<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number: 000-29772
IVI Checkmate Corp.
(Exact name of Registrant as Specified in Its Charter)
Delaware
(State or other
jurisdiction of incorporation)
58-2375201
(I.R.S. Employer
Identification No.)
1003 Mansell Road
Roswell, Georgia 30076
(Address of Principal Executive Offices)
(770) 594-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of class)
Series C Junior Participating Preferred Stock Purchase Rights
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the registrant's common stock (including
exchangeable shares which are exchangeable into common stock) held by non-
affiliates of the registrant was $52,161,553.00 at March 29, 1999, based on the
closing sale price of $3.375 per share for the common stock on such date on the
Nasdaq National Market.
The number of shares of the registrant's common stock (including exchangeable
shares which are exchangeable into common stock) outstanding at March 29,
1999 was 18,112,140.
Documents Incorporated by Reference
Specifically identified portions of the Proxy Statement for the 1999 Annual
Meeting of Stockholders to be held on May 20, 1999 are incorporated by reference
in Part III.
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IVI CHECKMATE CORP.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 1998
TABLE OF CONTENTS
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Item Page
Number Number
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PART I
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1. Business ................................................................................. 1
2. Properties ............................................................................... 5
3. Legal Proceedings ........................................................................ 5
4. Submission of Matters to a Vote of Security Holders ...................................... 5
4(A) Executive Officers of the Registrant ..................................................... 5
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PART II
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5. Market for the Registrant's Common Equity and Related Stockholder Matters ................ 7
6. Selected Financial Data .................................................................. 8
7. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 10
7(A) Quantitative and Qualitative Disclosures about Market Risk ............................... 23
8. Financial Statements and Supplementary Data .............................................. 24
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..... 51
<CAPTION>
PART III
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10. Directors and Executive Officers of the Registrant ....................................... 52
11. Executive Compensation ................................................................... 52
12. Security Ownership of Certain Beneficial Owners and Management ........................... 52
13. Certain Relationships and Related Transactions ........................................... 52
<CAPTION>
PART IV
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14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........................... 52
Signatures ................................................................................ 57
</TABLE>
<PAGE>
PART I
Item 1. Business.
Overview
IVI Checkmate Corp. is the third largest electronic transaction solutions
provider in North America. IVI Checkmate was incorporated under the laws of the
State of Delaware on January 15, 1998 and became active on June 25, 1998 as a
result of the combination of International Verifact Inc., or IVI, a Canadian
corporation, and Checkmate Electronics, Inc., or Checkmate, a Georgia
corporation. IVI Checkmate operates in the electronic payment business through
its subsidiaries. IVI Checkmate owns all of the capital stock of IVI Checkmate
Ltd. (formerly IVI), IVI Checkmate, Inc. (formerly Checkmate) and their
subsidiaries.
Through our subsidiaries, we design, develop and market innovative payment
and value-added solutions that optimize transaction management at the point-of-
service in the retail, financial, hospitality, healthcare and transportation
industries. Our software, hardware and professional services minimize
transaction costs, reduce operational complexity and improve profitability for
our customers in the U.S., Canada and Latin America.
We distribute our products through direct sales and various third party
distribution arrangements. Our customers include banks, payment processors,
retail merchants, petroleum service stations, convenience-store operators,
supermarkets and other mass merchandisers, and government benefits disbursers.
No single customer accounted for more than 10 percent of our net revenues in
1998. We employ approximately 345 persons in the U.S. and 93 persons in Canada.
These employees are located in approximately five facilities, including
development centers, manufacturing and distribution centers, customer service
centers, and sales and support offices. Our principal executive office is
located at 1003 Mansell Road, Roswell, Georgia 30076, and our telephone number
is (770) 594-6000.
Electronic Payment Industry
During the 1980s, automating the processing of transactions -- credit and
debit card authorization, check verification, and the like -- was not cost-
effective, and most transactions were completed manually. In the late 1980s,
however, major changes in computer and telecommunications technology helped IVI
and Checkmate, among others, develop transaction automation systems that could
rapidly capture and process transaction data electronically.
The most established alternative to cash and checks is credit cards. After
credit cards, debit cards were introduced. Debit cards make direct withdrawals
from an account and are often used to make cash withdrawals at automatic teller
machines, or ATMs. Now, stored value cards based on smart card technology have
been developed, and their utility is being tested in the general public.
Companies like us in the electronic payment industry develop, manufacture and
market systems that facilitate various payment methods for an array of
customers. These systems provide greater convenience to consumers; speed
settlement and customer throughput for merchants; and potentially reduce
processing costs and losses from fraud for financial institutions.
Since the 1980s, IVI and Checkmate continued to develop and deliver low-
cost, highly reliable, easy-to-use transaction systems and played a major role
in developing the market for electronic payment processing. Today, IVI
Checkmate is a leading provider of transaction automation systems in the
electronic payment industry.
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Developments in 1998 - Introduction of Wireless Terminals and Customer
Interactive Terminals
In 1998, IVI Checkmate introduced wireless terminals and customer interactive
terminals. One such wireless terminal is one of the first fully portable long
range wireless terminal available in Canada for both debit and credit
applications. It is a complete hand-held point-of-sale solution that is
compact, lightweight and suited to portable applications where the terminal is
brought to the customer.
The customer interactive terminal is a multi-function terminal with a touch
sensitive screen that helps customers participate in more complex transactions,
such as applying for in-store credit. It satisfies the retailers' identified
need to increase customer intimacy. For example, personalized loyalty messages,
cross-selling suggestions and revenue generating electronic advertising can be
delivered to the customer while he or she is waiting for items to be processed
for payment. It can also digitally capture signatures written on its screen.
Neither of our principal competitors has a device with the same sophistication
or capabilities currently available to customers.
Other business developments in 1998 included several strategic mergers,
including the mergers with Plourde Computer Services, Inc. and Debitek Holdings
Limited.
Primary Objective - To Further Increase Our Sales and Market Share
IVI Checkmate's primary objective is to further increase its sales and share
of the electronic payment market by attracting new customers in existing and new
market segments. Key elements of our strategy include:
Investing in Market Development and Technology Initiatives. The electronic
payment industry is characterized by rapid change and new technologies.
Consequently, we must continually assess the impact and risks that these
changes, as well as our competitors' responses to these changes, will have on
our technology and market development initiatives. In anticipation of these
changes, we continue to invest in market development and technology initiatives
that we believe will help us increase our share of the electronic payment market
and allow us to better focus on our short and long-term product development
activities.
Expanding Our Product Offerings. Historically, IVI and Checkmate had derived
the majority of their net revenues from direct sales of hardware products. In
recent years, a business strategy was adopted to transition IVI Checkmate from a
provider of hardware products to a provider of end-to-end solutions. In the
transition, IVI Checkmate has expanded its expertise and capabilities to provide
software products and solutions to support software applications within its
hardware solutions and the integration within a retailer's point of sale system.
Furthermore, IVI Checkmate also provides professional services such as hardware
and software maintenance and other help desk facilities to ensure that its
customers receive optimal value for their investments.
Leveraging Existing Business Relationships. IVI and Checkmate have developed
a variety of business relationships over the years. We intend to leverage our
relationships with technology solution providers such as Ingenico, S.A., a
French public company, which will allow us to bring global technology and
products to our local markets. We also intend to leverage our existing customer
relationships to market and sell to them end-to-end solutions that are capable
of handling alternative forms of electronic payment transactions.
Expanding Our Distribution Network Globally. Historically, IVI and Checkmate
have derived a majority of their net revenues from direct sales to major
retailers and financial institutions in North America. Our strategy is to
expand the marketing and availability of our solutions through sales by
independent sales organizations, network distributors and value-added resellers.
Furthermore, we also intend to expand our product distribution locally, through
new product markets such as banking automation and hospitality, as well as
internationally, through our alliance with Ingenico.
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The IVI Checkmate Products
With over 15 years of manufacturing and technology expertise through our
subsidiaries, IVI Checkmate is a leading provider of electronic payment systems
that enable customers to respond to the demands of a rapidly growing, highly
competitive, global marketplace. We provide a variety of point-of-service
products such as terminals, check readers and software to facilitate the
processing of electronic payment transactions such as check, debit, credit,
smart card and electronic benefits transfer among customers, merchants and
financial institutions. In particular, IVI Checkmate has been successful at
addressing the technology and business requirements of its customers by
providing comprehensive product functionality and high quality customer service
on a cost-effective basis.
Product and Services Development
Our ongoing product development efforts focus on addressing the emerging needs
of the market by expanding the breadth and depth of the functionality of our
products and services and incorporating new technologies into them. Gross
product development expenditures for fiscal 1996, 1997 and 1998 are $6.9
million, $9.8 million and $9.1 million, respectively.
Development direction is established by senior management with guidance from
the marketing staff. The development team is responsible for design and design
verification, coding, quality assurance, documentation and products and
releases. In addition, we developed products and services in 1998 through
strategic mergers and alliance, including those summarized below.
Strategic Mergers
In September 1998 and December 1998, Plourde Computer Services, Inc. and
Debitek Holdings Limited were merged into IVI Checkmate. Plourde's flagship
product, PaymentMaster, is a suite of feature-rich Windows/NT based application
modules designed to manage electronic payments in multi-lane stores. The merger
with Plourde positions IVI Checkmate to provide payment solutions that integrate
into a retailer's store systems. Including Plourde and National Transaction
Network, Inc., or NTN, of which IVI Checkmate is the majority stockholder, IVI
Checkmate now has an installed base of 8,800 stores, making it a market leader
of in-store payment systems and a leading supplier of integrated payment
solutions to major users. The merger with Debitek expands IVI Checkmate's
presence in the point-of-sale market because Debitek has implemented systems
using smart cards and magnetic stripes in closed environments, such as
university and corporate campuses, correctional facilities and other government
facilities.
Strategic Alliance with Ingenico.
In December 1996, IVI entered into a strategic alliance with Ingenico.
Ingenico is a major global company in the electronic payment industry. Ingenico
develops, distributes, markets and manufactures transaction terminals with
application to payment systems, loyalty programs, electronic benefits transfer
systems and terminal systems for smart card technology, principally in Europe,
Australia and the Asia Pacific region.
In the combination, IVI Checkmate was assigned all the rights and obligations
of IVI under the strategic alliance with Ingenico. The strategic alliance
provides the following benefits to IVI Checkmate:
. an exclusive right to distribute Ingenico's products in the Americas through
2006;
. an exclusive license to use and incorporate Ingenico's UNICAPT and other
smart card technology into our future products;
. joint development of future products to lower manufacturing costs and
enhance the universal acceptance of products; and
. equity financing and support from a major global company in our industry.
3
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Customers
IVI Checkmate's primary customers are major retailers and financial
institutions, but our customers also include distributors, independent sales
organizations, value-added resellers and original equipment manufacturers. Our
customers generally seek electronic payment products and services to help manage
processing transactions. We believe that we meet the practical business
requirements of our customers by offering cost-effective products that integrate
a variety of electronic payment needs while enhancing consumer satisfaction.
Our products assist customers in meeting their internal goals of maintaining
operational flexibility and responding to market changes, while minimizing cost,
waste and disruption. We have over 15 years of experience in the development of
our products and rely upon our considerable industry knowledge to continually
anticipate the needs of our customers. None of our customers accounted for more
than 10% of our total revenues in the fiscal year ended December 31, 1998. See,
however, "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations Factors Affecting Future Performance We rely on
large customers."
Marketing and Sales
IVI Checkmate's marketing strategy focuses on positioning IVI Checkmate as a
leading provider of electronic payment products and increasing the name
recognition of IVI Checkmate and our products and services. In support of this
strategy, our marketing programs include trade shows, advertising, public
relations, direct marketing, worldwide web marketing, customer and internal
events and product management.
We sell our products to customers located throughout the U.S., Canada, and
Latin America. We market and sell our products and services directly and, when
more efficient, through strategic alliances with other companies.
Customer Support, Service and Maintenance
IVI Checkmate believes that providing high quality customer service and
technical support is necessary to achieve rapid product implementation which, in
turn, is essential to long-term customer satisfaction and continued revenue
growth. We provided extended support services through our TotalCARE(TM)
program.
IVI Checkmate presently maintains support centers in Roswell, Georgia and
Westborough, Massachusetts.
Competition, Proprietary Rights, Technology and Manufacturers and Suppliers
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations Factors Affecting Future Performance" for discussions on
competition, proprietary rights, technology and manufacturers and suppliers.
Item 2. Properties.
IVI Checkmate's principal administrative, marketing, product development and
support facilities are located in Roswell, Georgia, where IVI Checkmate leases a
total of approximately 100,000 square feet under a lease that expires on
December 30, 2001.
Our Canadian operations are located in Toronto, Ontario, where we lease a
total of approximately 30,000 square feet under a lease that expires in 2008.
We believe that our facilities are suitable and adequate for our current needs.
4
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Item 3. Legal Proceedings.
IVI Checkmate is not currently subject to any legal proceedings or claims.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of IVI Checkmate's stockholders during IVI
Checkmate's fourth fiscal quarter ended December 31, 1998.
Item 4(A). Executive Officers of the Registrant.
Set forth below is certain information as of December 31, 1998 regarding the
executive officers of IVI Checkmate.
L. Barry Thomson has been the President, Chief Executive Officer and a
director of IVI Checkmate since June 1998. Mr. Thomson joined IVI in April 1994
as President and Chief Operating Officer. He was named a director of IVI in May
1995 and was promoted to Chief Executive Officer in May 1996. Formerly
President and CEO of Aluma Systems Corporation, a construction technology
company, Mr. Thomson brought to IVI extensive Canadian, U.S. and international
experience in managing the growth of a technological and market driven
organization. Mr. Thomson built Aluma over 21 years from start up to the
largest company in its industry in North America and one of the four largest in
the world. He also served as Executive Vice President, director and member of
the Executive Committee of Aluma's parent company, Tridel Enterprises, Inc.,
Canada's largest builder of condominium dwellings. He graduated with a degree
in mechanical engineering from the University of Toronto in 1967 and became a
member of the Ontario Association of Professional Engineers in 1968. In 1970,
Mr. Thomson received his Chartered Accountant designation from Clarkson Gordon
(now Ernst & Young).
Gregory A. Lewis has been a director of IVI Checkmate and the President and
Chief Executive Officer of IVI Checkmate's U.S. operations since June 1998. Mr.
Lewis joined Checkmate as President and Chief Operating Officer in August 1997,
and he was named a director of Checkmate in October 1997. From 1984 until
joining Checkmate, Mr. Lewis was employed by VeriFone, Inc., an electronic
payment provider. Mr. Lewis was one of the founding executives of VeriFone and
served in various executive positions during his employment, most recently as
Vice President and General Manager of the Emerging Markets Division. Earlier in
his career, Mr. Lewis held various executive positions during a 14 year career
at National Data Corporation, a transaction processing company, and also served
as Executive Vice President of Business Development with BuyPass Corporation, a
third party point-of-sale processor and debit transaction acquirer.
John J. Neubert has been the Executive Vice President-Finance and
Administration, Chief Financial Officer, Secretary and Treasurer of IVI
Checkmate since June 1998. Mr. Neubert has served as the Senior Vice President-
Finance and Administration and Chief Financial Officer of Checkmate since 1990
and a director of Checkmate since 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 system 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.
5
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Common Stock Price
Prior to the combination of IVI and Checkmate on June 25, 1998, the common
stocks of IVI and Checkmate were traded on the Nasdaq National Market under the
symbols "IVIAF" and "CMEL", respectively, and the common stock of IVI was also
traded on the Toronto Stock Exchange under the symbol "IVI". Following the
combination, the common stock of IVI Checkmate began trading on the Nasdaq
National Market and the Toronto Stock Exchange under the symbols "CMIV" and
"IVC," respectively, and exchangeable shares of IVI that were issued in the
combination to stockholders of IVI instead of shares of IVI Checkmate common
stock began trading on the Toronto Stock Exchange under the symbol "IVI". The
IVI exchangeable shares, which are considered Canadian property for Canadian
deferred benefit plans, are convertible at any time, on a one-for-one basis,
into common stock of IVI Checkmate.
The table set forth below provides, on a per share basis for the periods
indicated, the high and low sales prices of the common stock of IVI, Checkmate
and IVI Checkmate as reported on the Nasdaq National Market, and the common
stock of IVI Checkmate and the exchangeable shares of IVI as reported on the
Toronto Stock Exchange.
<TABLE>
<CAPTION>
IVI Checkmate
-------------------
Common Shares Common Stock
-------------------------------------------- -------------------
Toronto Stock Nasdaq National Nasdaq National
-------------------
Exchange Market Market
------------------- ------------------- -------------------
(Canadian $) (US $) (US $)
High Low High Low High Low
-------- -------- -------- -------- -------- --------
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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
1998
Quarter ended March 31, 1998 ..................... 11.950 9.400 8.375 6.625 9.500 6.844
Quarter ended June 30, 1998 (through June 25,
1998) ......................................... 10.750 7.703 7.625 5.188 9.000 6.500
</TABLE>
<TABLE>
<CAPTION>
IVI Checkmate IVI
Common Stock Exchangeable Shares
------------------------------------------ --------------------
Nasdaq National Toronto Stock Toronto Stock
Market Exchange Exchange
------------------- -------------------- --------------------
(US $) (Canadian $) (Canadian $)
High Low High Low High Low
-------- -------- --------- -------- -------- ---------
1998
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Quarter ended June 30, 1998 (from June 26, 1998).. 7.125 6.250 10.094 9.406 9.000 8.000
AQuarter ended September 30, 1998 ................ 7.000 3.719 10.000 5.750 9.000 5.750
Quarter ended December 31, 1998 ................. 6.250 2.500 9.500 5.094 9.500 5.000
</TABLE>
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Holders
As of February 28, 1999, there were approximately 320 and 170 record holders
of the common stock and exchangeable shares, respectively, and IVI Checkmate
estimates that there were approximately 12,000 and 6,000 beneficial owners of
the common stock and exchangeable shares, respectively.
Dividend Policy
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.
IVI Checkmate has never paid any cash dividends on its common stock. IVI
Checkmate currently intends to all retain future earnings to fund future
development and growth in the operation of its business and therefore does not
anticipate paying any cash dividends in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of IVI Checkmate's
board of directors and will depend upon IVI Checkmate's results of operations,
financial condition, capital requirements and such other factors as the board of
directors deems relevant.
Recent Sales of Unregistered Securities
On September 29, 1998, IVI Checkmate issued 538,232 shares of common stock of
IVI Checkmate in exchange for 2,906,250 shares of common stock of Plourde. On
December 18, 1998, IVI Checkmate issued 916,644 shares of common stock of IVI
Checkmate, of which 430,355 shares are currently held in escrow, in exchange for
468,758 "A" ordinary shares of Debitek and 1,200,000 "B" ordinary shares of
Debitek. The issuances of such shares of common stock of IVI Checkmate were
exempt from the registration requirements of the Securities Act of 1933 pursuant
to Section 4(2) thereof. Such shares will be eligible for sale in the public
market subject to the conditions of Rule 144 of the Securities and Exchange
Commission.
Item 6. Selected Financial Data.
The following table sets forth selected statements of operations and balance
sheet data of IVI Checkmate for the years ended December 31, 1998, 1997, 1996,
1995 and 1994. The selected financial data for the years ended December 31,
1998, 1997 and 1996 and as of December 31, 1998 and 1997 have been derived from
IVI Checkmate's consolidated financial statements, which have been audited by
Ernst & Young LLP, independent auditors. The selected financial data for the
years ended December 31, 1995 and 1994 and as of December 31, 1996, 1995 and
1994 have been derived from IVI Checkmate's unaudited consolidated financial
statements which, in the opinion of management, have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of IVI Checkmate's financial position as of such date. The selected
financial data, which have been restated for all periods to reflect the
combination of IVI and Checkmate and the subsequent mergers with Plourde and
Debitek, should be read in conjunction with "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Item 8.
