transporter and
the insurance carrier.
8.4 DEEMED DELIVERY. The date of delivery of the Product shall be deemed
to be the date on which the Products arrive at the Delivery Point. If the
Distributor or its representatives are not available on the date of arrival of
the Products at the Delivery Point, the Supplier shall use its commercially
reasonable best efforts to notify the Distributor about shipment of Products on
the date of shipment, or as soon as practicable thereafter, provided that
failure to so notify the Distributor shall not impose any liability on the
Supplier nor effect the deemed delivery of the Product.
8.5 IMPORTATION. The Distributor shall be responsible, at its expense, for
the performance of customs clearance of the Products, including obtaining, if
necessary, the applicable import license, and for the payment of all customs,
duties and other taxes and fees, whether payable in local or foreign currency.
The Distributor shall also be responsible for further transportation of the
Products.
8.6 CLAIMS ON QUANTITY, QUALITY, LOSS OR DAMAGE. If the Distributor raises
any claims concerning quantity, quality, loss or damage to the Products, the
Distributor shall submit to the Supplier a claim in writing which must be
received by the Supplier within ninety (90) days of the date of the deemed
delivery of the Products. The Supplier's liability in connection with such claim
shall in no event exceed the Price of the Products with respect to which such
claims are made.
8.7 PRICE INCREASES. The Supplier in each instance may change the price of
its Products from time to time upon giving the Distributor written notice
thereof at least sixty (60) days in advance of the effective date of any such
change, and the new prices shall be effective as to all orders accepted by the
Distributor after the effective date as specified in such notice and to all
orders accepted by the Distributor prior to the effective date to the extent of
any Products specified to be shipped later than ninety (90) days after the
effective date.
ARTICLE 9
CHANGES IN SPECIFICATION
9.1 CHANGES BY SUPPLIER. The Supplier may make modifications to the
specifications of the Products or make improvements to them at any time and
shall be under no obligation to apply the same to any Products previously
purchased by the Distributor. The Supplier shall provide the Distributor full
particulars in writing of any change in Product specifications at least sixty
(60) days prior to implementing such change.
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ARTICLE 10
NO PARTNERSHIP
10.1 NO PARTNERSHIP. Nothing contained in this Agreement shall constitute
Ingenico and IVI as partners. No Party shall have or shall represent that it has
the authority or power to act for or to undertake or create any obligation or
responsibility on behalf of the other Party, or shall represent that it is the
agent or legal representative of the other Party, except as otherwise
specifically provided in this Agreement.
ARTICLE 11
TRADEMARKS AND TRADE NAMES
11.1 USE BY DISTRIBUTOR. Subject to the terms and conditions of the
Technology License Agreement, the Distributor shall have the right during the
continuance of this Agreement and subject to due compliance with the provisions
of this Section to use the Supplier's trade marks in promoting the sales of the
Products in the Territory and for the purpose of describing itself as an
official distributor or as an approved dealer and, except as permitted in
writing by the Supplier, for no other purpose whatsoever.
11.2 DISTRIBUTOR'S UNDERTAKINGS. The Distributor agrees:
(A) to comply with all reasonable instructions issued by the Supplier
relating to the form and manner, but not the location, in which the
Supplier's trade marks shall be used and to discontinue immediately upon
notice from the Supplier any practice relating to the use of the Supplier's
trade marks which in the Supplier's opinion would or might adversely affect
the rights or interests of the Supplier or any associate company;
(B) not to use or permit any entity controlled by it, other than Latin
Newco, to use in its corporate or trading style or name any trade marks or
trade names owned, used or adopted by the Supplier;
(C) not to contest the title of the Supplier to any trade marks, trade
names, copyrights and registrations used in connection with the Products,
not to effect any registrations thereof, and not to take any action to the
detriment of their respective interest therein;
(D) not to effect or permit the removal, renewal or alteration of any
trade marks or marks, patent numbers, notices, name plates or serial numbers
affixed to any of the Products.
ARTICLE 12
TERM AND TERMINATION
12.1 TERM. This Agreement shall be for a period of ten (10) years,
commencing January 1, 1997, and shall be automatically renewed for subsequent
periods of five (5) years unless either Party provides written notice of
non-renewal to the other not later than six (6) months prior to the expiry of
the initial ten-year term, and the subsequent renewal periods, if any.
12.2 CONTINUING OBLIGATION. Termination of this Agreement does not relieve
a party of its obligations and liabilities existing at or accruing to the date
of termination.
