<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
IVI CHECKMATE CORP.
-------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, If Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-
11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- -------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
- --------------------------------------------------------------------------------
(1) Amount previously paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- -------------------------------------------------------------------------------
(3) Filing Party:
- -------------------------------------------------------------------------------
(4) Date Filed:
- -------------------------------------------------------------------------------
<PAGE>
[Letterhead of IVI Checkmate Corp. Appears Here]
April _, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 annual meeting of stockholders
of IVI Checkmate Corp., which will take place on Thursday, May 20, 1999, at
10:00 a.m., local time. We will hold the meeting at the Holiday Inn in Roswell,
Georgia, in the Great Oaks Ballroom. We have provided a map to the hotel at the
end of the accompanying proxy statement.
At the meeting, the stockholders will vote upon (1) a proposal to amend our
certificate of incorporation to create a classified or "staggered" board of
directors and (2) the election of directors. The proposal to create a classified
board is intended to discourage proxy contests for control of the board by a
third party that desires to initiate a hostile takeover of your company without
first negotiating with the board of directors. Without a classified board, such
an acquiror who is successful in a proxy contest can remove the entire board of
directors at one time and replace these directors with its own representatives.
Through its resulting control of the board of directors, the acquiror is in a
much better position to push through its takeover transaction on its terms,
which may not necessarily be in the best interests of the other stockholders.
If the board is divided into three classes of directors, the directors in
each class will serve three year terms, with the election of the directors being
"staggered" such that only one class is elected each year. If we have a
classified board, a hostile acquiror would be unable to gain control of the
board at one time. Instead, at least two annual meetings of stockholders
ordinarily would be required for the hostile acquiror to gain majority control
of the board. Hostile acquirors typically are unwilling to wait this long to
implement their takeover transaction.
The board's purpose in putting a classified board in place is not to
discourage a takeover transaction. The board's purpose is simply to encourage
parties who want to acquire control of your company to first negotiate the
terms of the transaction with the board, with the goal of obtaining the board's
approval of the transaction and recommendation of it to the stockholders. The
board believes that through negotiations with potential acquirors, it will have
the opportunity to negotiate a more favorable transaction for the benefit of all
stockholders.
Additional information regarding the proposal to classify the board of
directors and the election of directors is in the accompanying proxy statement.
The board of directors recommends that you vote in favor of the classified board
and the election as directors of the persons named in the proxy statement.
Please mark, date, sign and return your proxy card in the enclosed envelope
at your earliest convenience. This will ensure that your shares will be
represented and voted at the meeting, even if you do not attend.
Sincerely,
/s/ J. Stanford Spence
J. Stanford Spence
Chairman of the Board of Directors
<PAGE>
[Logo]
IVI CHECKMATE CORP.
1003 Mansell Road
Roswell, Georgia 30076
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
MAY 20, 1999
10:00 A.M., EASTERN TIME
NOTICE HEREBY IS GIVEN that the 1999 annual meeting of stockholders of IVI
Checkmate Corp. will be held on Thursday, May 20, 1999, at 10:00 a.m., local
time. The meeting will be held in the Great Oaks Ballroom at the Holiday Inn
located at 1075 Holcomb Bridge Road, Roswell, Georgia. The purpose of the
meeting is for the stockholders to consider and vote upon:
1. A proposal to amend the certificate of incorporation to adopt a classified
board of directors;
2. A proposal to elect directors; and
3. Any other business that is properly brought before the meeting.
Only stockholders of record at the close of business on April 1, 1999, will
be entitled to vote.
Your vote is important. Please, sign, date and return the enclosed proxy
card in the envelope provided in order that as many shares as possible will be
represented.
By order of the Board of Directors,
/s/ John J. Neubert
John J. Neubert
Corporate Secretary
Roswell, Georgia
April _, 1999
Please read the attached proxy statement and then promptly complete, execute
and return the enclosed proxy card in the accompanying postage paid envelope. If
you attend the meeting, you may revoke the proxy card and vote in person if you
so desire.
<PAGE>
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Voting
Voting Rights Resulting from the Combination.......................... 1
Record Date, Quorum and Vote Required................................. 1
Proxy and Voting Procedures........................................... 2
Stock Ownership............................................................ 3
*Proposal 1 Approval of an Amendment to the Certificate of Incorporation
to Provide for a Classified Board of Directors and Related Changes.... 5
Description of the Proposal...........................................
Purpose and Effects of the Proposal...................................
Existing Provisions Related to a Change of Control....................
*Proposal 2 - Election of Directors........................................ 8
Nominees.............................................................. 8
Information Regarding Nominees........................................ 9
Board Committees...................................................... 12
Director Compensation................................................. 14
Executive Compensation..................................................... 14
Summary Compensation.................................................. 14
Option Grants......................................................... 15
Option Exercises and Fiscal Year-End Option Values.................... 16
Employment Agreements................................................. 16
Board of Directors' Report on Executive Compensation....................... 21
Compensation Policy for Executive Officers............................ 21
Chief Executive Officer Compensation.................................. 22
Policy on Deductibility of Compensation............................... 23
Compensation Committee Interlocks and Insider Participation................ 23
Certain Transactions....................................................... 17
Ingenico Alliance.....................................................