Financial Statements and Supplementary Data."
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<TABLE>
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Year Ended December 31
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1998 1997 1996 1995 1994
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(In thousands of dollars, except per share amounts)
Statements of Operations Data:
Net revenues:
By Region
United States $ 79,473 $62,647 $ 55,113 $48,822 $22,282
Canada 27,649 30,018 22,272 30,864 30,305
-------------- ----------- ------------ ------------ ----------
$107,122 $92,665 $ 77,385 $79,686 $52,587
============== =========== ============ ============ ==========
By Product Line
Electronic funds transfer $ 70,413 $63,488 $ 49,172 $50,046 $32,699
Check reader 26,157 19,927 23,375 25,829 15,843
Professional services 10,552 9,250 4,838 3,811 4,045
-------------- ----------- ------------ ------------ ----------
107,122 92,665 77,385 79,686 52,587
-------------- ----------- ------------ ------------ ----------
Cost of sales 65,818 58,015 47,378 50,568 33,959
-------------- ----------- ------------ ------------ ----------
Gross profit 41,304 34,650 30,007 29,118 18,628
-------------- ----------- ------------ ------------ ----------
Operating expenses:
Selling, general and administrative 25,118 24,769 20,327 16,216 13,921
Research and development 4,963 5,603 4,459 4,264 3,335
Depreciation and amortization 4,153 2,823 2,198 2,817 1,828
Unusual charges (1) 12,634 - 8,023 - 6,972
-------------- ----------- ------------ ------------ ----------
46,868 33,195 35,007 23,297 26,056
-------------- ----------- ------------ ------------ ----------
Operating income (loss) (5,564) 1,455 (5,000) 5,821 (7,428)
Other:
Minority interest 53 448 20 - -
Share of equity investee loss (342) - (147) - -
Interest income, net 302 478 512 346 291
-------------- ----------- ------------ ------------ ----------
Income (loss) before income taxes (5,551) 2,381 (4,615) 6,167 (7,137)
Income tax benefit (expense) 580 855 (5,684) (2,687) 3,197
-------------- ----------- ------------ ------------ ----------
Net income (loss) $ (4,971) $ 3,236 $(10,299) $ 3,480 $(3,940)
============== =========== ============ ============ ==========
Net income (loss) per common share $(0.28) $0.19 $(0.69) $0.24 $(0.32)
============== =========== ============ ============ ==========
<CAPTION>
As of December 31
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1998 1997 1996 1995 1994
-------------- ----------- ------------ ------------ ----------
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Balance Sheet Data:
Total assets $ 82,829 $76,584 $ 69,787 $66,357 $59,079
Long-term liabilities 787 2,085 1,124 1,598 609
Stockholders' equity 55,017 57,412 53,029 51,130 44,865
</TABLE>
(1) Unusual charges consist principally of merger costs in 1998 and writedown
of assets in each of 1998, 1996 and 1994. See also Note 10 of the Notes to
the Consolidated Financial Statements
Any trends that may be derived from the above table are not necessarily
indicative of our future operations.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
IVI Checkmate is a full-service solutions provider in the electronic payment
industry in the U.S., Canada and South America. We provide point-of-service
products such as terminals, check readers and software to facilitate the
processing of electronic payment transactions such as check, debit, credit,
smart card and electronic benefits transfer among consumers, merchants and
financial institutions.
IVI Checkmate was formed in June 1998 in a combination of IVI and Checkmate,
which was accounted for as a pooling-of-interests. Consequently, the financial
statements and other financial information as of dates and for all periods
included herein are consolidated, consisting of the combined historical
financial statements of IVI and Checkmate and their subsidiaries, as well as the
combined historical financial statements of Plourde and Debitek, which were
merged into IVI Checkmate in 1998 in transactions accounted for as poolings-of-
interests.
The following discussion and analysis of our consolidated financial condition
and results of operations for the years ended December 31, 1998, 1997 and 1996
should be read in conjunction with the IVI Checkmate consolidated financial
statements and accompanying notes. The financial statements have been prepared
based on U.S. generally accepted accounting principles. As used herein, the
terms "fiscal 1996", "fiscal 1997" and "fiscal 1998" refer to our fiscal years
ended December 31, 1996, 1997 and 1998, respectively.
Results of Operations
Fiscal 1998 Compared to Fiscal 1997
Revenues. Total revenues increased 16% from $92.7 million in fiscal 1997 to
$107.1 million in fiscal 1998. The increase in total revenues was attributed to:
. an 11% increase in sales of terminals and peripherals used for electronic
funds transfer due to the introduction of a new customer interactive touch
screen terminal, and the successful marketing of our eN-Scribe point-of-sale
printer;
. a 31% increase in check reader sales as a result of increased demand from
financial institutions and the success of our eN-Check 3000 dial check
reader, the only stand-alone dial-based check reader available in the
market; and
. a 14% increase in professional service revenues as a result of long-term
hardware and software maintenance agreements and services provided through
the TotalCARE program, our help desk facility.
Cost of Sales. Cost of sales increased 13% from $58.0 million in fiscal 1997
to $65.8 million in fiscal 1998 as a result of a 16% increase in revenues over
the same period. As a percentage of revenues, cost of sales decreased from 63%
in fiscal 1997 to 61% in fiscal 1998. The improvement is a result of continued
cost reduction programs and on-going business integration and manufacturing
efficiencies related to the combination of IVI and Checkmate.
Selling, General and Administrative. Selling, general and administrative
expenses increased 1% from $24.8 million in fiscal 1997 to $25.1 million in
fiscal 1998. These expenses represented 27% and 23% of total revenues in fiscal
1997 and 1998, respectively. The decrease in selling, general and administrative
expenses as a percentage of revenues reflects synergies from the combination of
IVI and Checkmate and subsequent mergers in fiscal 1998, our commitment to sell
more effectively, and our commitment to provide a wider range of end-to-end
payment solutions to our customers with limited increases in selling costs.
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Research and Development. Gross development expenditures include research
and development expense and capitalized software development costs, and consist
primarily of labor. Gross product development expenditures fluctuate from
quarter to quarter and year to year depending on the timing of product
development projects. In fiscal 1998, we announced several new products,
including the Elite 780 wireless point-of-sale terminal and the eN-Touch 1000
terminal. Gross expenditures for fiscal 1998 are net of expenditures of $669,000
that were incurred by NTN in its development of a Windows/NT software platform,
which costs were subsequently written off upon our merger with Plourde and are
classified in merger costs in the statements of operations. Gross expenditures
in fiscal 1997 included development costs of new products such as the eN-Check
3000 dial check reader and the eN-Scribe printers, as well as the development
cost of the eN-Touch 1000 touch screen terminal which continued into fiscal 1998
and 1999. The table set forth below provides a summary of our product
development expenditures in the last three fiscal years.
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
(In thousands of dollars)
Gross product development expenditures $9,076 $9,789 $6,912
Less: capitalized software development costs 4,113 4,186 2,453
--------------- --------------- ---------------
Net research and development expense 4,963 5,603 4,459
Amortization of previously capitalized costs 2,075 1,041 780
--------------- --------------- ---------------
Total expense $7,038 $6,644 $5,239
=============== =============== ===============
Product development as a percentage of net revenues:
Gross expenditures 8.5% 10.6% 8.9%
Net expense 4.6% 6.0% 5.8%
Total expense 6.6% 7.2% 6.8%
</TABLE>
Depreciation and Amortization. Depreciation and amortization increased 47%
from $2.8 million in fiscal 1997 to $4.2 million in fiscal 1998, primarily as a
result of higher amortization of software development costs previously
capitalized.
Unusual Charges. In fiscal 1998, we recorded charges to earnings in the
amount of $12.6 million to reflect costs associated with the combination of IVI
and Checkmate and the subsequent mergers with Plourde and Debitek. These costs
consisted of the following:
. professional fees and other transaction costs;
. closure costs, including severance and employee relocation costs, in the
immediate closure of IVI's U.S. operations in Boulder, Colorado, and the
transfer and integration of these operations into Checkmate's operations in
Atlanta, Georgia, which was completed in fiscal 1998, including the
termination of 35 employees;
. inventory obsolescence provision to reflect product redundancies;
. the write-off of a Windows/NT software platform under development by NTN
that was made redundant by the availability of Plourde's own commercially
viable Windows/NT platform; and
. the write-off of the remaining goodwill related to NTN as a result of a
permanent impairment in value which arose due to the termination of
development of a Windows/NT software platform by NTN.
Income Tax Benefit (Expense). Our statutory tax rate is 34%. However, our
income taxes were affected in fiscal 1998 and 1997 by utilization of non-
operating loss carryovers of previous years, and by a valuation allowance
adjustment on the realization of these non-operating loss carryovers in future
years. As a result of these
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factors, the taxes recorded on the statements of operations in fiscal 1998 and
1997 may not have direct correlation to the level of the pre-tax earnings in
each of those years.
We recorded income tax benefits of $580,000 and $855,000 for fiscal 1998 and
1997, respectively. The net deferred tax assets at December 31, 1998 were $3.3
million, net of a valuation allowance of $6.3 million, primarily relating to the
tax benefits associated with net operating loss carryforwards. Realization of
our net deferred tax assets depends on us generating sufficient taxable income
in future years in appropriate tax jurisdictions to obtain benefit from the
reversal of temporary differences and from net operating loss and credit
carryforwards. In our assessment, we believe that future levels of taxable
income will be sufficient to realize the net deferred tax asset. See Note 6 of
Notes to Consolidated Financial Statements.
Net Income (Loss). Net income (loss) for fiscal 1998 and 1997 was $(5.0)
million and $3.2 million, respectively. The decrease in net income was a result
of merger costs in fiscal 1998 associated with the combination of IVI and
Checkmate and subsequent mergers with Plourde and Debitek, and a tax benefit
recognized in fiscal 1997 due to an adjustment in the valuation of U.S. tax loss
carryforwards.
Fiscal 1997 Compared to Fiscal 1996
Revenues. Total revenues increased 20% from $77.4 million in fiscal 1996 to
$92.7 million in fiscal 1997. The increase in total revenues is attributed to:
. a 29% increase in sales of terminals and peripherals used for electronic
funds transfer due to the introduction in 1997 of a new low cost dial
terminal, and renewed ordering in fiscal 1997 from one of our largest
customers after order delays in fiscal 1996;
. a 15% decline in check reader sales due to reduced demand from large
customers for check reader products, which prompted the release in late
fiscal 1997 of a new dial check reader to expand the check reader market to
the mid-to-low tier retail level;
. a 91% increase in professional service revenues, primarily due to the
introduction of TotalCARE, a help desk facility, and a higher number of
maintenance contracts received and software development projects completed.
Cost of Sales. Cost of sales increased 22% from $47.4 million in fiscal 1996
to $58.0 million in fiscal 1997 as a result of a 20% increase in revenues over
the same period. As a percentage of revenues, cost of sales increased from 61%
in fiscal 1996 to 63% in fiscal 1997, primarily as a result of an unfavorable
product and customer mix, which was partially offset by manufacturing
efficiencies and cost reduction programs.
Selling, General and Administrative. Selling, general and administrative
expenses increased 22% from $20.3 million in fiscal 1996 to $24.8 million in
fiscal 1997. These expenses represented 26% and 27% of total revenue in fiscal
1996 and 1997, respectively. The increase in expenses was due to an increase in
personnel and related costs required to support the anticipated growth in new
products and net revenues, and inclusion for a full year in fiscal 1997 of these
expenses from NTN which was acquired by IVI in September 1996.
Research and Development. Gross development expenditures increased 42% from
fiscal 1996 to fiscal 1997 primarily as a result of our continuing efforts in
expanding our software expertise and the introduction of several new products
such as the dial check reader and point-of-sale printers.
Unusual Charges. In fiscal 1996, we recorded charges to earnings totaling
$8.0 million. These charges consisted of the following:
. Write-off of goodwill. We reviewed the recoverability of unamortized
goodwill, which arose from the acquisition of Soricon Corporation in
December 1994. The financial results of Soricon subsequent to
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the acquisition were below anticipated results upon which we based the
purchase price. Soricon did not meet sales targets for its check reader and
costs were much higher than anticipated. As a result, we compared the
unamortized goodwill against an estimate of the undiscounted cash flows
from the business to which the goodwill related over the remaining
amortization period, and determined that there was a permanent impairment
in the carrying value of the goodwill. Consequently, the remaining
unamortized balance of $6.8 million was written off in its entirety.
. Product redundancy. The incorporation of Ingenico's smart card technology
into our product line resulted in certain of our products becoming
unmarketable, and deferred development costs related to these products
becoming unrecoverable. Consequently, a charge of $1.2 million was
recorded.
Income Tax Benefit (Expense). Our statutory tax rate is 34%. However, our
income taxes were affected in fiscal 1997 and 1996 by utilization of non-
operating loss carryovers of previous years, and by a valuation allowance
adjustment on the realization of these non-operating loss carryovers in future
years. As a result of these factors, the taxes recorded on the statements of
operations in fiscal 1997 and 1996 may not have direct correlation to the level
of the pre-tax earnings in each of those years.
We recorded an income tax benefit of $855,000 for fiscal 1997 and an income
tax expense of $5.7 million for fiscal 1996. The net deferred tax assets at
December 31, 1997 were $1.9 million, net of a valuation allowance of $9.0
million, primarily relating to the tax benefits associated with net operating
loss carryforwards. Realization of our net deferred tax assets depends on us
generating sufficient taxable income in future years in appropirate tax
jurisdictions to obtain benefit from the reversal of tempoary differences and
from net operating loss and credit carryforwards. In our assessment, we believe
that future levels of taxable income will be sufficient to realize the net
deferred tax asset. See Note 6 of Notes to Consolidated Financial Statements.
Net Income (Loss). Net income (loss) for fiscal 1997 and 1996 were $3.2
million and $(10.3) million, respectively. The increase in net income was a
result of several factors, including the unusual charges that were recorded in
fiscal 1996, and adjustments in fiscal 1997 and 1996 to the valuation of U.S.
tax loss carryovers.
Liquidity and Capital Resources
We finance our operations primarily through cash flows from operations. Net
cash provided by (used in) operating activities was $3.5 million in fiscal 1998,
$(1.0) million in fiscal 1997 and $3.9 million in fiscal 1996. The fluctuations
in each year were the result of the timing of sales, which affected the levels
of accounts receivable, inventory and accounts payable balances.
Net cash used in investing activities was $5.1 million in fiscal 1998, $7.1
million in fiscal 1997 and $6.1 million in fiscal 1996. Purchases of property
and equipment and additions to deferred development costs and other non-current
assets were $8.8 million, $8.3 million and $6.5 million in fiscal 1998, fiscal
1997 and fiscal 1996, respectively. These uses of net cash were offset by net
proceeds from the sale of investments of $3.7 million and $1.2 million in fiscal
1998 and fiscal 1997, respectively, and cash of $662,000 acquired in connection
with the acquisition of NTN in fiscal 1996.
Net cash provided by financing activities was $2.7 million in fiscal 1998,
$5.1 million in fiscal 1997 and $9.6 million in fiscal 1996, and was primarily
the result of the issuance of common stock upon stock option exercises and an
equity interest acquired by Ingenico.
As of December 31, 1998, we had working capital of $36.0 million, including
$9.8 million in cash and cash equivalents. Furthermore, lines of credit have
been established for several of our subsidiaries with maximum borrowings
totaling, in aggregate, approximately $5.0 million. As of December 31, 1998, no
borrowings under these lines of credit were outstanding.
As of December 31, 1998, we did not have any material commitments for capital
expenditures.
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We believe that cash and cash equivalents on hand as of December 31, 1998,
together with cash flows from operations and available borrowings under the
lines of credit, will be sufficient to maintain our current level of operations
for at least the next 12 months.
Year 2000 Issue
Many existing computer hardware and software systems are designed to use only
two digits to identify a year in date fields (e.g. "98" for "1998"). These
systems may not properly recognize a year that begins with "20" instead of "19".
If not corrected, these systems could fail or could create erroneous results
when working with dates beyond the year 1999. This is commonly referred to as
the "Year 2000 issue". We believe that the Year 2000 issue may affect us in two
principal ways: through our products and through our operations.
IVI Checkmate designates each of the statements made herein as a Year 2000
Readiness Disclosure. Such statements are being made pursuant to the Year 2000
Information and Readiness Disclosure Act.
IVI Checkmate's Readiness Status
We develop and market hardware and software products which are date sensitive
and affected by the Year 2000 issue. We believe that we have taken all steps
necessary to ensure that our hardware and software products are Year 2000
compliant. Nevertheless, the Year 2000 issue could negatively affect the demand
for our products and the spending patterns of our customers.
Many hardware, operating system and application products developed by third
parties interact or operate with our hardware and software products, as well as
our operating systems. In addition, customers or others may modify our hardware
and software products or our operating systems after they have been installed.
We cannot assess the Year 2000 readiness of these hardware and software
products, operating systems or modified hardware and software products and
operating systems. If these products are not Year 2000 compliant, it could
adversely affect the performance and functionality of our applications that work
with these products. While we would not be responsible for these Year 2000
problems, we are unable to assess the effect they may have on our business,
financial condition and results of operations.
We principally rely on software products to support our internal accounting,
payables and invoicing operations. While these software products have been or
are in the process of being tested for Year 2000 compliance, we also rely on
third party systems developed by others for many of our critical internal
operations. In addition, our internal operations may also be affected by Year
2000 issues affecting third parties with whom we have relationships, including
contract manufacturers and other vendors (e.g., utilities, distributors, banks
and other suppliers). A Year 2000 problem affecting our systems or those of
third parties that we rely upon may have a material adverse effect on our
business, financial condition and results of operations.
We have assembled a Year 2000 taskforce consisting of representatives from our
development, marketing, support, information systems, facilities and finance
departments to assess the Year 2000 readiness of our internal operations and the
readiness of third parties on which we rely. The taskforce has identified and
assessed the Year 2000 readiness of most of the material information technology
and non-information technology systems used internally as part of our
operations, but such work is ongoing. The taskforce has tested or will test
these systems where feasible and practicable. We expect testing to be complete
by mid-1999. We believe the taskforce to have appropriate plans in place to
achieve timely Year 2000 readiness for our internal systems. However, our
ongoing assessment program may in the future reveal Year 2000 issues which are
not currently identified or fully understood.
The taskforce has identified those third parties on which our operations
materially rely. This includes our contract manufacturers and other suppliers.
The taskforce has gathered written materials published by such third parties or
otherwise communicated directly with such third parties to determine the Year
2000 readiness of their business operations or the readiness of the products or
services they supply to us. While the taskforce collected many responses and
other materials from such third parties regarding their Year 2000 readiness, the
process is ongoing. We expect this process to last until mid-1999.
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Company Costs to Address the Year 2000 Issue
We have been seeking Year 2000 compliance while upgrading our hardware and
software in the ordinary course of business and have not separately allocated
Year 2000 expenses during such process. However, we do not believe that these
Year 2000 costs are material. We do not expect to incur material additional
costs to remedy any remaining Year 2000 problems with our products and internal
systems. We, however, cannot currently assess the costs of remedying problems
which may result from the Year 2000 issues of others.