12.3 TRANSITION ARRANGEMENTS. Upon Termination of this Agreement for
whatever reason:
(A) All amounts owed by a Distributor to a Supplier shall become
immediately due and payable net of any amounts justly owed by a Supplier to
a Distributor and all unfilled orders of Products for purchase by a
Distributor specifying shipment dates beyond sixty (60) days after
termination shall be deemed terminated without liability on the part of
either Party.
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(B) The right of a Distributor to act as a distributor for a Supplier
shall cease and a Distributor shall immediately discontinue all use of a
Supplier's trade names and trade marks, and a Distributor shall return to a
Supplier all price lists, catalogues, sales literature, operating and
service manuals, advertising literature and other materials relating to the
Products, except that, notwithstanding the foregoing, a Distributor shall
have the right to, for a reasonable period not to exceed one hundred and
twenty (120) days, sell any Products remaining in inventory to the extent
the same are not repurchased by a Supplier pursuant to subsection 12.3(c)
below.
(C) If desired by a Distributor or a Supplier will repurchase from a
Distributor all of a Supplier's Products (to the extent that the same are in
new and original condition) then in a Distributor's inventory, F.O.B. a
Distributor's facilities, and a Supplier shall repay to a Distributor the
actual price paid for such returned Products less any and all amounts then
owing, for whatever reason, by a Distributor to a Supplier.
(D) Except to the extent of selling any remaining inventory of Products
as permitted by subsection 12.3(b) above, a Distributor shall not thereafter
represent or hold itself out as being an authorized distributor for the
Products or engage in any practices which might make it appear that a
Distributor is still such an authorized distributor.
12.4 SUBSEQUENT ORDERS. The acceptance by a Supplier of orders after
notice of termination, if given hereunder, shall be separate transactions and
shall not operate as a renewal or revival of this Agreement or as a waiver of
any provision hereof.
12.5 SUPPLY OF PARTS. Notwithstanding termination of this Agreement, a
Supplier shall continue to make available to the Distributor on a basis which
shall be reasonable, in particular with respect to pricing and availability,
sufficient parts to permit the Distributor to continue, after the Term hereof,
to supply maintenance services to end users in the Distributor's Territory.
12.6 NO RELEASE. No termination of this Agreement shall in any manner
whatsoever release, or be construed as releasing, any party from any liability
to the other arising out of or in connection with a party's breach of, or
failure to perform, any covenant, agreement, duty or obligation contained
herein.
12.7 SURVIVAL. Notwithstanding the termination or expiry of this
Agreement, all rights and obligations of the Parties pursuant to sections 1,
5.1(b)(ii), 10.1, 12.2, 12.3, 12.4, 12.5, 12.6, 12.7, 13.4, 13.5, 15.1 and 15.2
of this Agreement shall survive in full force and effect.
ARTICLE 13
WARRANTIES
13.1 SPECIFICATIONS. All Products supplied to a party acting as
Distributor hereunder shall be manufactured in accordance with suitable
international standards of good workmanship and market requirements, and shall
conform to the parties' agreed specifications or, failing specific agreement, to
the Supplier's specifications. The Supplier shall provide the Distributor with
full written specifications in respect of the quantifiable attributes of each of
the Supplier's Products in order to enable the Distributor to monitor the
quality of the Products received by it for conformity.
13.2 RETURN BY DISTRIBUTOR. With respect to Products found by a
Distributor to be defective prior to the Distributor's resale, the Supplier
shall promptly replace the defective Products without charge or expense to the
Distributor. Defective Products shall be returned to the Supplier.
13.3 LIMITATION. THE SUPPLIER MAKES NO OTHER EXPRESS WARRANTY, AND THE
SUPPLIER EXCLUDES AND DISCLAIMS, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY
AND ALL IMPLIED WARRANTIES INCLUDING WITHOUT LIMITATION, IMPLIED
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WARRANTIES IN CONNECTION WITH THE DESIGN, SALE, MERCHANTABILITY OR FITNESS OF
THE PRODUCTS FOR ANY PARTICULAR PURPOSE OR USE. THE SUPPLIER SHALL NOT HAVE ANY
OTHER LIABILITY FOR DIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES OR DAMAGES
ARISING FROM PERSONAL INJURY, LOSS OR LIFE OR LOST PROFITS, AND ANY AND ALL
LIABILITY OF THE SUPPLIER SHALL BE LIMITED TO THE COST OF THE REPAIR OR
REPLACEMENT OF THE PRODUCTS.