Noblett Transactions..................................................
Nordin Transaction....................................................
Spence Agreement......................................................
Stock Performance Graph.................................................... 20
Section 16(a) Beneficial Ownership Reporting Compliance.................... 21
Stockholders' Proposals for 2000 Annual Meeting............................ 23
Independent Public Accountants............................................. 24
Information About Attending the Annual Meeting............................. 25
Map to Annual Meeting...................................................... 26
</TABLE>
* Denotes items to be voted on at the meeting.
NOTE: You may receive a copy of our 1998 Form 10-K report, without charge, by:
(1) writing to Investor Relations, IVI Checkmate Corp., 1003 Mansell
Road, Roswell, Georgia 30076, Attn: Corporate Secretary;
(2) calling 770-594-6000; or
(3) sending an e-mail message through our home page at
http://www.ivicheckmate.com.
<PAGE>
IVI CHECKMATE CORP.
__________
PROXY STATEMENT
FOR THE 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1999
__________
The board of directors of IVI Checkmate Corp. is furnishing this proxy
statement to solicit your proxy for the voting of your shares at the 1999 annual
meeting of stockholders and at any adjournments. The annual meeting will take
place on Thursday, May 20, 1999, at 10:00 a.m., local time. We will hold the
annual meeting in the Great Oaks Ballroom at the Holiday Inn at 1075 Holcomb
Bridge Road in Roswell, Georgia. We have provided a map to the hotel at the end
this proxy statement.
We are mailing this proxy statement and the accompanying proxy card to you
on or about April , 1999.
VOTING
Voting Rights Resulting from the Combination
We were formed as a Delaware corporation in 1998 in anticipation of the
combination of International Verifact Inc., which we refer to as IVI, and
Checkmate Electronics, Inc., which we refer to as Checkmate. On June 25, 1998,
the stockholders of IVI and Checkmate approved the combination of the two
companies into what is now called IVI Checkmate, and we acquired both IVI and
Checkmate as our subsidiaries on that date. We are sending this proxy statement
to you, the stockholders of IVI Checkmate, in connection with the first annual
meeting of the stockholders of the new combined company.
As part of the combination, the outstanding shares of Checkmate common
stock were converted into shares of our common stock and, at the election of the
IVI stockholders, the outstanding common shares of IVI were converted into
either shares of our common stock or exchangeable shares of IVI. Holders of IVI
exchangeable shares may convert each of their exchangeable shares into one share
of our common stock at any time through June 25, 2008.
Each share of our common stock is entitled to one vote per share. Because
the exchangeable shares are issued by IVI rather than by us, we and IVI entered
into an agreement that allows the holders of IVI exchangeable shares to vote on
IVI Checkmate matters. Under this agreement, each exchangeable share entitles
its holder to one vote on each matter presented to the stockholders of IVI
Checkmate. Montreal Trust Company of Canada, serving as trustee on behalf of
the holders of exchangeable shares, will be entitled to exercise that number of
votes for which it receives directions from the holders of exchangeable shares.
Record Date, Quorum and Vote Required
The record date for determining the holders of common stock and
exchangeable shares who are entitled to receive notice of and to vote at the
annual meeting is April 1, 1999. On the record date, shares of common stock
and exchangeable shares were outstanding and eligible to be voted at the annual
meeting.
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The presence at the annual meeting, in person or by proxy, of the holders
of a majority of the shares entitled to be voted will constitute a quorum at the
meeting. In determining whether a quorum is present at the meeting, we will
apply the following principles:
. Shares that you withhold from voting as to any nominee or that you abstain
from voting are "shares entitled to be voted," and, therefore, we will
count them as present for purposes of determining the presence or absence
of a quorum.
. The trustee is not permitted to cast votes with regard to exchangeable shares
as to which the holders do not provide voting instructions to the trustee. We
will treat such shares as "shares entitled to be voted" but absent from the
meeting.
. We will not consider broker non-votes to be "shares entitled to be voted,"
and, therefore, we will not consider them for purposes of determining a
quorum. Under stock exchange rules, brokers holding shares of record for
customers generally are not entitled to vote on certain matters unless they
receive voting instructions from their customers. We use the term
"uninstructed shares" to describe shares held by a broker who has not
received instructions from its customers on a particular matter and the
broker has notified us that it lacks voting authority. We use the term
"broker non-votes" to describe the votes that could have been cast on a
particular matter by brokers with respect to uninstructed shares if the
brokers had received their customers' instructions. There are no controlling
legal precedents under Delaware law regarding the treatment of broker non-
votes in certain circumstances so we intend to apply the principle stated
above at the annual meeting.