Risks
Our customer operations are heavily dependent on the constant availability of
telecommunications equipment and other utilities. As a result, IVI Checkmate
currently believes that the most reasonably likely worst case Year 2000 scenario
would involve the temporary interruption of electric power, telephone or other
utility supplies to our offices or our support operations facilities due to a
failure of a utility supplier to be Year 2000 compliant. In addition, despite
assurances and testing, it is also possible that our internal systems or those
of our customers and suppliers may not be Year 2000 ready.
In addition, "business interruption" litigation may arise out of the Year 2000
issue. We are not currently aware of any possible claim against us arising from
instances of business interruption. We currently believe our hardware and
software products to be Year 2000 compliant, but cannot ensure such compliance
for software products which were designed exactly to customer specifications for
their internal systems. Consequently, we cannot assure that all of these
customers are aware of the Year 2000 issue or that they have adopted appropriate
corrective solutions, and will therefore not bring Year 2000-related claims
against us which, with or without merit, could be time consuming and expensive
for us to defend or resolve.
Contingency Plans
We will establish a contingency plan to address the most reasonably likely
worst case scenario if, in our assessments, we identify a material business
function that is substantially at risk. Our assessments to date have not
identified such a risk. We have, however, not completed the testing of those
internal systems which we can test feasibly and practically, and have not
received all responses from those suppliers on which we rely, to fully assess
the potential Year 2000 exposures.
Cautionary Statements
The continued assessment, progress and timing of our Year 2000 readiness
efforts and potential exposures as described above depend upon the cooperation
and responsiveness of third parties, the accuracy and reliability of responses
provided and testing procedures, and the availability of skilled resources, both
internal and external, to address Year 2000 issues that exist or may arise.
There can be no assurance that assessments to date will prove to be accurate.
Serious deficiencies which are not currently identified or fully understood may
arise in the future and may have a material adverse impact on our business,
financial condition and results of operations. We plan to continue our taskforce
into the Year 2000 to assess Year 2000 issues affecting us, review the status of
our findings and develop appropriate contingency plans where necessary in an
effort to minimize the potential exposure to the Year 2000 issue.
Impact of Recent Accounting Standards
In 1998, FASB Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities", and AICPA Statement of Position 98-1, "Accounting for Costs
of Computer Software Developed or Obtained for Internal Use", were released. We
believe that the adoption of these statements, which are not required for fiscal
1998, will not have a significant effect on our financial statements.
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Inflation and Foreign Exchange Exposure
To date, we believe that inflation has not had a material impact on our
operations. We are, however, exposed to certain foreign exchange currency risks.
Our exposure to foreign currency exchange risk at December 31,1998 with regard
to Canadian dollars was reflected in a currency translation adjustment to
Stockholders' Equity of approximately $1.4 million. The weakened Canadian dollar
further impacted, but to a lesser degree, sales and expenses in 1998 that were
denominated in Canadian currency.
FACTORS AFFECTING FUTURE PERFORMANCE
We must adapt to changes in technology
The electronic payment industry is constantly changing. These changes
include, among others:
. rapid technological advances;
. evolving industry standards in electronic fund transfer and point-of-sale
products;
. changes in customer requirements; and
. frequent new product introductions and enhancements.
To be successful, IVI Checkmate must develop and use leading technologies
effectively, and continue to satisfy customer needs on a timely and cost-
effective basis. While IVI Checkmate continues to develop new products and
technologies, we may not successfully keep up with the new products and
technological advances of others. Several of our competitors have introduced
products and technologies that will compete with our products and technologies.
We cannot guarantee that present or potential customers will accept our new
products and technologies or that they will not choose to use our competitors'
products and technologies. If we are unable to develop and market new products
and product enhancements that achieve market acceptance on a timely and cost-
effective basis, it could materially and adversely affect our business,
financial condition and results of operations.
We rely on large customers
IVI Checkmate relies upon large banks and retail customers with a large
number of point-of-sale stations for a significant percentage of our revenues.
We continue to diversify our customer base by developing strategic alliances and
partnerships to open more distribution channels and limit our reliance on large
customers. While we continue to transact business with our current customers
and attract new ones, our revenues will decrease significantly if we lose a
large customer. We may also be unsuccessful in attracting new customers. The
demand for our products and services, especially from our large customers, may
decline. If these things occur, it could materially and adversely affect our
business, financial condition and results of operations.
The electronic payment industry is very competitive
The electronic payment industry is very competitive and subject to rapid
technological change. We expect competition to increase in the future. To
compete successfully in the future, IVI Checkmate must respond promptly and
effectively to changes in technology. We must also respond to our competitors'
innovations and provide low cost products through manufacturing efficiencies and
other costs savings measures. Certain of our competitors have significantly
greater financial, marketing, service, support and technical resources than us.
Certain of these competitors also have greater name recognition than us.
Accordingly, our competitors may be able to respond more quickly than us to new
or emerging technologies or changes in customer requirements. They may also be
able to devote greater resources to the development, promotion and sale of
products than us. In addition, our profit margins could decline because of
competitive pricing pressures that may have a material adverse effect on our
business, financial condition, and results of operations. Consequently, we may
not compete successfully against current or future competitors, and the
competitive pressures that we face may negatively affect our business, financial
condition and operating results.
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We attempt to differentiate ourselves from our competitors by providing
end-to-end solutions. Our competitors include VeriFone, Inc., a division of
Hewlett-Packard Company, Hypercom Corp. and NBS Technologies, Inc. Current and
potential IVI Checkmate competitors may make acquisitions or establish alliances
among themselves or with others. These acquisitions or alliances could increase
the ability of competitors' products to address the needs of our current or
prospective customers. As a result, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain a
significant share of the electronic payment market. For IVI Checkmate, this
could result in price reductions, the loss of current or prospective customers,
fewer customer orders and reduced net income.
Our hardware and software may contain defects and undetected errors
Our hardware and software, including the security features on our point-of-
sale payment systems, may contain undetected defects and errors. Although we
test our hardware and software before releasing it, we may discover defects and
errors in the future. Once detected, we may not be able to correct defects and
errors in a timely manner. The cost to fix defects and errors may be high.
Consequently, any undetected defects and errors in our hardware and software may
result in any of the following:
. delays in the shipment of the products;
. loss of market acceptance of the products;
. additional warranty expense;
. diversions of engineering and other resources from our other product
development efforts; and
. loss of credibility with our distributors and customers.
Therefore, any undetected defects and errors in our hardware and software could
adversely affect our business, financial conditions and results of operations.
Government and industry regulations may affect our financial condition and
ability to compete
Various regulatory factors affect our financial performance and ability to
compete. Governmental regulatory policies affect charges and terms for both
private-line and public network electronic payment services. Accordingly,
changes in such policies may:
. make it more costly to communicate on such networks;
. increase the costs of development;
. increase the opportunity for additional competition; or
. result in additional compensation.
If such regulatory action occurs, our business, financial condition and
operating results could be negatively affected.
IVI Checkmate must also obtain product certification on the applicable
customer's systems in the U.S., Canada and other countries. Any delays in
obtaining necessary certifications with respect to future products may delay the
introduction or result in the cancellation of such products. If we have any
delays in obtaining necessary certifications with respect to future products,
our business, financial condition and operating results could be negatively
affected.
We are subject to regulation by the Federal Communications Commission, or
FCC, with respect to the performance of certain products. Compliance with future
regulations or changes in the interpretation of existing regulations may result
in a need to modify products or systems. In the event that FCC rules are added
or their interpretations are changed, we could be negatively affected.
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We may be unable to protect and maintain the competitive advantage of our
proprietary technology and intellectual property rights
Our operations could be materially and adversely affected if we are not
adequately able to protect our proprietary software, audit techniques and
methodologies, and other proprietary intellectual property rights. We rely on a
combination of patents, copyrights, trademarks, trade secrets, nondisclosure and
other contractual arrangements and technical measures to protect our proprietary
rights. While we currently hold several U.S. and Canadian patents, we mainly
rely on copyright to protect our operating systems and various other software
programs. Nevertheless, we could be negatively affected if our competitors
successfully incorporate this technology into their products.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or obtain and use information that
we regard as proprietary. We could be negatively affected if our means of
protecting our proprietary information is inadequate. We may also be unable to
deter misappropriation of our proprietary information, detect unauthorized use
and take appropriate steps to enforce our intellectual property rights.
Furthermore, our competitors also may independently develop technologies that
are substantially equivalent or superior to our technology.
We may not be successful in avoiding claims that we infringe others' proprietary
rights
Although we believe that our services and products do not infringe on the
intellectual property rights of others, we can not prevent someone else from
asserting a claim against us in the future for violating their technology
rights. In the ordinary course of our business, third parties may claim that
our services infringe on their patent, copyright or trademark rights. We also
may be subject to court actions alleging that we violated a third party's
patent, copyright or trademark rights. Third parties making infringement claims
may have significantly greater resources than we do to pursue litigation, and we
cannot be certain that we would prevail in an infringement action.
Infringement claims, whether with or without merit, could be time
consuming, distract management, result in costly litigation, delay the
introduction of new services and require us to enter into royalty or licensing
agreements. As a result of an infringement claim, we could be required to
discontinue use of a specific technology, tradename or service mark. In such
instances, it could be expensive for us to develop or buy replacement technology
or market a new name. Consequently, whether justified or not, infringement
claims could have a negative effect on our business, financial condition and
operating results.
We depend on manufacturers and suppliers
We currently assemble certain products and components at our manufacturing
facility in Roswell, Georgia. However, we depend on other manufacturers and
suppliers for some of our products and certain components used in our products.
The components we obtain from other manufacturers and suppliers are only
available from a limited number of sources. Certain components and products are
currently purchased from single suppliers. While we maintain additional
inventory of certain products and continually evaluate alternative sources of
supply, the failure of any such single supplier to meet its commitment on
schedule could adversely affect us. If a sole source supplier goes out of
business or becomes unable to meet its supply commitments to us, our production
could be delayed. Such delays could adversely affect our business, financial
conditions and results of operations.
The use of outside manufacturers and suppliers also subjects IVI Checkmate
to the following additional risks:
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. potential quality assurance problems;
. availability of suitable competitive and cost effective manufacturers
and suppliers;
. potential loss of product margin; and
. price fluctuation, particularly for certain static random access memory
products.
IVI Checkmate is subject to the risk of product liability claims
IVI Checkmate's products are generally used to manage data critical to large
organizations. As a result, IVI Checkmate's development, sale and support of
products may entail the risk of product liability claims. IVI Checkmate's
license agreements with its customers typically contain provisions designed to
limit IVI Checkmate's exposure to potential product liability claims. However,
these provisions may not be effective under the laws of all jurisdictions. The
insurance maintained by IVI Checkmate may not be sufficient in scope or amount
to cover all personal injury, property damage and other claims if the
limitations on IVI Checkmate's liability contained in its license agreements are
ineffective. A successful product liability claim brought against IVI Checkmate
could therefore materially and adversely affect IVI Checkmate's business,
financial condition and results of operations. In addition, defending such a
suit, regardless of its merits, could require IVI Checkmate to incur substantial
expense and require the time and attention of key management personnel. This
could also materially and adversely affect our business, financial condition and
results of operations.
Our success depends upon our ability to attract and retain key personnel
IVI Checkmate's future performance depends upon the continued service of a
number of senior management and key technical personnel. The loss or
interruption of the services of one or more key employees could have a material
adverse effect on our business, financial condition and results of operations.
IVI Checkmate currently maintains no key-person life insurance on any of its key
employees.
IVI Checkmate's future financial results also will depend upon its ability to
attract and retain highly skilled technical, managerial and marketing personnel.
Competition for qualified personnel is significant and intense, and is likely to
intensify in the future. We compete for qualified personnel against numerous
companies, including larger, more established companies with significantly
greater financial resources than ours. Significant competition exists for such
personnel. At times we have experienced and continue to experience difficulty
recruiting and retaining qualified personnel. If we are unable to hire and
retain qualified personnel in the future, it could materially and adversely
affect our business, financial condition and results of operations.
Our directors, officers and Ingenico hold a large percentage of shares
Our directors, officers and their affiliates, including Ingenico, beneficially
own approximately 3,800,000 shares (approximately 20%) of our common stock,
including exchangeable shares and exercisable options. Our directors, officers
and their affiliates also hold options to acquire 265,000 shares of common stock
that are not immediately exercisable. Consequently, our directors, officers and
their affiliates could, as stockholders, control or exercise significant
influence over the election of directors and all other matters requiring
stockholder approval, including a change of control or ownership of IVI
Checkmate.
Failure to obtain Year 2000 compliance may negatively affect our business
The Year 2000 issue is the result of potential problems with computer systems
or any equipment with computer chips that store dates as two digits rather than
four (e.g., "99" for 1999). On January 1, 2000, these
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systems and equipment may read "00" as the year 1900 instead of the year 2000.
This problem could result in an interruption in, or failure of, certain of our
normal business activities and operations.
We have analyzed the Year 2000 issue with respect to our hardware and software
products, the hardware and software we use to provide our services and our
computerized information and operating systems. We do not believe that the costs
necessary to resolve the known Year 2000 problems will be material to our
operating results. However, if our projected timetable or cost estimates are
incorrect, our business, financial condition and results of operation could be
negatively affected. We are also discussing the Year 2000 issues with our
significant customers, manufacturers and suppliers. If they are unprepared for
Year 2000 problems, our business activities and operations could be negatively
affected. We are not yet certain to what extent our significant customers,
manufacturers and suppliers are Year 2000 compliant. If their systems are not
timely converted or if their converted systems are not compatible with ours, we
may experience a significant number of operational inconveniences and
inefficiencies for us and our customers that may divert our time and attention
and financial and human resources from our ordinary business activities. Any
Year 2000 problems we encounter may have a materially adverse affect on our
business, financial condition or operating results.
Many factors may affect our operating results and cause potential fluctuations
in our quarterly results
Our future success depends on a number of factors, many of which are
unpredictable and beyond our control. Moreover, many of these factors are
likely to cause IVI Checkmate's operating results, cash flows and liquidity to
fluctuate significantly from quarter to quarter in the future. These factors
include, among others:
. customers' acceptance of our new and enhanced services;
. the demand for IVI Checkmate's products;
. how quickly we are able to develop new products and services that our
customers require;
. whether and how quickly alternative technologies, products and services
introduced by our competitors gain market acceptance;
. the timing of the introduction of new or enhanced products and services
offered by IVI Checkmate or our competitors;
. changes in laws and regulations that affect our business;
. the number, size and successful integration of acquired companies and
relationships with alliance partners;
. prevailing conditions in the electronic payment marketplace and other
general economic and political factors;
. Year 2000 issues not identified or resolved on a timely basis, which may
affect our operations or the operations of our suppliers on whom we rely
upon;
. foreign currency exposures;
. our customers' inventory levels of IVI Checkmate products, which may affect
the timing of future orders;
. condition of the stock market; and
. competitive pricing pressures.
19
<PAGE>
Quarterly revenues and expenses are difficult to predict because the market
for our products and services is rapidly evolving. Our expense levels are
based, in part, on our expectations about future revenues. We typically record
a disproportionate amount of our revenue for each quarter in the final month of
the quarter, while expenses are generally incurred more evenly throughout the
period. If our actual revenue levels do not meet our projections or if our
expenses exceed our projections, operating results would likely be negatively
affected. Due to many factors, we believe that period-to-period comparisons of
our business are not necessarily meaningful. Because our industry changes so
quickly, our operating results in future quarters could be below the
expectations of public market analysts and investors. If we do not meet these
expectations, our stock price could fall significantly.
In addition, from time to time the stock market experiences significant price
and volume fluctuations. Stock market fluctuations have particularly affected
the stock prices of technology companies, such as IVI Checkmate.
We cannot assure you that we will effectively manage our growth
Our future operating results will depend heavily on our ability to manage our
business and make appropriate changes in the face of our growth and changing
industry conditions. If we do not respond appropriately to growth and change,
the quality of our services, our ability to retain key personnel and our
business in general could be negatively affected. If we do not correctly
predict our growth, our business, financial condition and operating results
could be negatively affected.
IVI Checkmate is subject to risks associated with making acquisitions and may
not be able to grow through acquisitions
As part of its business strategy, IVI Checkmate continually evaluates
potential acquisitions of, and cooperative ventures to acquire, complementary
technologies, products and businesses in the electronic payment market. In its
pursuit of strategic alliances, partnerships and acquisitions, IVI Checkmate may
be unable to:
. identify suitable strategic alliances, partnerships and acquisition
candidates;
. compete for strategic alliances, partnerships and acquisitions with other
companies, many of which have substantially greater resources than us;
. obtain sufficient financing on acceptable terms to fund strategic
alliances, partnerships and acquisitions;
. complete the strategic alliances, partnerships and acquisitions on terms
favorable to us;
. integrate acquired technologies, products and businesses into its existing
operations; and
. profitably manage acquired technologies, products and businesses.
Strategic alliances, partnerships and acquisitions may also involve a
number of risks including, among others, that:
. technologies, products or businesses acquired by us may not perform as
expected;
. technologies, products or businesses acquired by us may not achieve levels
of revenues, profitability or productivity comparable to those of our
existing technologies, products and operations;
20
<PAGE>
. strategic alliances, partnerships and acquisitions may divert the attention
of management and our resources;
. we may experience difficulty in assimilating the acquired operations and
personnel; and
. we may experience difficulty in retaining, hiring and training key
personnel.
Any or all of these risks could materially and adversely affect our business,
financial condition or results of operations.
IVI Checkmate has adopted measures that have anti-takeover effects
Under our Certificate of Incorporation, the board of directors may issue
preferred stock, with any rights it may wish to assign, without stockholder
action. IVI Checkmate has also adopted a stockholder rights plan under which it
has distributed rights to purchase shares of our Series C Junior Participating
Preferred Stock to its stockholders. If certain triggering events occur, the
holders of the rights will be able to purchase shares of common stock at a price
substantially discounted from the then applicable market price of the common
stock.
Exchange rate fluctuations between the U.S. dollar and other currencies in which
we do business may result in currency transaction losses
A significant portion of our revenues are denominated in Canadian Dollars.
Consequently, fluctuations in exchange rates between the U.S. and Canadian
Dollar may have a material adverse effect on our business, financial condition
and operating results and could also result in significant exchange losses.
Foreign currency transaction gains and losses are a result of transacting
business in certain foreign locations in currencies other than the functional
currency of the location. We attempt to balance our revenues and expenses in
each currency to minimize net foreign currency risk. To the extent that we are
unable to balance revenues and expenses in a currency, fluctuations in the value
of the currency in which we conduct our business relative to the functional
currency have caused and will continue to cause currency transaction gains and
losses. We cannot accurately predict the impact of future exchange rate
fluctuations on our results of operations. These currency exchange risks could
materially and adversely affect our business, financial condition and operating
results. See "Item 7A. Quantitative and Qualitative Disclosures About Market
Risk."
We have not sought to hedge the risks associated with fluctuations in exchange
rates but may undertake such transactions in the future. Any hedging techniques
which we implement in the future may not be successful, and exchange rate losses
could be exacerbated by hedging techniques that we use.