13.4 MUTUAL INDEMNITY. Each of the parties agrees to indemnify and hold
harmless the other from and against any and all claims, demands, actions, causes
of action, suits, proceedings, damages, losses and expenses (including
reasonable legal fees and disbursements) relating to or arising out of a breach
by the former party of any of the provisions of this Agreement, such
indemnification to be governed by the provisions and procedures set forth in the
Master Alliance Agreement (save and except the threshold amount, which shall be
waived), and the aforesaid breaches to be included in the meaning of the term
"Indemnity Event."
13.5 In particular, if the Distributor makes any warranty or
representation inconsistent with or in addition to the warranties stated in this
Section 13.5, the Distributor shall, at its own expense, defend and hold the
Supplier harmless from any claim to the extent it is based upon such
inconsistent or additional warranty or representation. In addition, the
Distributor agrees to indemnify and save harmless the Supplier from and against
any and all claims, liabilities, costs and damages of any kind or amount
whatsoever (including reasonable legal fees and all litigation costs, regardless
of outcome) which arise in connection with the performance of any servicing
provided by the Distributor to the users of the Products other than in
accordance with procedures established by the Supplier. The Supplier shall
similarly indemnify the Distributor to the extent of claims relating to such
servicing where the Distributor has complied with such procedures, such
indemnification to be governed by the provisions and procedures set forth in the
Master Alliance Agreement.
ARTICLE 14
INSURANCE
14.1 SUPPLIER'S INSURANCE. In its capacity as Supplier, each Party shall
furnish the other with satisfactory evidence demonstrating that the Supplier's
product liability insurance shows the Distributor as a named insured and is both
quantitatively and qualitatively satisfactory and keeping with types and amount
of insurance carried by comparable manufacturers in the applicable region in the
Distributor's Territory.
14.2 DISTRIBUTOR'S INSURANCE. In its capacity as Distributor, each party
shall furnish the other with satisfactory evidence demonstrating that the
Distributor's liability insurance shows the manufacturer as a named insured and
is both quantitatively and qualitatively satisfactory and in keeping with types
and amounts of insurance carried by comparable distributors in the applicable
region in the Distributor's Territory.
ARTICLE 15
MISCELLANEOUS PROVISIONS
15.1 RIGHTS CUMULATIVE. Save and except for breaches or acts of omission
by IVI constituting grounds for IVI's loss of exclusivity pursuant to Section
2.3(c) hereof, which loss of exclusivity shall be Ingenico's exclusive remedy
for such breaches, acts or omissions, each and all of the various rights, powers
and remedies of the parties hereto shall be considered to be cumulative with and
in addition to any other rights, powers and remedies which such parties may have
at law or in equity in the event of the breach of any of the terms of this
Agreement. The exercise or partial exercise of any right, power or remedy shall
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neither constitute the exclusive election thereof nor the waiver of any other
right, power or remedy available to such party.
15.2 EXPENSES. Each Party hereto is responsible for its own legal, audit
and due diligence fees and other charges incurred in connection with the
preparation of this Agreement, all negotiations between the Parties hereto, and
the consummation of the transactions contemplated hereby.
15.3 TIME OF THE ESSENCE. Time shall be of the essence in respect of this
Agreement and the agreements and transactions contemplated herein.
15.4 FURTHER ASSURANCES. Each of the parties hereto shall from time to
time at the other's request and expense and without further consideration,
execute and delivery such other instruments of transfer, conveyance and
assignment and take such further action as the other may require to more
effectively complete any matter provided for herein.
15.5 ENTIRE AGREEMENT. This Agreement, together with the Schedules hereto,
constitutes the entire agreement between the parties and, except as herein
stated and in the instruments and documents to be executed and delivered
pursuant hereto, contains all of the representations and warranties of the
respective parties. There are no oral representations or warranties among the
parties of any kind. This Agreement may not be amended or modified in any
respect except by written instrument signed by all parties hereto.
15.6 APPLICABLE LAW. this Agreement shall be interpreted in accordance
with the laws of the State of New York, United States of America, and shall be
treated in all respects as a New York contract.
15.7 NOTICES. Any notices required or permitted to be given hereunder
shall be in writing and shall be effectively given by delivering same by prepaid
mail, delivery by courier or sending same by telecopy or other similar form of
electronic communication, addressed:
(A) if to Ingenico, to it at:
Ingenico
9, quai de Dion Bouton
92816 Puteaux Cedex
France
Attention: Jean-Jacques Poutrel
President du Counseil
Telecopy: 33 (1)47 72 56 95
with a copy to:
Smith Lyons
Suite 5800, Scotia Plaza
40 King Street West
Toronto, Ontario, Canada
M5H 3Z7
Attention: R.G.S. Hull
Telecopy: (416) 369-7250
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(B) if to IVI, to it at:
International Verifact Inc.