A large number of shares of our stock are currently eligible for public sale,
which could cause our stock price to drop
Sales of a substantial number of shares of our common stock in the public
market, or the prospect of these sales, could adversely affect the market price
of the common stock. These sales or the prospect of these sales could also
impair our ability to raise needed funds in the capital markets at a time and
price favorable to IVI Checkmate. As of December 31, 1998, IVI Checkmate had
approximately 17,835,000 shares of common stock outstanding, including
approximately 5,800,000 outstanding IVI exchangeable shares outstanding which
are exchangeable by the holders at any time for shares of IVI Checkmate common
stock on a one-for-one basis. Substantially all of the currently outstanding
IVI Checkmate common stock and all of the IVI Checkmate common stock for which
the exchangeable shares are exchangeable have been registered under the
Securities Act of 1933. Approximately 14,000,000 outstanding shares of IVI
Checkmate common stock are eligible for sale in the public market. The
remaining unregistered outstanding shares of IVI Checkmate common stock, as well
as approximately the outstanding shares owned by our directors and executive
officers and their affiliates, including Ingenico, will be
21
<PAGE>
eligible for sale in the public market at various times pursuant to Rule 144 of
the Securities and Exchange Commission.
As of December 31, 1998, IVI Checkmate had options outstanding under its stock
option plans for the purchase of a total of approximately 3,174,000 shares of
common stock at a weighted average exercise price of $6.29 per share. IVI
Checkmate had reserved an additional 1,797,900 shares of common stock that it
may issue upon the exercise of options granted in the future under these plans.
IVI Checkmate has in effect a registration statement under the Securities Act of
1933 covering its issuance of shares upon the exercise of these outstanding
options and IVI Checkmate's issuance of shares under its employee stock purchase
plan. All of these shares will be freely tradable in the public market, except
for shares held by affiliates of IVI Checkmate which will be eligible for public
sale at various times pursuant to Rule 144.
Our holding company structure may affect our performance and ability to pay
dividends and other distributions
IVI Checkmate is a holding company and our principal assets are all of the
outstanding stock of our operating subsidiaries, including IVI Checkmate Ltd.
and IVI Checkmate Inc. All of our operations are conducted through our
subsidiaries. Consequently, we depend on the earnings and cash flows of the
operations of our subsidiaries, as well as other dividends and distributions
from our subsidiaries.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This report as well as other documents that we file with the Securities and
Exchange Commission include forward-looking statements, including in particular
the statements about our plans, objectives, expectations and prospectus under
the headings "Item 1. Business" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" in this document.
The words "expect", "anticipate", "intend", "plan", "believe", "seek",
"estimate" and similar expressions identify forward-looking statements.
Although we believe that the plans, objectives, expectations and prospects
reflected in or suggested by such forward-looking statements are reasonable,
such statements involve uncertainties and risks, and we can give no assurance
that such plans, objectives, expectations and prospects will be achieved.
Important factors that could cause actual results to differ materially from the
results anticipated by the forward-looking statements are set forth in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Factors Affecting Future Performance" above and elsewhere in this
document. All written or oral forward-looking statements attributable to IVI
Checkmate Corp. are expressly qualified in their entirety by those cautionary
statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
IVI Checkmate does not engage in trading market risk sensitive instruments. We
also do not purchase, for investment, hedging or for purposes "other than
trading," instruments that are likely to expose us to market risk, whether
interest rate, foreign currency exchange, commodity price or equity price risk,
except as discussed in the following paragraph. IVI Checkmate has issued no debt
instruments, entered into no forward or futures contracts, purchased no options
and entered into no swaps, except as discussed in the following paragraph.
Our Canadian operations generate cash denominated in foreign currency.
Consequently, we are exposed to certain foreign currency exchange rate risks. As
a result, our financial results could be significantly affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in the
foreign markets in which we distribute products. Our operating results are
exposed to changes in exchange rates between the U.S. dollar and the Canadian
dollar. When the U.S. dollar strengthens against the Canadian dollar, the value
of non-functional currency sales decreases. When the U.S. dollar weakens, the
value of non-functional currency sales increases.
Our exposure to foreign currency exchange rate risk at December 31, 1998 with
regard to Canadian dollars was reflected in a currency translation adjustment to
Stockholder's Equity of approximately $1.4 million. The weakened Canadian
dollar further impacted, but to a lesser degree, sales and expenses in 1998 that
were denominated in Canadian currency.
Considering both the anticipated cash flows from changes in net working
capital and anticipated revenues for the next quarter, a hypothetical 10%
strengthening of the U.S. dollar relative to the Canadian dollar would not
materially adversely affect expected first quarter 1999 earnings or cash flows.
This analysis is dependent on actual Canadian dollar sales during the next
quarter. The effect of this hypothetical change in exchange rates ignores the
affect this movement may have on other variables including competitive risk. If
it were possible to quantify this competitive impact, the results could well be
different than the sensitivity effects shown above. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Factors Affecting Our Future Performance --
22
<PAGE>
Exchange rate fluctuations between the U.S. Dollar and other currencies in which
we do business may result in currency translation losses".
Item 8. Financial Statements and Supplementary Data.
The following is a list of the Consolidated Financial Statements:
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Reports of Independent Auditors .................................................................... 29
Consolidated Balance Sheets as of December 31, 1998 and 1997 ....................................... 31
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996........... 32
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996 ................................................................ 33
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996........... 34
Notes to Consolidated Financial Statements ......................................................... 35
</TABLE>
23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
IVI Checkmate Corp.
We have audited the consolidated balance sheets of IVI Checkmate Corp. as of
December 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1998. Our responsibility is to express an opinion
on these financial statements based on our audits. We did not audit the
financial statements of International Verifact Inc. which statements reflect
total assets constituting 39% at December 31, 1997 of the related consolidated
financial statement totals, and which reflect net revenues constituting
approximately 50% and 45% of the related consolidated financial statement totals
for the years ended December 31, 1997 and 1996, respectively. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for International Verifact Inc.,
is based solely on the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of IVI Checkmate Corp. at December 31, 1998
and 1997, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
February 12, 1999
Atlanta, Georgia
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Directors of
International Verifact Inc.
We have audited the consolidated balance sheet of International Verifact Inc. as
of December 31, 1997 and the consolidated statements of operations,
stockholders' equity, and cash flows for years ended December 31, 1997 and 1996.
These consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
fiancial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada. 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 referred to above
present fairly, in all material respects, the financial position of the company
as at December 31, 1997, and the consolidated results of its operations and cash
flows for years ended December 31, 1997 and 1996 in accordance with generally
accepted accounting principles in the United States.
COOPERS & LYBRAND
February 12, 1998
Toronto, Ontario
25
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except for Share Amounts)
<TABLE>
<CAPTION>
December 31
-------------------------------------------------
1998 1997
----------------- ------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 9,846 $ 9,390
Investments - 3,572
Accounts receivable, less allowance of $715 and $477
at December 31, 1998 and 1997, respectively 31,820 21,086
Inventories 15,743 18,111
Deferred tax asset 4,060 3,765
Refundable income taxes - 809
Prepaid expenses and other assets 1,581 1,198
----------------- ------------------
Total current assets 63,050 57,931
Property and equipment, net 8,224 8,567
Deferred development costs, net of accumulated amortization of
$4,765 and $2,900 at December 31, 1998 and 1997, respectively 10,150 8,234
Identifiable intangible assets, net of accumulated amortization of
$1,295 and $1,014 at December 31, 1998 and 1997, respectively 1,320 1,159
Goodwill - 642
Other assets 85 51
----------------- ------------------
$ 82,829 $ 76,584
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank line of credit $ - $ 938
Accounts payable 17,547 10,150
Accrued liabilities 6,622 4,141
Deferred revenue 2,805 1,628
Other 51 230
----------------- ------------------
Total current liabilities 27,025 17,087
Deferred tax liability 769 1,872
Minority interest and other 18 213
----------------- ------------------
27,812 19,172
Stockholders' Equity
Preferred stock, $0.01 par value
Authorized - 1,000,000 shares, none issued - -
Common stock, $0.01 par value
Authorized - 99,000,000 shares
Issued and outstanding 17,835,000 and 17,399,000 at
December 31, 1998 and 1997, respectively 178 174
Additional paid-in capital 80,109 78,285
Accumulated deficit (23,132) (18,161)
Foreign currency translation adjustment (2,138) (727)
----------------- ------------------
55,017 59,571
Less: treasury stock, at cost 332,150 shares at December 31, 1997 - (2,159)
----------------- ------------------
Total stockholders' equity 55,017 57,412
----------------- ------------------
$ 82,829 $ 76,584
================= ==================
</TABLE>
See accompanying notes.
26
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars, Except for Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------------------------
1998 1997 1996
----------------- ------------------- ------------------
<S> <C> <C> <C>
Net revenues $107,122 $92,665 $ 77,385
Cost of sales 65,818 58,015 47,378
-------- ------- --------
Gross profit 41,304 34,650 30,007
-------- ------- --------
Operating expenses:
Selling, general and administrative 25,118 24,769 20,327
Research and development 4,963 5,603 4,459
Depreciation and amortization 4,153 2,823 2,198
Merger and related costs (Note 10) 11,334 - -
Write-off of long-lived assets (Note 10) 1,300 - 8,023
-------- ------- --------
46,868 33,195 35,007
-------- ------- --------
Operating income (loss) (5,564) 1,455 (5,000)
Other:
Minority interest 53 448 20
Share of equity investee loss (342) - (147)
Interest income 423 588 585
Interest expense (121) (110) (73)
-------- ------- --------
Income (loss) before income taxes (5,551) 2,381 (4,615)
Income tax benefit (expense) 580 855 (5,684)
-------- ------- --------
Net income (loss) $ (4,971) $ 3,236 $(10,299)
-------- ------- --------
Net income (loss) per share:
Basic $(0.28) $0.19 $(0.69)
Diluted $(0.28) $0.19 $(0.69)
Weighted average shares outstanding (000's):
Basic 17,528 16,817 15,011
Diluted 17,528 17,318 15,011
</TABLE>
See accompanying notes.
27
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
$0.01 PAR VALUE ADDITIONAL CURRENCY TOTAL
-------------------- PAID-IN ACCUMULATED TRANSLATION TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT STOCK EQUITY
-------- ---------- ------------ ------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 14,578 $146 $62,034 $(11,073) $ 514 $ - $ 51,621
Comprehensive loss:
Net loss - - - (10,299) - - (10,299)
Currency translation
adjustment - - - - (69) - (69)
---------
Comprehensive loss (10,368)
Exercise of stock options 380 4 2,588 - - - 2,592
Issuance of common stock 1,443 14 7,513 - - - 7,527
Issuance of common stock on
acquisition of subsidiary 230 2 1,259 - - - 1,261
Exercise of warrants - - 4 - - - 4
Tax benefit related
to employee stock options - - 392 - - - 392
------ ---- ------- -------- ------- ------ ---------
Balance at December 31, 1996 16,631 166 73,790 (21,372) 445 - 53,029
Comprehensive income:
Net income - - - 3,236 - - 3,236
Currency translation
adjustment - - - - (1,172) - (1,172)
---------
Comprehensive income 2,064
Exercise of stock options 739 7 3,866 - - - 3,873
Issuance of common stock 29 1 409 - - - 410
Purchase of treasury stock - - - - - (2,159) (2,159)
Exercise of warrants - - 4 - - - 4
Capital dividend - - - (25) - - (25)
Tax benefit related
to employee stock options - - 216 - - - 216
------ ---- ------- -------- ------- ------ ---------
Balance at December 31, 1997 17,399 174 78,285 (18,161) (727) (2,159) 57,412
Comprehensive loss:
Net loss - - - (4,971) - - (4,971)
Currency translation
adjustment - - - - (1,411) - (1,411)
---------
Comprehensive loss (6,382)
Exercise of stock options 363 4 1,396 - - - 1,400
Issuance of common stock 73 - 333 - - - 333
Sale of treasury stock - - 95 - - 2,159 2,254
------ ---- ------- -------- ------- ------ ---------
Balance at December 31, 1998 17,835 $178 $80,109 $(23,132) $(2,138) $ - $ 55,017
====== ==== ======= ======== ======= ====== =========
</TABLE>
See accompanying notes.
28
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------------
1998 1997 1996
------------------- -------------------- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (4,971) $ 3,236 $(10,299)
Adjustments to reconcile net income (loss) to net
cash
provided by (used) in operating activities:
Depreciation and amortization 6,174 3,682 2,732
Minority interest (54) (448) (20)
Share of equity investee loss 342 - 147
Accretion of marketable securities discount 9 30 74
Deferred income taxes (1,398) (554) 4,214
Write-off of goodwill 630 - 6,806
Product writedown - - 1,217
Changes in operating assets and liabilities:
Accounts receivable (11,284) (4,931) 2,720
Inventories 2,181 (2,541) (4,489)
Refundable income taxes 809 (469) 99
Prepaid expenses and other assets (423) 258 (718)
Accounts payable and accrued liabilities 10,267 1,301 442
Deferred revenue 1,202 (568) 986
------------------- -------------------- ------------------
Net cash provided by (used in) operating activities 3,484 (1,004) 3,911
------------------- -------------------- ------------------
INVESTING ACTIVITIES
Purchase of property and equipment (3,559) (4,156) (3,061)
Deferred development costs (4,113) (4,186) (2,455)
Purchases of investments (10,656) (11,673) (21,483)
Proceeds from sale of investments 14,390 12,882 21,293
Purchase of intangible assets (514) - (990)
Cash acquired on acquisition of subsidiary - - 662
Other (600) (8) (28)
------------------- -------------------- ------------------
Net cash used in investing activities (5,052) (7,141) (6,062)
------------------- -------------------- ------------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 3,987 4,282 10,123
Borrowings of debt - 500 195
Repayments of debt (1,260) (141) (747)
Received from minority stockholders 20 411 -
------------------- -------------------- ------------------
Net cash provided by financing activities 2,747 5,052 9,571
------------------- -------------------- ------------------
Effect of exchange rate fluctuations on cash (723) (472) (37)
------------------- -------------------- ------------------
Net increase (decrease) in cash and cash equivalents 456 (3,565) 7,383
Cash and cash equivalents at beginning of year 9,390 12,955 5,572
------------------- -------------------- ------------------
Cash and cash equivalents at end of year $ 9,846 $ 9,390 $ 12,955
------------------- -------------------- ------------------
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 121 $ 86 $ 73
=================== ===================== ==================
Cash paid for income taxes $ 439 $ 300 $ 1,073
=================== ==================== ==================
</TABLE>
See accompanying notes.
29
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
IVI Checkmate (also "we" and "our") designs, develops and markets point-of-
sale payment systems in North and South America. Our automated payment solutions
handle electronic payment transactions such as check, debit, credit, smart card
and electronic benefits transfer, serving the retail, financial, hospitality,
banking, healthcare and transportation industries. The industry in which we
operate is subject to rapid change due to the development of new competing
technologies and products.
Basis of Presentation
In June 1998, the operations of International Verifact Inc. ("IVI") and
Checkmate Electronics, Inc. ("Checkmate") were combined pursuant to the
Combination Agreement ("the Combination"). Under the terms of the Combination,
IVI stockholders received, for each IVI common share, either one share of common
stock of IVI Checkmate, or one IVI exchangeable share, which can be exchanged at
any time for the IVI Checkmate common stock. Checkmate stockholders received
1.2775 shares of IVI Checkmate common stock for each Checkmate common stock and,
accordingly, approximately 5,140,000 shares were converted. The Combination was
accounted for as a pooling-of-interests, and accordingly, the consolidated
financial statements have been restated to reflect the historical results of
both companies for all periods presented. Information concerning common stock
and per share data has been restated on an equivalent share basis and assumes
the exchange of all exchangeable shares.
In 1998, we also completed mergers with Plourde Computer Services, Inc.
("Plourde") and Debitek Holdings Limited ("Debitek"). These mergers were also
accounted for as a pooling-of-interests and, accordingly, our consolidated
financial statements have been restated for all prior periods to give effect to
these mergers.
The consolidated financial statements include the accounts of our
subsidiaries: IVI Checkmate Inc. (formerly Checkmate Electronics, Inc.), IVI
Checkmate Ltd. (formerly International Verifact Inc.), Plourde, Debitek and 82%
owned National Transaction Network, Inc. ("NTN"). In addition, financial
statements presented for 1997 also include the consolidation of IVI Ingenico
Inc., a 51% owned business venture formed in January 1997. However, in January
1998, we reduced our ownership in IVI Ingenico Inc. to 50%, with a third party
owning the other 50% interest. Consequently, the financial statements presented
for 1998 reflect a prospective change in accounting policy in accordance with
U.S. GAAP, as the investment in IVI Ingenico Inc. was accounted for under the
equity method, instead of consolidation. All intercompany balances and
transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates and assumptions that affect
the amounts reported in our consolidated financial statements and accompanying
notes. Actual results may differ from those estimates, and such differences
could be material to our consolidated financial statements.
Foreign Currency Translation
Our Canadian subsidiary considers the Canadian dollar to be its functional
currency. The assets and liabilities of our Canadian operations are translated
at year-end rates of exchange and revenues and expenses are translated at the
weighted average monthly rates of exchange during the year.
30
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Gains and losses resulting from currency translation are accumulated as a
separate component of stockholders' equity. Gains and losses resulting from
foreign currency transactions are included in the determination of net income.
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 consist of U.S. Treasury bills with maturities greater than three
months when purchased and are stated at cost plus accrued interest, which
approximate market value. At December 31, 1998 and 1997, investments held were
$0 and $3.6 million, respectively.
Inventories
Inventories are valued at the lower of cost or market using the first-in,
first-out method:
<TABLE>
<CAPTION>
December 31
1998 1997
------------------ ------------------
(In thousands of dollars)
<S> <C> <C>
Finished goods $ 6,222 $ 8,302
Work in process 1,320 874
Raw materials and supplies 11,944 10,898
------- -------
19,486 20,074
Less: obsolescence reserve (3,743) (1,963)
------- -------
$15,743 $18,111
======= =======
</TABLE>
Obsolescence expense, including additional charges for product writedown and
redundancy (see Note 10) approximated $2.8 million, $393,000 and $1.3 million
for the three years ended December 31, 1998, 1997 and 1996, respectively.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed over the
estimated useful lives of the related assets (generally three to five years)
using the straight-line method for financial reporting purposes and accelerated
methods for income tax purposes. Property and equipment comprises the following:
<TABLE>
<CAPTION>
December 31
1998 1997
------------------ ------------------
(In thousands of dollars)
<S> <C> <C>
Equipment $ 17,444 $15,180
Furniture and fixtures 2,465 2,554
-------- -------
19,909 17,734
Less: accumulated depreciation (11,685) (9,167)
-------- -------
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
$ 8,224 $ 8,567
-------- -------
</TABLE>
Depreciation expense approximated $3.8 million, $2.3 million and $1.8 million
for the years ended December 31, 1998, 1997 and 1996, respectively.
32
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 not to exceed five years). Amortization expense was
approximately $2.1 million, $1.0 million and $780,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
Identifiable Intangible Assets
Identifiable intangible assets consist of costs related to copyrights;
patents; trademarks; technology property rights; licensing 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 $292,000,
$216,000 and $133,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Goodwill
Goodwill is amortized on a straight-line basis over its useful life, not to
exceed 10 years. Amortization expense was approximately $38,000, $75,000 and
$19,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Goodwill is written down to its estimated net recoverable amount when it is
determined that a permanent impairment in value has occurred. The recoverability
of unamortized goodwill is assessed based on an estimate of undiscounted cash
flows over the remaining period of amortization for each business to which the
goodwill relates.
Revenue Recognition
Revenues are derived from sales of products and related service agreements.
Revenues from hardware product sales are recognized at the time of shipment.
Revenue from the sale and installation of proprietary software products are
recognized using the percentage of completion method, as the products may
require significant customization and modification of the software during
installation. Revenues from maintenance agreements are deferred and recognized
ratably over the life of the related service agreements.
Deferred 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.