79 Torbarri Road
Toronto, Ontario, Canada
M3L 1B5
Attention: L. Barry Thomson
President and CEO
Telecopy: (416) 245-9896
with a copy to:
Meighen Demers
Box 11, Merrill Lynch Canada Tower
Suite 1100
200 King Street West
Toronto, Ontario, Canada
M5H 3T4
Attention: Mark A. Convery
Telecopy: (416) 977-5239
(C) and if to Latin Newco, to each of IVI and Ingenico.
Any such notice if sent by prepaid mail or courier shall be deemed to have
been received by the addressee seven (7) days and two (2) days, respectively,
following the day on which the notice was so sent, or if by telecopy or other
similar form of communication on the day following the day on which the notice
was so sent, provided that an acknowledgment of transmission is received by the
sender. Any party hereto or others mentioned above may change any particulars of
its address for notice from time to time by notice to the others in the manner
aforesaid.
15.8 SUCCESSORS AND ASSIGNS. This Agreement enures to the benefit of and
is binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
15.9 ASSIGNMENT. Subject to the rights of Groupe Ingenico and the IVI
Group specified herein, this Agreement may not be assigned by either party
hereto without the prior written consent of the other.
15.10 SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect or limit the validity or
enforceability of the remaining provisions of this Agreement.
15.11 ARBITRATION.
(A) BEST ENDEAVOURS TO SETTLE DISPUTES: In the event of any dispute,
claim, question or difference arising between Ingenico and IVI in respect of
the provisions, the subject matter, the interpretation, or the effect of
this Agreement or any breach hereof, the parties shall use their best
endeavours to settle such dispute, claim, question or difference. To this
effect, they shall consult and negotiate with each other, in good faith and
understanding of their mutual interests, to reach a just and equitable
solution satisfactory to the parties.
(B) ARBITRATION: Except as is expressly otherwise provided in this
Agreement, if the parties do not reach a solution pursuant to Section
15.11(a) within a period of thirty (30) days, then upon written notice by
either party to the other, the dispute, claim, question or difference shall
be finally settled by arbitration in accordance with the American
Arbitration Association Rules for the conduct of Arbitrations in effect at
the date of the commencement of such arbitration, based upon the following:
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(I) the arbitration tribunal shall consist of one arbitrator
appointed by each of the parties who is qualified by education and
training to pass upon the particular matter to be decided, together with
a third arbitrator appointed by the first two selected arbitrators;
(II) the arbitrators shall be instructed that time is of the essence
in proceeding with their determination of any dispute, claim, question or
difference and, in any event, the arbitration award must be rendered
within thirty (30) days of the submission of such dispute to arbitration;
(III) the arbitration shall take place in New York, New York;
(IV) the arbitration award shall be given in writing and shall be
final and binding on the parties, not subject to any appeal, and shall
deal with the question of costs of arbitration and all matters related
thereto; and
(V) judgment upon the award rendered may be entered in any court
having jurisdiction, or, application may be made to such court for a
judicial recognition of the award or an order of enforcement thereof, as
the case may be.
IN WITNESS WHEREOF the parties hereto have executed this Agreement effective
as of the day and year first above written.
<TABLE>
<S> <C> <C>
INGENICO
Per: /s/
Per: /s/
INTERNATIONAL VERIFACT INC.
Per: /s/
Per: /s/
</TABLE>
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<PAGE>
EXHIBIT 10.12
ASSIGNMENT, ASSUMPTION AND CONSENT AGREEMENT BETWEEN INTERNATIONAL VERIFACT INC,
IVI CHECKMATE CORP. AND INGENICO S.A. DATED AS OF JANUARY 16, 1998
<PAGE>
EXECUTION COPY
ASSIGNMENT, ASSUMPTION AND CONSENT
THIS AGREEMENT made the 16th day of January, 1998.
B E T W E E N:
INTERNATIONAL VERIFACT INC.
a corporation continued under the laws of Canada,
(hereinafter called the "Assignor"),
OF THE FIRST PART,
- and -
IVI CHECKMATE CORP.
a corporation incorporated under the laws of the State of Delaware,
(hereinafter called the "Assignee"),
OF THE SECOND PART
- and -
INGENICO S.A.
a corporation incorporated under the laws of France,
(hereinafter called "Ingenico"),
OF THE THIRD PART.