Employee Stock Options
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation" ("Statement 123"). Under Statement 123, we could continue
following previously existing accounting rules or adopt a new fair value method
of valuing stock-based awards to employees. We have 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 employee stock options. The pro forma
33
<PAGE>
effect on the accompanying consolidated statements of operations of reporting
under Statement 123 is presented in Note 4.
34
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Net Earnings 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.
Statement 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. Potential common
stock is not included in the per share calculations where the effect of its
inclusion would be anti-dilutive. Statement 128 requires the presentation of
basic and diluted earnings per share on the face of the income statement for all
entities with complex capital structures. We 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 1998, we adopted FASB Statement No. 130, "Reporting Comprehensive
Income" ("Statement 130"). This statement establishes rules for the reporting of
comprehensive income and its components. Comprehensive income consists of net
income and foreign currency translation adjustments and is presented in the
Consolidated Statements of Stockholders' Equity. The adoption of Statement 130
had no impact on total stockholders' equity. Prior year consolidated financial
statements have been reclassified to conform to the Statement 130 requirements.
In 1998, we adopted FASB Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("Statement 131"). This statement
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 stockholders. 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. Prior year consolidated financial statements have been
reclassified to conform to the Statement 131 requirements.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities", was released.
The statement requires the recognition of all derivatives as either assets or
liabilities in the balance sheet and the measurement of those instruments at
fair value. The accounting for changes in the fair value of a derivative depends
on the planned use of the derivative and the resulting designation. We are
required to implement the statement in the first quarter of fiscal 2000. We have
not used derivative instruments and we believe the impact of adoption of this
statement will not have significant effect on our financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use." This statement is effective for fiscal
years beginning after December 15, 1998. This statement provides guidance on
accounting for the cost of computer software developed or obtained for internal
use. We adopted this statement on January 1, 1999 and are currently in the
process of evaluating its impact.
35
<PAGE>
Reclassifications and Restatements
Certain reclassifications were made in the 1997 and 1996 consolidated
financial statements to conform with the 1998 presentation. In addition, share
information and amounts have been restated to reflect the effects of the
pooling-of-interests of IVI, Checkmate, Plourde and Debitek.
36
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. FINANCIAL INSTRUMENTS AND CONCENTRATIONS
Financial instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and trade accounts receivable.
IVI Checkmate maintains cash and cash equivalents and certain other financial
instruments with various financial institutions. Our policy is designed to
limit exposure at any one institution.
We try to maintain a diversity of customers such that total revenues are not
dependent on any one customer. In each of 1997 and 1998, no one customer
accounted for more than 10% of total revenues, while in 1996, one such customer
accounted for 15% of total revenues in that year.
We perform ongoing credit approvals of our customers. Trade receivables are
unsecured, and we are at risk to the extent such amounts become uncollectible.
However, losses on receivables have in the past been within our expectations.
For the years ended December 31, 1998, 1997 and 1996, we recorded bad debts
expense of $226,000, $178,000 and $163,000, respectively.
The carrying amounts reported in the balance sheet for cash and cash
equivalents, investments, accounts receivable, accounts payable and bank lines
of credit approximate their estimated fair values based on discounted cash flow
analyses using current market rates.
3. BORROWINGS AND OTHER DEBT
Borrowings and other debt consist of bank lines of credit with a total of $0
and $938,000 outstanding at December 31, 1998 and 1997, respectively. We
currently have several lines of credit available to us that expire throughout
1999, with total borrowings available of approximately $5 million at various
interest rate terms.
37
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. EQUITY
Exchangeable Shares
Effective June 25, 1998, as a result of the Combination, IVI stockholders
received, for each IVI common share, either one share of common stock of IVI
Checkmate or one IVI exchangeable share. Accordingly, 6.0 million exchangeable
shares were issued. Each exchangeable share is intended to have substantially
identical economic and legal rights as, and will ultimately be exchanged on a
one-for-one basis for, a share of IVI Checkmate common stock. As of December 31,
1998, we had 17.8 million shares outstanding, including 5.8 million exchangeable
shares still outstanding as of December 31, 1998.
Preferred Stock
The board of directors of IVI Checkmate is authorized to issue up to 1,000,000
shares of Preferred Stock, par value $.01 per share, in one or more series and
to fix the powers, voting rights, designations and preferences of each series.
IVI Checkmate designated and issued one share of Series A Preferred Stock and
one share of Series B Preferred Stock in connection with the Combination. The
one share of Series A Preferred Stock was cancelled as a result of the
Combination. The one share of Series B Preferred Stock remains outstanding and
does not entitle its holder to any rights to dividends but does entitle its
holder to voting rights equivalent to the number of exchangeable shares
outstanding from time to time and a $1.00 liquidation preference. On September
16, 1998, the board of directors designated 100,000 shares of Series C Junior
Participating Preferred Stock. See "--Stockholder's Rights Plan" below for a
description of the Series C Junior Participating Preferred Stock.
Stockholder's Rights Plan
On September 16, 1998, the board of directors adopted a Stockholder Protection
Rights Agreement and, in connection with such agreement, designated 100,000
shares of Series C Junior Participating Preferred Stock. The rights plan
committee of the board of directors declared a dividend of one stock purchase
right on each outstanding share of common stock and exchangeable share. The
right will be exercisable only if a person or group becomes a 15% or more
beneficial owner of IVI Checkmate. Each right entitles stockholders to buy one
one-thousandth (1/1000th) of a share of the Series C Junior Participating
Preferred Stock at an exercise price of $30.00. If certain triggering events
occur, the holders of the rights will be able to purchase shares of common stock
at a price substantially discounted from the then applicable market price of our
common stock. Prior to the time that they become exercisable, the rights are
redeemable for one cent per right at the option of the board of directors.
Stock Option Plans
We reserved 2,500,000 common shares for issuance pursuant to our 1998 Long-
Term Incentive Plan and 250,000 common shares for issuance pursuant to our 1998
Director Plan (the "Plans"). The Plans provide for the awarding of non-qualified
stock options and director options, to purchase common shares from time to time
at our discretion. At December 31, 1998, options totaling 952,000 were issued
and outstanding under these Plans.
In connection with the Combination, in June 1998 we assumed 380,000 and
1,796,000 outstanding options to purchase common stock originally issued under
stock option plans of IVI and Checkmate, respectively. In connection with our
merger with Plourde, in September 1998 we assumed an additional 370,000 options
to purchase common stock that were originally issued and outstanding under
Plourde's stock option plan. Upon our assumption of the stock option obligations
of IVI, Checkmate and Plourde, no further options were granted under their
respective plans. As of December 31, 1998, a total of 4,972,000 shares of common
stock are reserved for issuance under various stock option plans, including
2,222,000 options still outstanding under the stock option plans of IVI,
Checkmate and Plourde.
38
<PAGE>
IVI CHECKMATE CORP.
NOTES TO FINANCIAL STATEMENTS (continued)
4. EQUITY (continued)
Stock Option Plans (continued)
The following table summarizes stock option plan activities.
<TABLE>
<CAPTION>
Weighted
Average
Number Of Exercise
Options Price
----------------- --------------------
(000's)
<S> <C> <C>
Outstanding at January 1, 1996 2,724 $7.25
Granted 1,041 5.89
Exercised (380) 6.84
Canceled (330) 9.59
-----------------
Outstanding at December 31, 1996 3,055 $6.58
Granted 1,875 5.93
Exercised (739) 5.24
Canceled (1,504) 7.73
-----------------
Outstanding at December 31, 1997 2,687 $5.81
Granted 1,152 6.80
Exercised (363) 4.00
Canceled (302) 6.69
-----------------
Outstanding at December 31, 1998 3,174 $6.29
-----------------
Options Exercisable:
At December 31, 1996 1,796 $6.25
At December 31, 1997 1,519 $5.60
At December 31, 1998 2,489 $6.16
</TABLE>
The following table summarizes information concerning options outstanding and
exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- -----------------------------------------------------------------------------------------------------------
(000's) (Years) (000's)
<S> <C> <C> <C> <C> <C>
$ 1.35 - $ 2.70 368 6.95 $2.67 359 $2.67
$ 4.65 - $ 6.66 707 3.64 $5.79 707 $5.79
$ 6.81 - $ 6.85 1,855 7.25 $6.81 1,179 $6.81
$ 7.05 - $11.55 244 6.74 $9.26 244 $9.26
----------------- -----------------
3,174 2,489
----------------- -----------------
</TABLE>
We have elected to follow APB 25 and related Interpretations in accounting for
our employee stock options because, as discussed below, the alternative fair
value accounting provided for under Statement 123,
39
<PAGE>
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 our
employee stock options is equal to or greater than the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required
by Statement 123, which also requires that the information be determined as if
we have accounted for our 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 1998, 1997 and 1996:
risk-free interest rates of approximately 4.5%-6.0%; no dividend yields;
volatility factor of the expected market price of our common stock of 35%-60%;
and a weighted-average expected life of the options of 1-4 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 our 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 our opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of our 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. Our pro forma
information, assuming Statement 123 had been adopted, is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
------------------ ------------------ -----------------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C>
Pro forma net income (loss) $(6,104) $1,409 $(11,916)
Pro forma net income (loss) per share:
Basic $ (0.35) $ 0.08 $ (0.79)
Diluted $ (0.35) $ 0.08 $ (0.79)
Weighted average per share fair value of options
granted $ 2.69 $ 3.83 $ 5.87
</TABLE>
40
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. OPERATING LEASES
We lease certain property and equipment under non-cancelable lease agreements.
Rental expense under operating leases was approximately $1.4 million, $1.1
million and $1.0 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
Future minimum payments under non-cancelable operating leases with terms of
one year or more consisted of the following at December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
1999 $1,177
2000 1,164
2001 1,040
2002 380
2003 340
Thereafter 329
------
Total future minimum lease payments $4,430
======
</TABLE>
6. INCOME TAXES
For U.S. federal income tax purposes, we had at December 31, 1998
approximately $16.8 million of net operating loss carryforwards available to
offset future taxable income. These loss carryforwards began expiring in 1998,
and will continue to expire through 2018. Utilization of these net operating
loss carryforwards for income tax purposes is subject to certain limitations.
Further, the utilization of net operating loss carryforwards to offset future
taxable income may be further limited by any future changes in ownership in IVI
Checkmate. In addition, we had at December 31, 1998 approximately $7.4 million
of Federal and Provincial Canadian undepreciated capital and scientific research
and development costs available for deduction in future years with no time
limits, and unutilized Canadian scientific research and development income tax
credits of approximately $1.6 million, which originated from fiscal years 1989
to 1998. The utilization of these Canadian tax credits are subject to a ten year
limitation from the date of original claim and these credits begin to expire in
1999. Furthermore, we had Canadian capital loss carryforward of $500,000 at
December 31, 1998 available to offset Federal capital gains in future years with
no time limits on its expiration, and $700,000 Provincial non-capital loss
carryforward available to offset future Provincial taxable income with an
expiration date of fiscal year 2001.
The valuation allowance consists primarily of the deferred tax benefit of our
net operating loss carryforwards in the U.S., due to the uncertainty regarding
the utilization of these loss carryforwards in future years.
41
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. INCOME TAXES (continued)
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
------------------- -------------------- ------------------
(In thousands of dollars)
<S> <C> <C> <C>
Current income tax benefit (expense):
Federal $ (703) $ 256 $(1,301)
State (115) 45 (151)
------------------- -------------------- ------------------
Total current income tax benefit (expense) (818) 301 (1,452)
------------------- -------------------- ------------------
Deferred income tax benefit (expense):
Federal 863 (243) (1)
State 140 (43) -
Foreign 395 840 (4,231)
------------------- -------------------- ------------------
Total deferred income tax benefit (expense) 1,398 554 (4,232)
------------------- -------------------- ------------------
Provision for income tax benefit (expense) $ 580 $ 855 $(5,684)
=================== ==================== ==================
</TABLE>
A reconciliation of the provision of income taxes to the U.S. Federal
statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
------------------- --------------------- ------------------
(In thousands of dollars)
<S> <C> <C> <C>
Tax benefit (expense) at statutory rate $ 1,887 $ (810) $ 1,569
State taxes, net of Federal tax benefit (expense) 237 (95) 185
Research and development costs - - 51
Change in valuation allowance - 2,898 (4,611)
Tax carryforward items - (1,139) (236)
Permanent differences (1,544) 1 (2,642)
------------------- --------------------- ------------------
Provision for income tax benefit (expense) $ 580 $ 855 $(5,684)
=================== ==================== ==================
</TABLE>
42
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. 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
1998 1997
------------------- --------------------
(In thousands of dollars)
<S> <C> <C>
Deferred tax assets:
Asset valuation allowances $ 1,396 $ 579
Deferred revenue 780 452
Accrued liabilities 94 210
Investment tax credits 626 2,833
Capital loss carryforwards - 3
Net operating loss carryforwards 7,052 8,313
Other 590 295
------------------- --------------------
10,538 12,685
Deferred tax liabilities:
Depreciation (537) (661)
Amortization (388) (1,116)
------------------- --------------------
9,613 10,908
Valuation allowances (6,322) (9,015)
------------------- --------------------
Net deferred tax assets $ 3,291 $ 1,893
=================== ====================
</TABLE>
7. DEFINED CONTRIBUTION BENEFIT PLAN
We maintain several contributory retirement plans for our U.S. employees which
qualify under Section 401(k) of the Internal Revenue Code. Under these plans,
participants may contribute a portion of their annual compensation and receive,
at management's discretion, matching employer contributions to specified maximum
limits.
Total contributions under these plans that were charged to expense were
approximately $214,000, $177,000 and $126,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
43
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. NET INCOME (LOSS) PER SHARE
Net income (loss) per share on a basic and diluted basis as required by
Statement 128 is calculated as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
---------------- ------------------ -----------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net income (loss) $(4,971) $ 3,236 $(10,299)
---------------- ------------------ -----------------
Calculation of weighted average shares outstanding
plus assumed conversions:
Weighted average basic shares outstanding 17,528 16,817 15,011
Effect of dilutive stock options - 501 -
---------------- ------------------ -----------------
Weighted average diluted shares outstanding 17,528 17,318 15,011
---------------- ------------------ -----------------
Basic net income (loss) per share $ (0.28) $ 0.19 $ (0.69)
---------------- ------------------ -----------------
Diluted net income (loss) per share $ (0.28) $ 0.19 $ (0.69)
---------------- ------------------ -----------------
</TABLE>
9. MERGERS, ACQUISITIONS AND ALLIANCES
Mergers
During 1998, IVI, Checkmate, Plourde and Debitek were merged together in
separate transactions that were accounted for as poolings-of-interest. In
connection with these mergers, approximately $12.6 million in related costs (see
Note 10) were charged to earnings.
Separate results of these combined entities for the quarter ended March 31,
1998 (the last quarter of public reporting for IVI and Checkmate), and for the
years ended December 31, 1997 and 1996, are as follows:
Unaudited
Quarter
Ended Years Ended December 31
March 31, -----------------------
1998 1997 1996
--------- ------- --------
(In thousands of dollars)
Revenues:
IVI $13,238 $51,419 $ 35,038
Checkmate 9,641 33,526 35,104
Debitek 1,399 5,040 5,211
Plourde 711 2,680 2,032
------- ------- --------
$24,989 $92,665 $ 77,385
======= ======= ========
Net income (loss):
IVI $ 584 $ 3,507 $(12,936)
Checkmate 416 (129) 2,555
Debitek 159 (202) (100)
Plourde (115) 60 182
------- ------- --------
$ 1,044 $ 3,236 $(10,299)
======= ======= ========
There were no significant intercompany transactions between the four companies
and no significant conforming accounting adjustments.
Ingenico S.A.
In December 1996, a global strategic alliance with Ingenico, S.A. ("Ingenico")
of Paris, France was formed (see also Note 11--Related Party Transactions). A
summary of the terms are:
. IVI Checkmate received an exclusive right to distribute Ingenico's products
in the Americas through 2006;
. in consideration for a payment of $1.0 million, which has been recorded as
an identifiable intangible assets to be amortized over 10 years, IVI
Checkmate 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;
. joint development of future products to lower manufacturing costs and
enhance the universal acceptance of products;
. establishment of a business venture to become the exclusive distributor of
IVI Checkmate and Ingenico products in Latin America; and
. Ingenico acquired 1,439,000 common shares from IVI Checkmate, which
represented an ownership in IVI Checkmate of approximately 9% as of
December 31, 1998, for a purchase price of $7.2 million less issuance costs
of $339,000.
National Transaction Network, Inc.
In September 1996, we acquired approximately 84% of the outstanding shares of
National Transaction Network, Inc. The purchase price of $1.3 million was
satisfied by the issuance of 230,850 shares of common stock of IVI Checkmate.
The acquisition was accounted for as a purchase transaction, which resulted in
goodwill of $746,000 (see also Note 10).
44
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. MERGER COSTS AND OTHER UNUSUAL CHARGES
Year Ended December 31, 1998
In 1998, we incurred costs pertaining to the combination of IVI and Checkmate
and the subsequent mergers of Plourde and Debitek. The description of and the
amount of costs incurred in each of these transactions are as follows:
<TABLE>
<CAPTION>
Combination
of IVI and Plourde Debitek
Checkmate Merger Merger Total
---------------- ------------------ ------------------ -----------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Professional fees $4,007 $ 380 $381 $ 4,768
Closure of facilities in Boulder, Colorado 1,565 - - 1,565
Write-down of long-lived assets - 1,300 - 1,300
Inventory reserve for product redundancy 2,624 - - 2,624
Other expenses 1,699 274 404 2,377
---------------- ------------------ ------------------ -----------------
Total $9,895 $1,954 $785 $12,634
---------------- ------------------ ------------------ -----------------
</TABLE>
Professional Fees. Costs consist of fees paid for legal and accounting,
financial advisors and other consultants in connection with the corresponding
transactions, filing and other regulatory fees, share issuance costs and other
stockholder related expenses.
Closure of Facilities in Boulder, Colorado. On the effective date of the
Combination, IVI's facilities in Boulder, Colorado were immediately closed, and
the operations relocated and combined with Checkmate's operations in Atlanta,
Georgia. The Boulder operations employed 52 people as at December 31, 1997, and
all were terminated upon closure of the facilities except for 17 people who were
transferred to the Atlanta operations. Costs of $1.6 million were incurred for
the transfer of operations to Atlanta, facility closure costs, severance costs
to terminated employees and employee relocation costs.
Write-down of Long-Lived Assets. NTN was in development of a Windows/NT software
platform to improve its market share in the software point-of-sale business.
This development, however, was immediately terminated upon the merger with
Plourde, which already had a viable and marketable Windows/NT platform. As a
result, we wrote off all of NTN's Windows/NT development costs previously
deferred, in the amount of $670,000. Furthermore, without a Windows/NT platform,
the future profitability of NTN was uncertain, and as a result, we also wrote
off entirety the remaining unamortized goodwill of $630,000 related to the
acquisition of NTN in 1996.
Inventory Reserve for Product Redundancy. While IVI and Checkmate sold different
payment solutions, there were in certain areas a duplication of products that
resulted upon the combination of these two companies. Upon completion of the
combination, we reviewed and assessed our inventory and determined that, due to
product redundancy, a permanent impairment in value in the amount of $2.6
million had resulted.
Other Expenses. Costs include transitional operating costs such as system
integration and conversion for accounting and other operational systems, and
marketing and other setup costs to reflect a change in the organization's name,
logo and business.