WHEREAS the Assignor and Ingenico entered into certain agreements and
contracts described in Schedule "A" annexed hereto (the "Assigned Agreements");
WHEREAS the Assignor, the Assignee and certain other parties have entered
into a combination agreement dated January , 1998 (the "Combination
Agreement");
AND WHEREAS it is a term of the Combination Agreement that the Assignor
shall assign to the Assignee, and the Assignee shall assume, the Assigned
Agreements;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in pursuance of the Combination
Agreement, the payment of the sum of $2.00 in lawful money of the United States
of America by the Assignee to the Assignor and for other good and valuable
consideration (the receipt and sufficiency whereof is hereby acknowledged by the
parties hereto) the parties hereto agree as follows:
1. Unless otherwise defined herein or unless the context otherwise requires,
all words and phrases defined in the Combination Agreement and used herein shall
have the same meanings herein as in the Combination Agreement.
2. Effective as of the Effective Date, the Assignor does hereby grant, assign,
transfer and set over unto the Assignee all the right, title, benefit and
interest of the Assignor in, to and under each and every one of the Assigned
Agreements together with the benefit of each and every of the rights, covenants
and other provisions therein contained.
3. Ingenico hereby consents to the Transactions, the assignment of the Assigned
Agreements and all the Assignor's rights and obligations thereunder, including
the disclosure of all relevant information, to the Assignee.
4. The Assignor and the Assignee hereby covenant and agree that as and from the
Effective Date, the Assignee hereby assumes and shall completely and punctually
perform and observe all of the terms,
<PAGE>
covenants, conditions and agreements of the Assignor made or contained in the
Assigned Agreements and on the part of the Assignor to be performed.
5. Ingenico hereby accepts the Assignee as a party to the Assigned Agreements
from and after the Effective Date and covenants and agrees that, upon such
assignment becoming effective, the Assignee shall be entitled to hold and
enforce directly against Ingenico all the rights and privileges of the Assignor
in and under the Assigned Agreements, and the Assigned Agreements shall continue
in full force and effect with the Assignee substituted as a party thereto in the
place and stead of the Assignor.
6. The Assignee hereby covenants and agrees that, upon the assignment
contemplated herein becoming effective, Ingenico shall be entitled to hold and
enforce directly against the Assignee all the rights and privileges of Ingenico
in and under the Assigned Agreements, and the Assigned Agreements shall continue
in full force and effect with the Assignee substituted as a party thereto in the
place and stead of the Assignor.
7.
(a) The parties covenant and agree that, with respect to the Investment
Agreement dated December 5, 1996, as amended (the "Investment Agreement") the
effect of the assignment and assumption set forth above shall be, as provided in
the Investment Agreement, that:
(i) on the Effective Date Newco shall be obliged to advise Ingenico that
its shareholdings have fallen below 15% of the issued and outstanding
participating equity (which for such purposes shall include the
Exchangeable Shares) of Newco (the "15% Threshold");
(ii) Ingenico shall have 10 days from the date it receives such notice to
advise Newco in writing whether or not it intends to exercise its
Participation Right to acquire from the treasury of Newco such
additional shares of Newco Common Stock so as to bring its holdings
to the 15% Threshold;
(iii) if Ingenico gives notice of its intention to increase its holdings
to the 15% Threshold it shall acquire sufficient shares of Newco
Common Stock (the "Additional Shares") to achieve such from of Newco
within 90 days of the date of receipt of the notice of Newco pursuant
to clause (i) above;
(iv) the Additional Shares shall be purchased by Ingenico for a price per
share equal to the weighted average trading price of the IVI Common
Shares on The Toronto Stock Exchange (the "TSE" during the 30 days
preceding the notice of Newco to Ingenico pursuant to clause (i)
above).
(b) For greater certainty, the parties acknowledge that the Board of
Directors of IVI is composed of 9 members, rather than 8 as contemplated in the
Investment Agreement and that this practice shall be continued with Newco. All
other provisions to apply MUTATIS MUTANDIS.
8. All terms of the Assigned Agreements, including any prohibition against
assignment, shall remain in full force and effect.
9. Ingenico and the Assignor hereby represent each to the other that the
Assigned Agreements are in full force and effect and will remain operative in
all respects prior to the Effective Date.