45
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. MERGER COSTS AND OTHER UNUSUAL CHARGES (continued)
Year Ended December 31, 1996
In 1996, we reviewed the recoverability of unamortized goodwill that arose
from the acquisition of Soricon Corporation ("Soricon") in December 1994. The
financial results of Soricon subsequent to the acquisition were below
anticipated results upon which we 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 our accounting policy, we 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, we determined that there was a
permanent impairment in the carrying value of the goodwill, and wrote off in
1996 the entire unamortized balance of $6.8 million which remained at December
31, 1995 as the estimated net recoverable amount and fair value of this goodwill
was zero. These undiscounted cash flows were only sufficient to recover the
value of the fixed assets of approximately $655,000 which approximated fair
value.
The alliance agreement entered into with Ingenico in December 1996 required us
to incorporate the UNICAPT technology into our products. As a result, in our
opinion, certain inventory products became unmarketable and deferred development
costs related to these products became unrecoverable. This resulted in a charge
of $1.2 million against 1996 earnings.
11. RELATED PARTY TRANSACTIONS
In a marketing and distribution agreement that we entered into in December
1996 with Ingenico, we became the exclusive distributor of Ingenico's products
in the Americas. Consequently, during 1998 and 1997, we purchased products from
Ingenico totaling $6.8 million and $1.7 million, respectively, to satisfy
customer demands. At December 31, 1998 and 1997, approximately $2.1 million and
$910,000, respectively, of these purchases were still payable.
46
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. GEOGRAPHIC SEGMENT DISCLOSURES
We operate in a single operating segment, the electronic transactions
industry. Our revenues, however, are derived primarily from two geographical
regions: the U.S. and Canada. Consequently, our organization is managed based on
operating decisions made in each of these regions. The following table presents
how we, the management of IVI Checkmate, view our company based on revenue,
earnings and identifiable assets.
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
------------------- ------------------- -------------------
(In thousands of dollars)
<S> <C> <C> <C>
Revenue:
United States $ 79,473 $62,647 $ 55,113
Canada 27,649 30,018 22,272
------------------- ------------------- -------------------
$107,122 $92,665 $ 77,385
------------------- ------------------- -------------------
Income (loss)
United States $ 3,301 $(2,858) $ 953
Canada 3,769 4,313 2,070
------------------- ------------------- -------------------
7,070 1,455 3,023
Corporate:
Unusual charges (12,634) - (8,023)
Taxes 580 855 (5,684)
Other 13 926 385
------------------- ------------------- -------------------
$ (4,971) $ 3,236 $(10,299)
------------------- ------------------- -------------------
Identifiable assets:
United States $ 60,341 $54,176
Canada 22,488 22,408
------------------- -------------------
$ 82,829 $76,584
------------------- -------------------
</TABLE>
47
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly consolidated financial data for 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
Quarter
-----------------------------------------------------------------------------------------
First Second Third Fourth
------------------ ------------------ ------------------ --------------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
1998:
Net revenues $24,989 $25,748 $29,928 $26,457
Gross profit 9,596 10,149 11,531 10,028
Merger costs - (9,946) (1,953) (735)
Net income (loss) 1,044 (7,209) 465 729
Basic net income (loss) per share $ 0.06 $ (0.41) $ 0.03 $ 0.04
Diluted net income (loss) per share $ 0.06 $ (0.41) $ 0.03 $ 0.04
1997:
Net revenues $22,361 $20,002 $25,599 $24,703
Gross profit 8,892 7,085 9,533 9,140
Net income (loss) 865 (637) 1,340 1,668
Basic net income (loss) per share $ 0.05 $ (0.04) $ 0.08 $ 0.10
Diluted net income (loss) per share $ 0.05 $ (0.04) $ 0.08 $ 0.09
</TABLE>
48
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
49
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information relating to the directors of IVI Checkmate will be set forth under
the captions "Proposal 2--Election of Directors--Nominees" and "--Information
Regarding Nominees" in IVI Checkmate's Proxy Statement for its 1999 Annual
Meeting of Stockholders to be held on May 20, 1999 (the "1999 Proxy
Statement"). Such information is incorporated herein by reference. Information
relating to the executive officers of IVI Checkmate is set forth in Part I, Item
4(A) of this report under the caption "Executive Officers of the Registrant."
Information regarding compliance with Section 16(a) of the Securities Exchange
Act of 1934 by directors and executive officers of IVI Checkmate and beneficial
owners of more than 10% of IVI Checkmate's Common Stock will be set forth under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the
1999 Proxy Statement. Such information is incorporated herein by reference. The
1999 Proxy Statement will be filed with the Securities and Exchange Commission
within 120 days after December 31, 1998.
Item 11. Executive Compensation.
Information relating to executive compensation will be set forth under the
captions "Proposal 2--Election of Directors--Director Compensation,"
"Executive Compensation" and "Compensation Committee Interlocks and Insider
Participation" in the 1999 Proxy Statement. Such information is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information regarding ownership of IVI Checkmate's Common Stock by certain
persons will be set forth under the caption "Stock Ownership" in the 1999
Proxy Statement. Such information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information regarding certain relationships and transactions between IVI
Checkmate and certain of its affiliates will be set forth under the caption
"Certain Transactions" in the 1999 Proxy Statement. Such information is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Consolidated Financial Statements
The following consolidated financial statements of IVI Checkmate Corp. and
Subsidiaries are set forth in Item 8 hereof:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Auditors .................................................................................... 25
Consolidated Balance Sheets as of December 31, 1998 and 1997 ....................................................... 27
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 ......................... 28
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996 ............... 29
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 ......................... 30
Notes to Consolidated Financial Statements ......................................................................... 31
</TABLE>
50
<PAGE>
2. Financial Statement Schedules
All schedules to the consolidated financial statements are omitted as they are
not required under the related instructions or are inapplicable, or because the
required information is included in the consolidated financial statements or
related notes thereto.
3. Exhibits
The following exhibits either (i) are filed herewith or (ii) have
previously been filed with the Securities and Exchange Commission and are
incorporated herein by reference to such prior filings. Previously filed
registration statements and reports which are incorporated herein by reference
are identified in the column captioned "SEC Document Reference." IVI Checkmate
will furnish any exhibit upon request to John J. Neubert, Executive Vice
President Finance and Administration of IVI Checkmate, 1003 Mansell Road,
Roswell, Georgia 30076. There is a charge of $.50 per page to cover expenses of
copying and mailing.
<TABLE>
<CAPTION>
Exhibit
No. Description SEC Document Reference
---------- ----------- ----------------------
<C> <S> <C>
3.1 Certificate of Incorporation of the Company Exhibit 3.1 to IVI Checkmate's Registration
Statement on Form S-4 (No. 333-53629)
3.2 Bylaws of the Company Exhibit 3.2 to IVI Checkmate's Registration
Statement on Form S-4 (No. 333-53629)
4.1 Specimen Common Stock Certificate Exhibit 4.1 to IVI Checkmate's Registration
Statement on Form S-4 (No. 333-53629)
4.2 Stockholder Protection Rights Agreement, dated Exhibit 99.1 to IVI Checkmate's Form 8-K filed on
as of September 16, 1998, between IVI October 15, 1998
Checkmate Corp. and First Union National Bank,
as Rights Agent (which includes as Exhibit A
thereto the Form of Rights Certificate and as
Exhibit B thereto the Form of Certificate of
Designations, Preferences, Limitations and
Relative Rights of Series C Junior
Participating Preferred Stock of IVI Checkmate
Corp.)
9.1 Form of Voting and Exchange Trust Agreement Exhibit 9.1 to IVI Checkmate's Registration
Statement on Form S-4 (No. 333-53629)
9.2 Stockholders Agreement by and between Exhibit 9.2 to IVI Checkmate's Registration
Ingenico, J. Stanford Spence and Dudley L. Statement on Form S-4 (No. 333-53629)
Moore, Jr. dated as of January 16, 1998
10.1 Combination Agreement dated January 16, 1998, Exhibit 10.1(a) to Checkmate's Annual Report on Form
by and among IVI Checkmate Corp., 10-K for the year ended December 31, 1997
International Verifact Inc., Checkmate
Electronics, Inc. and Future Merger Corporation
10.2 Form of Plan of Arrangement and Exchangeable Exhibit 2.2 to IVI Checkmate's Registration
Share Provisions Statement on Form S-4 (No. 333-53629)
10.3 Master Alliance Agreement dated December 5, Exhibit 10.6 to IVI Checkmate's Registration
1996, between Ingenico, S.A. and International Statement on Form S-4 (No. 333-53629)
Verifact Inc.
</TABLE>
51
<PAGE>
<TABLE>
<C> <S> <C>
10.4 Investment Agreement dated December 5, 1996, Exhibit 10.10 to IVI Checkmate's Registration
between Ingenico, S.A. and International Statement on Form S-4 (No. 333-53629)
Verifact Inc., as amended by the Amendment to
Investment Agreement, dated December 17, 1996,
between Ingenico, S.A. and International
Verifact Inc.
10.5 Marketing and Distribution Agreement dated Exhibit to 10.11 IVI Checkmate's Registration
December 17, 1996, between Ingenico, S.A., Statement on Form S-4 (No. 333-53629)
International Verifact Inc. and IVI Ingenico
Inc.
10.6 Assignment, Assumption and Consent Agreement Exhibit 10.12 to IVI Checkmate's Registration
dated as of January 16, 1998 among Statement on Form S-4 (No. 333-53629)
International Verifact Inc., Ingenico S.A.,
and IVI Checkmate Corp.
10.7 Manufacturing Agreement made as of the 22nd Exhibit to 10.16 IVI's Registration Statement on
day of March 1993 between The Surface Mount Form F-4 (No. 33-84926)
Technology Centre Inc. and International
Verifact Inc.
10.8 Settlement Agreement dated June 15, 1989, by Exhibit 10.2 to Checkmate's Registration Statement
and among Checkmate Electronics, Inc., J. on Form S-1 (No. 33-67048)
Stanford Spence, Diane M. Spence, Stanford
Technologies, Inc., and Dudley L. Moore, Jr.
10.9* IVI Checkmate Corp. 1998 Long-Term Incentive Exhibit 10.5.1 to IVI Checkmate's Registration
Plan Statement on Form S-4 (No. 333-53629)
10.10* IVI Checkmate Corp. 1998 Directors Stock Exhibit 10.5.2 to IVI Checkmate's Registration
Option Plan Statement on Form S-4 (No. 333-53629)
10.11 Latin America Unanimous Shareholders' Exhibit 10.7 to IVI Checkmate's Registration
Agreement dated December 17, 1996, between Statement on Form S-4 (No. 333-53629)
Ingenico, S.A., International Verifact Inc.
and IVI Ingenico Inc.
10.12 Technology License Agreement dated December Exhibit 10.8 to IVI Checkmate's Registration
17, 1996, between Ingenico, S.A. and Statement on Form S-4 (No. 333-53629)
International Verifact Inc.
10.13 Joint Development and Procurement Agreement Exhibit 10.9 to IVI Checkmate's Registration
dated December 17, 1996, between Ingenico, Statement on Form S-4 (No. 333-53629)
S.A. and International Verifact Inc.
10.14* Amendment No. 1 dated September 16, 1998,
to the Agreement filed as Exhibit 10.15
10.15* Agreement dated June 25, 1998, between J.
Stanford Spence and IVI Checkmate Corp.
10.16* Management Services Agreement between IVI
Checkmate, IVI, Checkmate, LBT Investments,
Inc. and L. Barry Thomson dated as of June 25,
1998
10.17* Employment Agreement dated as of June 25, 1998
between International Verifact, Inc. and
George Whitton
</TABLE>
52
<PAGE>
<TABLE>
<C> <S> <C>
10.18* Employment Agreement dated as of January 1, Exhibit 10.4(f) to Checkmate's Form 10-K for the
1998, between Checkmate Electronics, Inc. and period ended December 31, 1997
John J. Neubert
10.19* Employment Agreement dated as of January 1, Exhibit 10.4(g) to Checkmate's Annual Report on Form
1998, between Checkmate Electronics, Inc. and 10-K for the year ended December 31, 1997
Gregory A. Lewis
10.20 Eleventh Amendment, dated July 16, 1998, to
the Lease Agreement filed as Exhibit 10.27
10.21 Tenth Amendment, dated May 20, 1998, to the
Lease Agreement filed as Exhibit 10.27
10.22 Ninth Amendment, dated August 18, 1997, to the Exhibit 10.1(e) to Checkmate's Annual Report on Form
Lease Agreement filed as Exhibit 10.27 10-K for the year ended December 31, 1997
10.23 Eighth Amendment, dated April 1, 1996, to the Exhibit 10.1(d) to Checkmate's Annual Report on Form
Lease Agreement filed as Exhibit 10.27 10-K for the year ended December 31, 1996
10.24 Seventh Amendment, dated January 18, 1996, to Exhibit 10.1(c) to Checkmate's Annual Report on Form
the Lease Agreement filed as Exhibit 10.27 10-K for the year ended December 31, 1995
10.25 Sixth Amendment, dated February 10, 1995, to Exhibit 10.1(b) to Checkmate's Annual Report on Form
the Lease Agreement filed as Exhibit 10.27 10-K for the year ended December 31, 1994
10.26 Fifth Amendment, dated August 16, 1994, to the Exhibit 10.20 to Checkmate's Annual Report on Form
Lease Agreement filed as Exhibit 10.27 10-K for the year ended December 31, 1994
10.27 Lease Agreement dated July 17, 1990, as Exhibit 10.1 to Checkmate's Registration Statement
amended, by and between Checkmate Electronics. on Form S-1 (No. 33-67048)
Inc. and ASE North Fulton Associates Joint
Venture, for the premises located at 1011
Mansell Road, Suite C, Roswell, Georgia 30076
10.28 Lease Agreement dated the 1st day of May 1986 Exhibit 10.1 to IVI's Registration Statement on Form
between Markborough Properties Limited and F-4 (No. 33-84926)
International Verifact Inc. (Incorporated by
reference from Exhibit 10.1 to International
Verifact Inc.'s Registration Statement on Form
F-4, No. 33-84926)
10.29 Amending Agreement dated as of the 1st day of Exhibit 10.2 to IVI's Registration Statement on
July 1991 between Morgan Mae Enterprises Form F-4 (No. 33-84926)
Limited and International Verifact Inc.
10.30 Assignment, Assumption and Consent Agreement Exhibit 10.12 to IVI Checkmate's Registration
dated as of January 16, 1998 among Statement on Form S-4 (No. 333-53629)
International Verifact Inc., Ingenico, S.A.,
and IVI Checkmate Corp.
10.31** Agreement dated June 23, 1994 between Exhibit 10.5 to IVI's Registration Statement on Form
Celestica Inc. and IVI S-4 (No. 33-84926)
</TABLE>
53
<PAGE>
<TABLE>
<C> <S> <C>
10.32** Agreement dated March 22, 1993 between The Exhibit 10.6 to IVI's Registration Statement on Form
Surface Mount Technology Centre Inc. and IVI S-4 (No. 33-84926)
10.33** Agreement dated May 12, 1993 between Nikom Exhibit 10.7 to IVI's Registration Statement on Form
Electronics Corporation and IVI S-4 (No. 33-84926)
10.34** Agreement dated May 1, 1994 between Royal Bank Exhibit 10.10 to IVI's Registration Statement on
of Canada and IVI Form S-4 (No. 33-84926)
21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Coopers & Lybrand
24.1 Powers of Attorney
27 Financial Data Schedule (to be filed
electronically)
</TABLE>
____________
* Compensatory management agreement
** Confidential treatment has been requested for certain portions of this
exhibit pursuant to Rule 406(b)(2) under the Securities Act of 1933, as
amended. In accordance with Rule 406(b)(2), these confidential portions have
been omitted from this exhibit and filed separately with the Securities
and Exchange Commission
(b) Reports on Form 8-K
IVI Checkmate filed the following Current Reports on Form 8-K during the
fourth quarter ended December 31, 1998:
. On October 1, 1998, IVI Checkmate filed a Current Report on Form 8-K
regarding Item 5, Other Events, and Item 7, Financial Statements and
Exhibits, related to the Combination;
. On October 13, 1998, IVI Checkmate filed a Current Report dated on Form
8-K/A regarding Item 2, Acquisition or Disposition of Assets, amending a
Current Report on Form 8-K dated July 9, 1998 to reflect the proper
commission file number;
. On October 15, 1998, IVI Checkmate filed a Current Report on Form 8-K/A
regarding Item 7, Financial Statements and Exhibits, amending a Current
Report on Form 8-K dated October 1, 1998 to reflect the proper
commission file number; and
. On October 15, 1998, IVI Checkmate filed a Current Report on Form 8-K
regarding Item 5 announcing the declaration of a dividend payable in the
form of the rights under IVI Checkmate's Stockholder Protection Rights
Agreement.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 29, 1999.
IVI CHECKMATE CORP.
/s/ L. BARRY THOMSO
----------------------
By: L. Barry Thomson
President and Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on March 29, 1999.
<TABLE>
<CAPTION>
Signature Title
- ---------------------------------- --------------------------------------
<S> <C>
/s/ L. BARRY THOMSON President, Chief Executive Officer and
- ---------------------------------- Director
L. Barry Thomson
/s/ J. STANFORD SPENCE Chairman of the Board
- ----------------------------------
J. Stanford Spence
GEORGE WHITTON* Vice Chairman of the Board
- ----------------------------------
George Whitton
GERARD COMPAIN* Director
- ----------------------------------
Gerard Compain
/s/ GREGORY A. LEWIS Director
- ----------------------------------
Gregory A. Lewis
PAUL W. NOBLETT* Director
- ----------------------------------
Paul W. Noblett
BERTIL D. NORDIN* Director
- ----------------------------------
Bertil D. Nordin
GARETH OWEN* Director
- ----------------------------------
Gareth Owen
PETER E. ROODE* Director
- ----------------------------------
Peter E. Roode
/s/ JOHN J. NEUBERT Executive Vice President-Finance and
- ---------------------------------- Administration, Chief Financial Officer,
John J. Neubert Treasurer and Secretary
</TABLE>
*By: /s/ JOHN J. NEUBERT
-------------------
John J. Neubert
as attorney-in-fact
55
<PAGE>
EXHIBIT 10.14
AMENDMENT NO. 1 TO AGREEMENT
AMENDMENT No. 1, dated as of September 16, 1998, to that certain
Agreement (the "Agreement"), dated as of June 25, 1998, by and between IVI
Checkmate Corp., a Delaware corporation (hereinafter, the "Company"), and J.
Stanford Spence (hereinafter, "Spence");
BACKGROUND
----------
The Company and Spence desire to amend the Agreement to extend the term
thereof as set forth herein.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Agreement, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amendment of Agreement. Effective as of the date hereof, Section 3
of the Agreement is deleted in its entirety and the following is substituted
therefor:
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 December 31, 2005.
*************************************
The terms of the Agreement not hereby amended shall be and remain in
full force and effect and are not affected by this Amendment.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Amendment as of the date first above written.
IVI CHECKMATE CORP.
By: /s/ L. Barry Thomson
-----------------------------
Title: President & CEO
--------------------------
EXECUTIVE:
/s/ J. Stanford Spence
--------------------------------
J. Stanford Spence
<PAGE>
EXHIBIT 10.15
AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into this 25th
day of June, 1998, by and between IVI Checkmate Corp., a Delaware 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,
Inc."). Checkmate Electronics, Inc. was acquired by the Company on the date
hereof pursuant to a Combination Agreement, dated as of January 16, 1998, by and
among the Company, Checkmate Electronics, Inc., 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.
<PAGE>
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.
"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.$231,000.
-2-
<PAGE>
(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 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.
-3-
<PAGE>
(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:
-4-
<PAGE>
(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
(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
-5-
<PAGE>
(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
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.
-6-
<PAGE>
(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.
"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.