10. Ingenico hereby expressly agrees that the Transactions, as contemplated in
the Combination Agreement, do not and shall not constitute an Event of Default
as defined in Section 13.01 of the Master Alliance Agreement dated December 5,
1996 between the Assignor and Ingenico nor a default under any of the other
Assigned Agreements.
11. The Assignee hereby represents and warrants that, to the best of the
knowledge of the Assignee, the assignment of the Investment Agreement, as
amended, and any subsequent exercise by Ingenico of the
2
<PAGE>
Participation Right contained therein would not preclude the Transactions from
being accounted for under the pooling of interests method of accounting as set
out in the requirements of Accounting Principles Board Opinion No. 16, Business
Combinations and the published rules and regulations of the Securities and
Exchange Commission.
12. On the Effective Date, Newco shall cause its counsel to deliver to Ingenico
a standard enforceability opinion with respect to this Agreement, subject to the
usual qualifications.
Each party hereto agrees that it will from time to time and at all times
hereafter, upon every reasonable request of the other party hereto and its
successors and assigns, take such action or cause to be taken such action and
execute and deliver or cause to be executed and delivered such documents as may
reasonably be required for allowing the Assignee to assume the right, title,
interest and liabilities of the Assignor in, to and under the Assigned
Agreements.
14. If any term or other provision of this Agreement 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 transactions
contemplated hereby are fulfilled to the extent possible, failing which Ingenico
may elect to terminate this Agreement.
15. This agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the parties hereto attorn to such
jurisdiction.
16. This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
17. In the event the Combination Agreement is terminated for any reason this
agreement shall be null and void.
IN WITNESS WHEREOF this Agreement has been executed by the Assignor, the
Assignee and Ingenico.
INTERNATIONAL VERIFACT INC.
PER: /S/______________________________
IVI CHECKMATE CORP.
PER: /S/______________________________
INGENICO S.A.
PER: /S/______________________________
3
<PAGE>
SCHEDULE A
ASSIGNED AGREEMENTS
Master Alliance Agreement dated December 5, 1996 between International Verifact
Inc. ("IVI") and Ingenico S.A. ("Ingenico");
Investment Agreement between IVI and Ingenico dated December 5, 1996, as amended
by agreement dated December 17, 1996;
Marketing and Distribution Agreement between IVI, Ingenico and IVI-Ingenico Inc.
dated December 17, 1996;
Joint Development and Procurement Agreement between IVI and Ingenico dated
December 17, 1996;
Technology Licence Agreement between IVI and Ingenico dated December 17, 1996;
Latin America Unanimous Shareholders' Agreement between IVI, Ingenico and
IVI-Ingenico Inc. dated December 17, 1996;
4
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"; to the use
of our report dated February 18, 1998, with respect to the financial statements
of Checkmate Electronics, Inc.; and to the use of our report dated May 4, 1998,
with respect to the consolidated financial statements of IVI Checkmate Corp. in
the Registration Statement (Form S-4 No. 333- ) and related Joint Proxy
Statement/ Prospectus of IVI Checkmate Corp. for the registration of 18,381,207
shares of its common stock.
We also consent to the incorporation by reference therein of our report dated
February 18, 1998, with respect to the financial statements of Checkmate
Electronics, Inc. included in its Annual Report (Form 10-K) for 1997, as
amended, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Atlanta, Georgia
May 21, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF COOPERS & LYBRAND
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 12, 1998, on our audits of the consolidated financial
statements of International Verifact Inc. We also consent to the incorporation
by reference of our report dated February 12, 1998, on our audits of the
consolidated financial statements of International Verifact Inc. as of December
31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and 1995,
which report is included in the Annual report on Form 20-F. We also consent to
the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand
Chartered Accountants
Toronto, Ontario
May 22, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF BANCAMERICA ROBERTSON STEPHENS
<PAGE>
CONSENT OF BANCAMERICA ROBERTSON STEPHENS
We hereby consent to the inclusion and description of, and reference to, our
opinion letter, dated January 15, 1998 (the "Opinion"), to the Board of
Directors of International Verifact Inc. ("IVI"), which is included as Annex F
to the Joint Proxy Statement/Prospectus consituting a part of this Registration
Statement on Form S-4 covering common stock, par value $.01 per share, of IVI
Checkmate Corp. (the "Company") to be issued in connection with (i) the
arrangement under Section 192 of the Canada Business Corporations Act pursuant
to which IVI will become a wholly owned subsidiary of the Company and (ii) the
merger of Future Merger Subsidiary, a wholly owned subsidiary of the Company,
with and into Checkmate Electronics, Inc., each of which is in a form and
substance acceptable to us and our legal counsel. In giving such consent, we do
not admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities Exchange Commission promulgated thereunder
(collectively, the "Act"), nor do we admit that we are experts with respect to
any part of such Registration Statement within the meaning of the term "experts"
as used in the Act.