-7-
<PAGE>
"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 avaluable 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 constitutes 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
-8-
<PAGE>
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 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 Checkmate Electronics, Inc.
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
-9-
<PAGE>
"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.
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.
-10-
<PAGE>
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, Checkmate Electronics,
Inc. 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 Checkmate Electronics, Inc.
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.
-11-
<PAGE>
(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
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:
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
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)
-12-
<PAGE>
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:
----------------------------
-13-
<PAGE>
EXHIBIT 10.16
THIS MANAGEMENT SERVICES AGREEMENT is made as of the 25th day of June,
1998.
B E T W E E N
IVI CHECKMATE CORP., a corporation incorporated under the laws of the
State of Delaware,
(hereinafter individually referred to as the "IVI Checkmate" and
collectively with International Verifact Inc. and Checkmate
Electronics, Inc. as the "Corporations")
OF THE FIRST PART
- and -
INTERNATIONAL VERIFACT INC., a corporation incorporated under the laws
of the Province of Ontario,
(hereinafter individually referred to as "IVI" and collectively with
IVI Checkmate Corp. and Checkmate Electronics, Inc. as the
"Corporations")
OF THE SECOND PART
- and -
CHECKMATE ELECTRONICS, INC., a company incorporated under the laws of
the State of Georgia,
(hereinafter individually referred to as "Checkmate" and collectively
with IVI Checkmate Corp. and International Verifact Inc. as the
"Corporations")
OF THE THIRD 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 FOURTH PART
- and -
<PAGE>
L. BARRY THOMSON, of the Town of Oakville, in the Province of Ontario,
(hereinafter referred to as the "Thomson")
OF THE FIFTH PART
WHEREAS the Manager has heretofore provided certain services to IVI
pursuant to a Management Services Agreement made as of the 8th day of May, 1996,
as amended by agreements made as of October 1, 1996, July 30. 1997 and February
25, 1998 (the "Original Services Agreement");
AND WHEREAS effective as of the date of this Agreement IVI Checkmate
has become the parent company of IVI and Checkmate;
AND WHEREAS the Corporations desire to retain the Manager to provide
certain services to the Corporations, including the provision of Thomson to act
in the capacity of President and Chief Executive Officer of IVI Checkmate,
President and Chief Executive Officer of IVI, and the Chief Executive Officer of
Checkmate;
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 appointments set forth above;
AND WHEREAS the Manager and IVI have agreed to terminate the Original
Services Agreement upon the execution of this Agreement;
and sufficiency of which is hereby acknowledged) and for other good and valuable
consideration, the parties agree as follows:
1. Term
----
This Agreement shall be in effect immediately upon execution and shall
remain in effect until it is terminated as provided in Section 5 hereafter.
2. Appointment, Acceptance and Duties
----------------------------------
(a) The Corporations hereby retain the Manager to provide to the
Corporations the services of Thomson to serve the Corporations and any
subsidiaries and affiliates of the Corporations in such capacity or capacities
and to perform such duties and to exercise such powers pertaining to the
management and operation of the Corporations and their respective subsidiaries
and affiliates as may be determined from time to time by the Board of Directors
of IVI Checkmate consistent with Thomson's experience and, without limiting the
generality of the
-2-
<PAGE>
foregoing, to serve as the President and Chief Executive Officer of IVI
Checkmate, and initially, until such time as determined otherwise by the Board
of Directors of IVI Checkmate, as the President and Chief Executive Officer of
IVI, the Chief Executive Officer of Checkmate and the Chairman of IVI Ingenico
Inc. and the Manager agrees to provide such services. During the currency of
this Agreement, Thomson shall:
(i) report to the board of directors of IVI Checkmate and shall devote
his full time and attention and his best efforts during normal
business hours to the business and affairs of the Corporations;
(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 Corporations; and
(iii) use his best efforts to promote the interests and goodwill of the
Corporations.
(b) During the currency of this Agreement the Corporations and the
Manager agree that the Corporations shall, unless Thomson
otherwise requests, ensure that Thomson will be nominated by
management of the Corporations as a director of each of IVI
Checkmate, IVI, Checkmate and IVI Ingenico Inc.
3. Management Fee
--------------
(a) For the provision of the services herein set forth, subject to review
as hereinafter provided, the Corporations agree to pay to the Manager in the
aggregate a fee at an annual rate of US$275,000 for the period from the date
hereof to December 31, 1998, an annual fee of US$300,000 for the calendar year
1999 and an annual fee of US$335,000 for the calendar year 2000; provided always
that the annual fee for the remainder of the calendar year 1998 and calendar
years 1999 and 2000 may be at such higher amount as may be agreed by the Manager
and IVI Checkmate. The Manager agrees that it will provide invoices to the
Corporations as they may direct in writing, on a monthly basis, in arrears, for
one-twelfth of the then current annual fee. The Corporations and the Manager
agree that on or before October 1, 2000 and thereafter before October 1 of each
subsequent year during the currency of this Agreement, the annual fee shall be
reviewed by the Manager and the board of directors of IVI Checkmate 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 set forth in Subsection 2(a) hereof. 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 of IVI
Checkmate in their absolute discretion.
(b) The Manager shall be entitled to receive a performance bonus of not
less than US$50,000.00 during each calendar year of this Agreement (including
the 1998 calendar year). The Manager and the board of directors of IVI Checkmate
shall determine the Manager's bonus program on or before April I in each year
(commencing April 1, 1999) for that calendar year and
-3-
<PAGE>
such program will be based upon the Manager meeting reasonably set, measurable
performance objectives approved by the board of directors of IVI Checkmate.
(c) 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 Corporations. including the 1998 Long-Term Incentive Plan of IVI
Checkmate (the "Plan") and any like plan adopted by the Corporations or any of
them, in such manner as the board of directors of IVI Checkmate may, in their
absolute discretion, determine. IVI Checkmate hereby confirms and agrees that:
(i) Thomson has been granted 233,250 Options (as such term is defined
in the Plan) as of the date of this Agreement which Options vest
immediately, expire, subject to the terms of the Plan, on the
25th day of June, 2007 and are exercisable at an exercise price
per share of Stock (as such term is defined in the Plan) at the
greater of US$6.81 and the Fair Market Value (as such term is
defined in the Plan) as of the date of this Agreement; and
(ii) Thomson shall be granted, so long as this Agreement shall not be
otherwise terminated in accordance with the terms hereof, 150,000
Options (as such term is defined in the Plan) on January 14,
1999, which Options shall vest on the date of the grant, shall
expire, subject to the terms of the Plan, on January 14, 2007 and
shall be exercisable at an exercise price per share of Stock (as
such term is defined in the Plan) at the Fair Market Value (as
such term is defined in the Plan) as of January 14, 1999.
(d) The Manager shall submit to the Corporations or as they may direct in
writing, 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 Cdn.$1,000.00 per month (the "automobile
payment") plus reasonable operating and maintenance expenses) as agreed by the
Manager and IVI Checkmate from time to time, in respect of the provision of an
automobile for Thomson. The Corporations agree that they 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.
(e) The Corporations shall permit Thomson to be registered with such health
benefit programs as the Corporations 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
Corporations will reimburse the Manager for the costs of providing such benefits
to Thomson.
(f) The Corporations 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 Cdn.$6,000.00
-4-
<PAGE>
per year) and its costs in paying for Thomson's annual fees in a social club (to
a maximum of Cdn.$3,000.00 per year).
(g) The Corporations acknowledge that IVI is presently 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 Corporations agree
to maintain the membership in the Club on behalf of IVI and to designate Thomson
as the designated executive entitled to membership privileges during the
currency of this agreement and to pay on a timely basis all annual fees with
respect to such membership. If this Agreement is terminated for any reason other
than reasons set forth in Section 5, then the Corporations shall forthwith take
all necessary steps, at their expense, including without limitation, the payment
of all transfer fees, to transfer the membership in the Club to the Manager or
Thomson, as directed in writing by the Manager.
4. 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 Corporations and
taking into account the staffing requirements of the Corporations and the need
for the timely performance of the services to be provided pursuant to the terms
of this Agreement.
5. Termination
-----------
(a) IVI Checkmate, on behalf of the Corporations, may terminate this
Agreement without notice or any payment in lieu of notice for cause.
(b) This Agreement may immediately be terminated by IVI Checkmate, on
behalf of the Corporations, 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) IVI Checkmate, on behalf of the Corporations, 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.
6. Termination Payments
--------------------
(a) Upon termination of this Agreement for the reason set forth in
Subsection 5(a) above, the Manager shall not be entitled to any termination
payment other than its fees calculated
-5-
<PAGE>
pro rata up to and including the date of termination and payment of any
outstanding amounts due under Subsections 3(d), 3(e) and 3(f) hereof. Upon
termination of this Agreement for any of the reasons set forth in Subsections
5(b), (c) or (d) above, the Manager shall be entitled to Attorney's fees
calculated pro rata up to and including the date of termination, payment of any
outstanding amounts due under Subsections 3(d), 3)(e) and 3(f) hereof and the
Corporations shall pay to the Manager its pro rata entitlement under the then
current bonus program contemplated by Subsection 3(b) hereof.
(b) If this Agreement is terminated by IVI Checkmate, on behalf of the
Corporations, for any reason, other than the reasons set forth in Section 5,
then the Corporations shall forthwith pay to the Manager or as the Manager
directs the following:
(i) three times the aggregate of the annual fee (referred to in
Subsection 3(a)) and the performance bonus (referred to in
Subsection 3(b)) paid and/or earned by the Manager in the year
immediately preceding the year of termination;
(ii) three times the total automobile payments referred to in
Subsection 3(d) paid in the year immediately preceding the year
of termination;
(iii) three times the cost of providing the benefits referred to in
Subsections 3(e) and 3(f) 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).
7. Confidentiality
---------------
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 Corporations,
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 Corporations
and their subsidiaries, including, without limitation, Information
relating to addresses, preferences, needs and requirements of past,
present and prospective clients, customers, suppliers and employees of
the Corporations and their subsidiaries
-6-
<PAGE>
(collectively, "Confidential Information"), the disclosure of any of
which to competitors of the Corporations or to the general public, or
the use of same by the Manager, Thomson or any competitor of the
Corporations or any of its subsidiaries, would be highly detrimental
to the interests of the Corporations;
(b) in the course of performing his duties and responsibilities for the
Corporations, Thomson has been and will continue in the future to be a
representative of the Corporations to their 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 Corporations 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 Corporations;
(c) Thomson, in acting in the capacity of the Chief Executive Officer of
the Corporations, owes fiduciary duties to the Corporations, including
the duty to act in the best interests of the Corporations;
(d) the right to maintain the confidentiality of the Confidential
Information, the right to preserve the goodwill of the Corporations
and the right to the benefit of any relationship that has developed
between Thomson and the customers, clients and suppliers of the
Corporations by virtue of the provision of service pursuant to this
Agreement constitute proprietary rights of the Corporations, which the
Corporations are entitled to protect; and
(e) the Manager and Thomson shall forthwith transfer to the benefit of the
Corporations any rights and interest in any invention and discovery of
any process or technology related in any manner to the business of the
Corporations 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
Corporations), 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.
8. 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 Corporations or any of their subsidiaries, to transfer
business from the Corporations or any of its subsidiaries to any other person,
or seek in any way to persuade or entice any employee of the Corporations
(except the
-7-
<PAGE>
person who fills the position of Executive Assistant to Thomson) or any of their
subsidiaries to leave that employment or to be a party to or abet any such
action.
9. Disclosure
----------
During the currency of this Agreement, the Manager and Thomson shall
promptly disclose to the board of directors of IVI Checkmate, IVI, and
Checkmate, as applicable, by written notice to the Secretary of such company
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 any of the Corporations or to any of their
suppliers or customers. Notwithstanding the foregoing it is agreed and
acknowledged that both the Manager and Thomson shall be entitled to engage in
normal dealings with any customer of or supplier to the Corporations and to
invest in any public company provided that any such investment does not exceed
5% of the outstanding securities of such public company.
10. 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 Corporations or any of their 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 Corporations 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 Corporations all such property of
the Corporations 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 Corporations.
11. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario. The parties do hereby irrevocably attorn to
the non-exclusive jurisdiction of the courts of the Province of Ontario.
12. No Assignment
-------------
This Agreement may not be assigned without the consent of all of the
parties hereto.
13. Survival
--------
The parties agree and acknowledge that notwithstanding the termination
of this Agreement pursuant to Section 5 hereof the provisions of Section 7, 10
and 15 hereof shall
-8-
<PAGE>
survive in perpetuity and the provisions of Section 8 shall survive for three
(3) years from the date of such termination.
14. 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.
15. 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 Corporations 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
Corporations 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.
16. Successors
----------
This Agreement shall be binding on and enure to the benefit of the
successors and permitted assigns of the Corporations and the Manager and the
heirs, executors, personal legal representatives and permitted assigns of
Thomson.
17. 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 anytime 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 Corporations:
IVI Checkmate Corp.
1003 Mansell Road
Roswell, GA
-9-
<PAGE>
USA 30076
(b) if to the Manager:
200 Poplar Drive
Oakville, Ontario
L6J 4C6
(c) if to Thomson:
200 Poplar Drive
Oakville, Ontario
L6J 4C6
18. Legal Advice
------------
Thomson hereby represents and warrants to the Manager and to the
Corporations and acknowledges and agrees that he had the opportunity to seek and
was not prevented nor discouraged by the Corporations 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 defense to the enforcement of his obligations
under this Agreement.
19. 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.
20. Termination of Original Services Agreement
------------------------------------------
The Manager and Thomson agree that upon execution of this Agreement
they shall execute an agreement terminating the Original Services Agreement with
IVI.
21. Amendments
----------
This Agreement may only be amended by instrument in writing executed
by all of the parties hereto.
-10-
<PAGE>
IN WITNESS THEREOF the parties have executed this Agreement on the
date first written above.
IVI CHECKMATE CORP.
Per: /s/ J. S. Spence
-------------------------
Name: J. Stanford Spence
------------------
Title: Chairman
------------------
INTERNATIONAL VERIFACT INC.
Per: /s/ G. Whitton
-------------------------
Name: G. Whitton
------------------
Title: Chairman
-----------------
CHECKMATE ELECTRONICS, INC.
Per: /s/ Gregory A. Lewis
--------------------------
Name: Gregory A. Lewis
-------------------
Title: President
------------------
L.B.T. INVESTMENTS INC.
Per: /s/ L. Barry Thomson
--------------------
Name:
-------------------
Title:
------------------
/s/ Mark A. Convery /s/ L. Barry Thomson
- ---------------------------- --------------------
Witness L. BARRY THOMSON
-11-
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of June 25, 1998.
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 P.O. Box 573, The Valley, Anguilla, British West Indies,
(hereinafter referred to as the "Executive")
OF THE SECOND PART
WHEREAS effective as at the date of this Agreement IVI Checkmate Corp.
("IVI Checkmate") has become the parent company of the Corporation;
AND WHEREAS by agreement dated January 6, 1995, amended and restated
by agreement dated as of March 15, 1996 and further amended by an
acknowledgement and amending agreement made as of the 25th day of February,
1998 (the "Original Contract as Amended") the Corporation and the Executive set
out the terms and conditions governing the Executive's employment with the
Corporation;
AND WHEREAS the parties have agreed that the Original Contract as
Amended be terminated and that the terms and conditions that govern the
Executive's employment be as formally set out herein.
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 as follows:
1. Definitions
-----------
(a) "Change of Control" means the occurrence of:
<PAGE>
(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; or
(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.
2. Termination of Original Contract as Amended
-------------------------------------------
The parties hereto agree that effective upon execution of this
Agreement the Original Contract as Amended be and the same is hereby terminated.
3. 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 June 25,
2001 and the date of termination as provided in Section 8 hereafter.
4. 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
-2-
<PAGE>
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.
5. Remuneration
------------
(a) During 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. At the option of the Executive, to be
exercised by notice in writing to the Corporation, the Executive may
chose to arrange his own insurance program in which event the
Corporation shall pay to the Executive the value of the benefits
otherwise to be provided pursuant to this Subsection 5(b), the annual
cost of which shall be paid in 24 equal installments on the same days
as the base salary is paid pursuant to Subsection 5(a) hereof.
(c) The Executive shall be entitled to participate in the 1998 Long-Term
Incentive Plan of IVI Checkmate (the "Plan") and in any subsequently
adopted plan of IVI Checkmate and the Corporation hereby confirms and
agrees that:
(i) the Executive has been granted 103,850 Options (as such term is
defined in the Plan) as of the date of this Agreement which
Options vest immediately, expire, subject to the terms of the
Plan, on the 25th day of June, 2007 and are exercisable at an
exercise price per share of Stock (as such term is defined in the
Plan) at the greater of US$6.81 and the Fair Market Value (as
such term is defined in the Plan) as of the date of this
Agreement; and
(ii) the Corporation shall use its best efforts to ensure that so long
as the Executive's employment has not been terminated in
accordance with the terms of this Agreement, the Executive will
be granted 75,000 Options (as
-3-
<PAGE>
such term is defined in the Plan) on January 14, 1999 which
Options will vest on the date of grant, will expire, subject to
the terms of the Plan, on January 14, 2007 and will be
exercisable at an exercise price per share of Stock (as such term
is defined in the Plan) at the Fair Market Value (as such term is
defined in the Plan) as of January 14, 1999.
6. 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.
7. 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.
8. 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 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 offense 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
-4-
<PAGE>
(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.
9. 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 for any reason other than
as stated in Subsection 9(a) above:
(i) on or before June 25, 1999 or at any time thereafter, if the date
of termination is within one (1) year of a Change of Control, the
Executive shall be entitled to receive:
-5-
<PAGE>
A. 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
B. the continuation of the benefits provided for in Subsection
5(b) hereof for six (6) months after the employment is
terminated.
(ii) in any other circumstances, the Executive shall be entitled to
receive the remuneration provided for in Section 5 up to June 25,
2001.
10. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario. The parties do hereby irrevocably attorn to
the non-exclusive jurisdiction of the courts of the Province of Ontario.
11. 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.
12. 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.
13. 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.
14. 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.
-6-
<PAGE>
15. 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:
P.O. Box 573
The Valley
Anguilla, British West Indies
16. 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 defense
to the enforcement of his obligations under this agreement.
17. 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.
18. Amendment
---------
This Agreement may only be amended by an instrument in writing
executed by the parties hereto.
-7-
<PAGE>
IN WITNESS THEREOF the parties have executed this Agreement on the
date first written above.
INTERNATIONAL VERIFACT INC.
By:/s/ L. Barry Thomson
--------------------
Name:
Title:
EXECUTIVE
/s/ Mark A. Convery /s/ George Whitton
- ------------------- ------------------
Witness GEORGE WHITTON
-8-
<PAGE>
EXHIBIT 10.20
ELEVENTH AMENDMENT TO LEASE AGREEMENT
-------------------------------------
THIS ELEVENTH AMENDMENT TO LEASE AGREEMENT (hereinafter referred to as
the "Eleventh Amendment") is made as of the 16th day of July, 1998, by and
between WEEKS REALTY, L.P. (hereinafter referred to as "Landlord") and CHECKMATE
ELECTRONICS, INC. (hereinafter referred to as "Tenant").
W I T N E S S E T H :
--------------------
WHEREAS, ASC North Fulton Associates Joint Venture and Tenant entered
into that certain Lease Agreement dated July 17, 1990, as amended by that
certain First Amendment to Lease dated December 20, 1990, as amended by that
certain Second Amendment to Lease dated October 15, 1992, as amended by that
certain Third Amendment to Lease April 30, 1993, as amended by that certain
Fourth Amendment to Lease July 15, 1993, as amended by that certain Fifth
Amendment to Lease dated August 16, 1994, as amended by that certain Sixth
Amendment to Lease dated February 20, 1995, as amended by that certain Seventh
Amendment to Lease dated January 18, 1996, as amended by that certain Eighth
Amendment to Lease dated April 1, 1996, as amended by that certain Ninth
Amendment to Lease Agreement dated August 18, 1997, and as further amended by
that certain Tenth Amendment to Lease Agreement dated May 20, 1998 (hereinafter
collectively referred to as the "Agreement") for the lease of 70,938 square feet
of office/ warehouse space at 999, 1003, 1009, and 1011 Mansell Road, Roswell,
Georgia which is more particularly described in the Agreement and certain
easements, rights and privileges appurtenant thereto (hereinafter referred to as
the "Leased Premises"); and
WHEREAS, Weeks Realty, L.P. succeeded to the interest of the landlord
under the Agreement and is the Landlord with respect to the Leased Premises; and
WHEREAS, the Agreement will expire by its terms on September 30, 1999
and Tenant desires to enter into this Eleventh Amendment in order to extend the
term of the Agreement;
NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) paid
by Landlord and Tenant to one another, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
Landlord and Tenant, Landlord and Tenant amend the Agreement as follows:
1. The Agreement is hereby extended for an additional two (2) year
term effective October 1, 1999 and continuing until midnight on September 30,
2001 on all of the same terms, covenants and conditions as the original
Agreement with the same base year except that the base rental for the new term
shall be as set forth below:
1003 Mansell Road, Suite A-1 (4,200 square feet):
-------------------------------------------------
<PAGE>
October 1, 1999 - September 30, 2000 $2,865.98/month $34,391.70/year
October 1, 2000 - September 30, 2001 $2,951.95/month $35,423.45/year
1003 Mansell Road, Suite A-A (4,430 square feet):
-------------------------------------------------
October 1, 1999 - September 30, 2000 $3,022.92/month $36,275.06/year
October 1, 2000 - September 30, 2001 $3,113.61/month $37,363.31/year
1009 Mansell Road, Suite D (11,200 square feet):
------------------------------------------------
October 1, 1999 - September 30, 2000 $7,642.60/month $91,711.20/year
October 1, 2000 - September 30, 2001 $7,871.88/month $94,462.54/year
1009 Mansell Road, Suite F (2,350 square feet):
-----------------------------------------------
October 1, 1999 - September 30, 2000 $1,603.58/month $19,242.98/year
October 1, 2000 - September 30, 2001 $1,651.69/month $19,820.27/year
1009 Mansell Road, Suite G, J, K (11,466 square feet):
------------------------------------------------------
October 1, 1999 - September 30, 2000 $7,824.11/month $93,889.34/year
October 1, 2000 - September 30, 2001 $8,058.84/month $96,706.02/year
1011 Mansell Road, Suite C (15,522 square feet):
------------------------------------------------
October 1, 1999 - September 30, 2000 $10,591.82/month $127,101.90/ year
October 1, 2000 - September 30, 2001 $10,909.58/month $130,914.96/ year
999 Mansell Road (9,600 square feet):
-------------------------------------
October 1, 1999 - September 30, 2000 $4,636.15/month $55,633.84/year
October 1, 2000 - September 30, 2001 $4,775.24/month $57,302.86/year
1003 Mansell Road, Suite C (7,370 square feet):
-----------------------------------------------
October 1, 1999 - September 30, 2000 $3,453.95/month $41,447.41/year
October 1, 2000 - September 30, 2001 $3,557.57/month $42,690.83/year
1003 Mansell Road, Suite D (4,800 square feet):
-----------------------------------------------
October 1, 1999 - September 30, 2000 $3,213.60/month $38,563.20/year
October 1, 2000 - September 30, 2001 $3,310.01/month $39,720.10/year
Total Leased Premises (70,938 square feet):
- -------------------------------------------
October 1, 1999 - September 30,2000 $44,854.71/month $538,256.63/year
October 1, 2000 - September 30,2001 $46,200.37/month $554,404.34/year
which payments shall be due and payable on or before the first day of each
calendar month during the applicable term, together with any other additional
rental as set forth hereunder or as set forth in the Agreement.
3. As consideration for Tenant's performance of all obligations to be
performed by Tenant under the Agreement, Landlord shall contribute the sum of
Seventy
-2-
<PAGE>
Thousand and no/100 Dollars ($70,000.00) (the "Allowance") towards the
cost of tenant improvements to the Leased Premises. The Allowance shall be used
for alterations, improvements, fixtures and equipment which become part of or
are attached or affixed to the Leased Premises, including walls, wall coverings
and floor coverings, but excluding trade fixtures, furniture and furnishings or
other personal property. In the event the cost of tenant improvements exceeds
the cost of tenant improvement Allowance, the excess shall be paid by Tenant
within thirty (30) days of Tenant's receipt of Landlord's notice.
4. Except as expressly modified by this Eleventh Amendment, all
provisions, terms and conditions of the Agreement shall remain in full force and
effect.
5. In the event a provision of this Eleventh Amendment conflicts with
a provision of the Agreement, the Eleventh Amendment shall supersede and
control.
6. All terms and phrases used herein shall have the same meaning as
assigned to them in the Agreement.
7. This Eleventh Amendment shall not be of any legal effect or
consequence unless signed by Landlord and Tenant, and once signed by Landlord
and Tenant it shall be binding upon and inure to the benefit of Landlord,
Tenant, and their respective legal representatives, successors and assigns.
8. This Eleventh Amendment has been executed and shall be construed
under the laws of the State of Georgia.
[SIGNATURES CONTAINED ON THE FOLLOWING PAGE]
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Eleventh Amendment to be
executed under seal and delivered as of the day and year first above.
LANDLORD:
Signed, sealed and delivered WEEKS REALTY, L.P.,
in the presence of: a Georgia limited partnership
/s/ Kelly A. Kinnery By: Weeks GP Holdings, Inc.,
- -------------------- a Georgia corporation,
Witness its sole general partner
/s/ Patrick L. Adams
- --------------------
Notary Public By: /s/ Forrest W. Robinson
-----------------------
Name: Forrest W. Robinson
-----------------------
Its: President/C.O.O.
-----------------------
TENANT:
Signed, sealed and delivered CHECKMATE ELECTRONICS, INC.,
in the presence of:
/s/ Tanya K. Meiss By: /s/ John J. Neubert
- ------------------ -------------------
Witness Name: John J. Neubert
-------------------
Its: Exec. V.P. and CFO
-------------------
/s/ Valerie J. David
- --------------------
Notary Public ATTEST:
By: /s/ Margaret L. Burkett
-----------------------
Name: Margaret L. Burkett
-----------------------
Its: Corporate Secretary
-----------------------
(Corporate Seal)
-4-
<PAGE>
EXHIBIT 10.21
TENTH AMENDMENT TO LEASE AGREEMENT
----------------------------------
THIS TENTH AMENDMENT TO LEASE AGREEMENT (hereinafter referred to as the
"Tenth Amendment") is made as of the 20th day of May, 1998, by and between WEEKS
REALTY, L.P. (hereinafter referred to as "Landlord") and CHECKMATE ELECTRONICS,
INC. (hereinafter referred to as "Tenant").
W I T N E S S E T H :
--------------------
WHEREAS, ASC North Fulton Associates Joint Venture and Tenant entered into
that certain Lease Agreement dated July 17, 1990, as amended by that certain
First Amendment to Lease dated December 20, 1990, as amended by that certain
Second Amendment to Lease dated October 15, 1.992, as amended by that certain
Third Amendment to Lease April 30, 1993, as amended by that certain Fourth
Amendment to Lease July 15, 1993, as amended by that certain Fifth Amendment to
Lease dated August 16, 1994, as amended by that certain Sixth Amendment to Lease
dated February 20, 1995, as amended by that certain Seventh Amendment to Lease
dated January 18, 1996, as amended by that certain Eighth Amendment to Lease
dated April 1, 1996, and as further amended by that certain Ninth Amendment to
Lease Agreement dated August 18, 1997 (hereinafter collectively referred to as
the "Agreement") for the lease of 49,168 square feet of office/ warehouse space
at 1003,1009, and 1011 Mansell Road, Roswell, Georgia which is more particularly
described in the Agreement and certain easements, rights and privileges
appurtenant thereto (hereinafter referred to as the "Leased Premises"); and
WHEREAS, Weeks Realty, L.P. succeeded to the interest of the landlord under
the Agreement and is the Landlord with respect to the Leased Premises; and
WHEREAS, Tenant desires to lease an additional 9,600 square feet of office/
warehouse space at 999 Mansell Road, art additional 7,370 square feet of office/
warehouse space at 1003-C Mansell Road, and an additional 4,800 square feet of
office/ warehouse space at 1003-D Mansell Road (for a total of 21,770 additional
square feet, hereinafter collectively referred to as the "Additional Space");
and
WHEREAS, Landlord and Tenant desire to enter into this Tenth Amendment in
order to provide for said expansion of the Leased Premises upon terms and
conditions mutually acceptable to Landlord and Tenant;
NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) paid by
Landlord and Tenant to one another, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
Landlord and Tenant, Landlord and Tenant amend the Agreement as follows:
<PAGE>
1. Effective May 1, 1998, and continuing until midnight on September 30,
1999, Tenant shall lease the Additional Space as shown on the plans attached
hereto as Exhibits "A-1", "A-2" and "A-3", which together with the 49,168 square
feet being leased by Tenant under the original Agreement (hereinafter the
"Existing Space"), equals a total of 70,938 square feet (the Additional Space
and the Existing Space shall be collectively hereinafter referred to as the
"Leased Premises" for all purposes of the Agreement, as amended hereby).
2. Effective May 1, 1998, Paragraph 3(b) of the Agreement is hereby
amended to provide that Tenant shall pay the base rental as set forth below:
Existing Space (49,168 total square feet):
- ------------------------------------------
1003 Mansell Road, Suite A-1 (4,200 square feet):
-------------------------------------------------
May 1, 1998 - September 30,1999 $2,782.50/month $33,390.00/year
1003 Mansell Road, Suite A-A (4,430 square feet):
-------------------------------------------------
May 1, 1998 - September 30,1999 $2,934.88/month $35,218.50/year
1009 Mansell Road, Suite D (11,200 square feet):
------------------------------------------------
May 1, 1998 - September 30,1999 $7,420.00/month $89,040.00/year
1009 Mansell Road, Suite F (2,350 square feet):
-----------------------------------------------
May 1, 1998 - September 30,1999 $1,556.88/month $18,682.50/year
1009 Mansell Road, Suite G, J, K (11,466 square feet):
------------------------------------------------------
May 1, 1998 - September 30,1999 $7,596.23/month $91,154.70/year
1011 Mansell Road, Suite C (15,522 square feet):
------------------------------------------------
May 1, 1998 - September 30 1999 $10,283.33/month $123,399.90/year
Additional Space (21,770 total square feet):
- --------------------------------------------
999 Mansell Road (9,600 square feet):
-------------------------------------
May 1, 1998 - September 30,1998 $4,328.00/month $51,936.00/year
October 1, 1998 - September 30, 1999 $4,501.12/month $54,013.44/year
1003 Mansell Road, Suite C (7,370 square feet):
-----------------------------------------------
May 1, 1998 - September 30,1998 $3,224.38/month $38,692.50/year
October 1, 1998 - September 30, 1999 $3,353.35/month $40,240.20/year
1003 Mansell Road, Suite D (4,800 square feet):
-----------------------------------------------
May 1, 1998 - September 30,1998 $3,000.00/month $36,000.00/year
October 1, 1998 - September 30,1999 $3,120.00/month $37,440.00/year
-2-
<PAGE>
which payments shall be due and payable on or before the first day of each
calendar month during the applicable term, together with any other additional
rental as set forth hereunder or as set forth in the Agreement.
3. As consideration for Tenant's performance of all obligations to be
performed by Tenant under the Agreement, Landlord shall contribute $2.00 per
square foot contained in the Additional Space, which is the sum of Forty-three
Thousand Five Hundred Forty and no/100 Dollars ($43,540.00) (the "Allowance")
towards the cost of tenant improvements to the Additional Space. The Allowance
shall be used for alterations, improvements, fixtures and equipment which become
part of or are attached or affixed to the Additional Space, including walls,
wall coverings and floor coverings, but excluding trade fixtures, furniture and
furnishings or other personal property. In the event the cost of tenant
improvements exceeds the cost of tenant improvement Allowance, the excess shall
be paid by Tenant within thirty (30) days of Tenant's receipt of Landlord's
notice.
4. Tenant shall take delivery of the Existing Space from Landlord
in an AS-IS condition.
5. Except as expressly modified by this Tenth Amendment, all
provisions, terms and conditions of the Agreement shall remain in full force and
effect.
6. In the event a provision of this Tenth Amendment conflicts with a
provision of the Agreement, the Tenth Amendment shall supersede and control.
7. All terms and phrases used herein shall have the same meaning as
assigned to them in the Agreement.
8. This Tenth Amendment shall not be of any legal effect or
consequence unless signed by Landlord and Tenant, and once signed by Landlord
and Tenant it shall be binding upon and inure to the benefit of Landlord,
Tenant, and their respective legal representatives, successors and assigns.
9. This Tenth Amendment has been executed and shall be construed
under the laws of the State of Georgia.
[SIGNATURES CONTAINED ON THE FOLLOWING PAGE]
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Tenth Amendment
to be executed under seal and delivered as of the day and year first above
written.
LANDLORD:
Signed, sealed and delivered WEEKS REALTY, L.P.,
in the presence of: a Georgia limited partnership
/s/ Kelly A. Kinnery By: Weeks GP Holdings, Inc.,
- -------------------- a Georgia corporation,
Witness its sole general partner
/s/ Patrick L. Adams
- --------------------
Notary Public By: /s/ Forrest W. Robinson
--------------------------
Name: Forrest W. Robinson
-------------------
Its: President/C.O.O.
-------------------
TENANT:
Signed, sealed and delivered CHECKMATE ELECTRONICS, INC.,
in the presence of:
/s/ Tanya K. Meiss By: /s/ John J. Neubert
- ------------------ --------------------
Witness Name: John J. Neubert
--------------------
Its: CFO/Exec. V.P.
--------------------
/s/ Valerie J. David
- --------------------
Notary Public ATTEST:
By: /s/ M. L. Burkett
--------------------
Name: Margaret Burkett
--------------------
Its: Corp. Sec/Accty Mgr.
--------------------
(Corporate Seal)
-4-
<PAGE>
EXHIBIT 21.1
State or Jurisdiction Names Under Which
Subsidiaries of Incorporation It Does Business
- -------------------- --------------------- ---------------------------
IVI Checkmate Ltd. Georgia Checkmate; IVI Checkmate
IVI Checkmate Inc. Canada IVI; IVI Checkmate;
International Verifact Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-65749) pertaining to the Plourde Computer Services, Inc. 1991
Stock Option Plan; Form S-8 (No. 333-65259) pertaining to the IVI Checkmate
Corp. 1998 Long-Term Incentive Plan and the IVI Checkmate Corp. Amended and
Restated 1998 Directors Stock Option Plan; the Post-Effective Amendment No. 2 to
the Form S-4 Registration Statement on Form S-8 (No. 333-53629) pertaining to
the Checkmate Electronics, Inc. 1988 Employee Incentive Stock Option Plan,
Checkmate Electronics, Inc. 1993 Stock Option Plan, Checkmate Electronics, Inc.
1994 Director's Stock Option Plan, International Verifact Inc. 1997 Stock Option
Plan and Checkmate Electronics, Inc. Non-Incentive Stock Option Agreement; and
the Post-Effective Amendment No. 5 to the Form S-4 Registration Statement on
Form S-3 (No. 333-53629), pertaining to the registration of shares of common
stock for issuance upon the exchange of exchangeable shares, of our report dated
February 12, 1999, with respect to the consolidated financial statements of IVI
Checkmate Corp. included in this Annual Report (Form 10-K) for the year ended
December 31, 1999.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
March 24, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-65749) pertaining to the Plourde Computer Services, Inc. 1991
Stock Option Plan; Form S-8 (No. 333-65259) pertaining to the IVI Checkmate
Corp. 1998 Long-Term Incentive Plan and the IVI Checkmate Corp. Amended and
Restated 1998 Directors Stock Option Plan; the Post- Effective Amendment No. 2
to the Form S-4 Registration Statement on Form S-8 (No. 333-53629) pertaining to
the Checkmate Electronics, Inc. 1988 Employee Incentive Stock Option Plan,
Checkmate Electronics, Inc. 1993 Stock Option Plan, Checkmate Electronics, Inc.
1994 Director's Stock Option Plan, International Verifact Inc. 1997 Stock Option
Plan and Checkmate Electronics, Inc. Non-Incentive Stock Option Agreement; and
the Post-Effective Amendment No. 5 to the Form S-4 Registration Statement on
Form S-3 (No. 333-53629), pertaining to the registration of shares of common
stock for issuance upon the exchange of exchangeable shares, of our report dated
February 12, 1998, with respect to the consolidated financial statements
of IVI Checkmate Corp. included in this Annual Report (Form 10-K) for the year
ended December 31, 1998.
/s/ PRICEWATERHOUSECOOPERS
Toronto, Ontario
March 24, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints L. Barry Thomson, Gregory A. Lewis and John J. Neubert and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of IVI Checkmate Corp. for
the fiscal year ended December 31, 1998, and any and all amendments thereto, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc., granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 16th day of March, 1999.
/s/ George Whitton
----------------------------------
George Whitton
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints L. Barry Thomson, Gregory A. Lewis and John J. Neubert and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of IVI Checkmate Corp. for
the fiscal year ended December 31, 1998, and any and all amendments thereto, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc., granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 16th day of March, 1999.
/s/ Gerard Compain
----------------------------------
Gerard Compain
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints L. Barry Thomson, Gregory A. Lewis and John J. Neubert and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of IVI Checkmate Corp. for
the fiscal year ended December 31, 1998, and any and all amendments thereto, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc., granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 16th day of March, 1999.
/s/ Paul W. Noblett
----------------------------------
Paul W. Noblett
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints L. Barry Thomson, Gregory A. Lewis and John J. Neubert and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of IVI Checkmate Corp. for
the fiscal year ended December 31, 1998, and any and all amendments thereto, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc., granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This day of March, 1999.
/s/ Gareth Owen
----------------------------------
Gareth Owen
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints L. Barry Thomson, Gregory A. Lewis and John J. Neubert and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of IVI Checkmate Corp. for
the fiscal year ended December 31, 1998, and any and all amendments thereto, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc., granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 15th day of March, 1999.
/s/ Peter E. Roode
----------------------------------
Peter E. Roode
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,846
<SECURITIES> 0
<RECEIVABLES> 32,535
<ALLOWANCES> 715
<INVENTORY> 15,743
<CURRENT-ASSETS> 63,050
<PP&E> 19,909
<DEPRECIATION> 11,685
<TOTAL-ASSETS> 82,829
<CURRENT-LIABILITIES> 27,025
<BONDS> 0
0
0
<COMMON> 178
<OTHER-SE> 54,839
<TOTAL-LIABILITY-AND-EQUITY> 82,829
<SALES> 96,570
<TOTAL-REVENUES> 107,122
<CGS> 65,818
<TOTAL-COSTS> 65,818
<OTHER-EXPENSES> 12,634
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (544)
<INCOME-PRETAX> (5,551)
<INCOME-TAX> (580)
<INCOME-CONTINUING> (4,971)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,971)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