<TABLE>
<S> <C>
BANCAMERICA ROBERTSON STEPHENS
Date: May 22, 1998 By /s/ BANCAMERICA ROBERTSON STEPHENS
</TABLE>
<PAGE>
EXHIBIT 23.5
CONSENT OF BT ALEX. BROWN INCORPORATED
<PAGE>
CONSENT
OF
BT ALEX. BROWN INCORPORATED
We hereby consent to the inclusion and description of, and reference to, our
opinion letter, dated January 16, 1998 (the "Opinion"), to the Board of
Directors of Checkmate Electronics, Inc.("Checkmate"), which is included as
Annex G to the Joint Proxy Statement/Prospectus consituting a part of this
Registration Statement on Form S-4 covering common stock, par value $.01 per
share, of IVI Checkmate Corp. (the "Company") to be issued in connection with
the Combination Agreement dated as of January 16, 1998 pursuant to which
Checkmate will become a wholly-owned subsidiary of the Company. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities Exchange Commission promulgated
thereunder (collectively, the "Act"), nor do we admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "experts" as used in the Act.
BT ALEX. BROWN INCORPORATED
BY: /S/ BT ALEX. BROWN INCORPORATED
AUTHORIZED SIGNATORY
Date: May 18, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IVI
CHECKMATE CORP. CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1998 AND FOR
THE PERIOD FROM JANUARY 15, 1998 (date of inception) TO MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-15-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
PROXY FOR IVI
<PAGE>
EXHIBIT 99.1
INTERNATIONAL VERIFACT INC.
FORM OF PROXY SOLICITED BY MANAGEMENT FOR
ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
The undersigned shareholder of International Verifact Inc. (the
"Corporation") hereby appoints George Whitton, Chairman of the Board of
Directors of the Corporation, or, failing him, L. Barry Thomson, President and
Chief Executive Officer of the Corporation, with power of substitution, as the
proxyholder of the undersigned to attend and vote and act for and on behalf of
the undersigned at the Annual and Special Meeting of the Shareholders of the
Corporation to be held on June 23, 1998 (the "IVI Meeting") and any adjournment
thereof. The undersigned hereby revokes any proxy previously given to attend or
vote at the IVI Meeting. The undersigned hereby grants authorization to vote as
follows, namely:
1. FOR / / or AGAINST / / the special resolution to approve an arrangement
under section 192 of the Canada Business Corporations Act, all as more
particularly described in the Joint Management Information Circular and Proxy
Statement accompanying the notice of the IVI Meeting (the "Joint Proxy
Statement");
2. FOR / / or WITHHOLD FROM VOTING / / in respect of the election as
directors of the Corporation of the persons named in the Joint Proxy Statement;
3. FOR / / or WITHHOLD FROM VOTING / / in respect of the appointment of
Coopers & Lybrand as auditors of the Corporation for the fiscal year ending
December 31, 1998 and authorizing the directors of the Corporation to fix their
remuneration;
4. at the proxyholder's discretion:
i. on any variations or amendments to any of the above matters proposed
to the IVI Meeting or any adjournment thereof; and
ii. on any other matters that may properly come before the IVI Meeting
or any adjournment thereof.
The shares represented by this proxy will be voted or withheld from voting
in accordance with the above instructions. IF INSTRUCTIONS ARE NOT GIVEN WITH
RESPECT TO A MATTER REFERRED TO IN THIS PROXY AND A MANAGEMENT NOMINEE (BEING
THE PERSONS DESIGNATED IN THIS PROXY) IS APPOINTED AS PROXYHOLDER, THE SHARES
REPRESENTED BY SUCH PROXY WILL BE VOTED FOR OR IN FAVOUR OF SUCH MATTER.
DATED this day of , 1998.
--------------------------------------
Signature of Shareholder
1. EACH SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A
SHAREHOLDER) OTHER THAN THE PERSONS DESIGNATED IN THIS PROXY TO ATTEND AND VOTE
AND ACT FOR AND ON BEHALF OF SUCH SHAREHOLDER. This right may be exercised
either by striking out the designated names and inserting in the blank space
provided the name of the person to be appointed, or by using another appropriate
form of proxy.
2. If this form of proxy is used it must be dated and signed by the
shareholder or his or her attorney authorized in writing or, where the
shareholder is a corporation, by a duly authorized officer or attorney of the
corporation with an indication of the title of such officer or attorney and with
the corporation's name appearing above the signature line.
3. If this form of proxy is not dated in the space provided, it shall be
deemed to bear the date on which it is mailed by management of the Corporation.
<PAGE>
EXHIBIT 99.2
PROXY FOR CHECKMATE
<PAGE>
EXHIBIT 99.2
Proxy
CHECKMATE ELECTRONICS, INC.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints J. Stanford Spence and John J. Neubert, or
either of them, each with full power of substitution, acting jointly or by any
of them if only one be present and acting, attorneys and proxies to vote in the
manner specified below (according to the number of shares which the undersigned
would be entitled to cast if then personally present), all the shares of Common
Stock of Checkmate Electronics, Inc. ("Checkmate") held of record by the
undersigned on April 14, 1998, at the Special Meeting of Shareholders to be held
at the Four Points Hotel located at 1850 Cotillion Drive, Atlanta, Georgia, at
10 a.m., New York time, on June 23, 1998, at including any adjournments thereof.
1. To adopt the Combination Agreement, dated as of January 16, 1998, by and
among Checkmate, International Verifact Inc., IVI Checkmate Corp. and Future
Merger Corporation, pursuant to which, among other matters, (a) Future Merger
Corporation will merge with and into Checkmate and (b) the shares of Checkmate
Common Stock will be converted into the right to receive shares of Common Stock
of IVI Checkmate Corp., as described in the Joint Proxy Statement/Prospectus
dated May 26, 1997.
FOR / / AGAINST / / ABSTAIN / /
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1 ABOVE.
WITNESS my hand and seal this day of , 1998.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE OF SHAREHOLDER
PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAME OR NAMES APPEARS HEREON.
IF STOCK IS HELD JOINTLY, SIGNATURES SHOULD APPEAR FOR BOTH NAMES.
WHEN SIGNING AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE,
GUARDIAN OR CUSTODIAN, PLEASE INDICATE THE CAPACITY IN WHICH YOU ARE
ACTING.
Please fill in, date and sign the proxy and return it in the enclosed
postpaid envelope.
<PAGE>
EXHIBIT 99.3
CONSENT OF GERARD COMPAIN
<PAGE>
CONSENT
The undersigned hereby consents to his being named in the Registration
Statement on Form S-4 of IVI Checkmate Corp. filed with the Securities and
Exchange Commission as a person who will become a director of IVI Checkmate
Corp. upon the consummation of the transactions contemplated by the Combination
Agreement among IVI Checkmate Corp., International Verifact Inc., Checkmate
Electronics, Inc. and Future Merger Corporation dated as of January 16, 1998.
<TABLE>
<S> <C>
Dated: May 22, 1998 /s/ GERARD COMPAIN
------------------------------------------
Name: Gerard Compain
</TABLE>
<PAGE>
EXHIBIT 99.4
CONSENT OF GARETH OWEN
<PAGE>
CONSENT
The undersigned hereby consents to his being named in the Registration
Statement on Form S-4 of IVI Checkmate Corp. filed with the Securities and
Exchange Commission as a person who will become a director of IVI Checkmate
Corp. upon the consummation of the transactions contemplated by the Combination
Agreement among IVI Checkmate Corp., International Verifact Inc., Checkmate
electronics, Inc. and Future Merger Corporation dated as of January 16, 1998.
<TABLE>
<S> <C>
Dated: May 22, 1998 /s/ GARETH OWEN
------------------------------------------
Name: Gareth Owen
</TABLE>
<PAGE>
EXHIBIT 99.5
CONSENT OF PETER E. ROODE
<PAGE>
CONSENT
The undersigned hereby consents to his being named in the Registration
Statement on Form S-4 of IVI Checkmate Corp. filed with the Securities and
Exchange Commission as a person who will become a director of IVI Checkmate
Corp. upon the consummation of the transactions contemplated by the Combination
Agreement among IVI Checkmate Corp., International Verifact Inc., Checkmate
Electronics, Inc. and Future Merger Corporation dated as of January 16, 1998.
<TABLE>
<S> <C>
Dated: May 22, 1998 /s/ PETER E. ROODE
------------------------------------------
Name: Peter E. Roode
</TABLE>