The following principles will apply with regard to stockholder voting on the
two proposals at the annual meeting:
. Amendment of the Certificate of Incorporation. In voting on the proposal to
amend the certificate of incorporation (Proposal 1), you may vote in favor of
the proposal or against the proposal or may abstain from voting. The vote
required to approve Proposal 1 is the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote at the annual meeting,
provided a quorum is present. We will consider abstentions, exchangeable
shares as to which holders do not provide voting instructions and broker non-
votes in determining the number of votes required to obtain the necessary
majority approval. As a result, abstentions, exchangeable shares as to which
holders do not provide voting instructions and broker non-votes will have the
same effect as a vote against the proposal.
. Election of Directors. In voting for the proposal to elect directors
(Proposal 2), you may vote in favor of all nominees, withhold your votes as
to all nominees or withhold your votes as to specific nominees. The vote
required to approve Proposal 2 is a plurality of the votes cast, provided a
quorum is present, and the eight nominees who receive the most votes will be
elected. As a result, votes that are withheld, exchangeable shares as to
which holders do not provide voting instructions and broker non-votes will
have no effect.
Proxy and Voting Procedures
The accompanying proxy card is for your use if you are unable to attend the
annual meeting in person or are able to attend but do not wish to vote in
person. You should specify your choices with regard to each of the two proposals
on the enclosed proxy card. Please then sign and date the proxy card and mail it
to us in the enclosed envelope. If you return a properly dated and signed proxy
card, the shares represented by the proxy will be voted in accordance with your
instructions by the persons named as proxies on the enclosed proxy card or by
the trustee, as applicable. In the absence of such
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instructions, the shares represented by a signed and dated proxy card will be
voted "FOR" the amendment to the certificate of incorporation and "FOR" the
election of all eight director nominees. If any nominee for election as a
director should become unable to serve for any reason and the board of directors
designates a substitute nominee, the persons named as proxies on the proxy card
or the trustee, as applicable, will vote all valid proxy cards for the election
of the substitute nominee.
The board of directors is not aware of any other business to be presented to a
vote at the annual meeting. The dates established in our bylaws by which
stockholders who desire to submit nominations for director or other proposals to
us for presentation to a vote of the stockholders at the annual meeting has
passed, and, therefore, no director nominations or other matters may be proposed
for action by stockholders at the annual meeting.
Your submission of a proxy will not affect your right to vote in person should
you attend the annual meeting. If you submit a proxy, you may still revoke it
at any time before it is voted by:
. giving written notice to John J. Neubert, our Corporate Secretary, at 1003
Mansell Road, Roswell, Georgia 30076 or, with regard to exchangeable
shares, the trustee, Montreal Trust Company of Canada, Manager Client
Services, at 151 Front Street West, Suite 605, Toronto, Ontario M5J 2N1,
. by executing and delivering to Mr. Neubert or the trustee, as applicable,
a proxy card bearing a later date or
. by voting in person at the annual meeting.
We are soliciting your proxy on behalf of the board of directors, and we will
bear all of the related costs. Brokers, banks and others holding shares in
their names, or in the names of their nominees, will forward copies of the proxy
solicitation material to beneficial owners and will seek authority for execution
of proxies. We will reimburse them for their reasonable expenses in so doing.
We also have retained Corporate Investor Communication, Inc. at a cost of
approximately $4,500 to assist us in soliciting proxies from our U.S.
stockholders, and we have retained Shareholders Communication Canada at a cost
of approximately $8,000 to assist us in soliciting proxies from our Canadian
stockholders. Additionally, our employees may communicate with you to solicit
your proxies, but we will not pay them any additional compensation for doing so.
STOCK OWNERSHIP
The following table sets forth information as of December 31, 1998 regarding
the beneficial ownership of our common stock by each person known to us to
beneficially own more than 5% of the common stock, each of our directors, each
executive officer named in the table under the caption "Executive Compensation
Summary Compensation" and all directors and executive officers as a group.
The persons named in the table gave us the stock ownership information about
themselves. In accordance with regulations of the Securities and Exchange
Commission, beneficial ownership as reported in the table includes shares of
stock as to which a person possesses sole or shared voting or investment power
and shares which may be acquired on or before March 1, 1999 upon the exchange of
exchangeable shares or the exercise of stock options. Except as explained in
the footnotes below, the named persons have sole voting and investment power
with regard to the shares shown as beneficially owned by them.
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<TABLE>
<CAPTION>
Number Percent
Name and Relationship of Owned Shares Owned
- --------------------- ------------------------ -------------------
<S> <C> <C>
Ingenico, S.A........................................... 1,544,416(1)(2) 8.7%
Principal Stockholder
J. Stanford Spence...................................... 845,331(3) 4.7
Chairman of the Board
Gregory A. Lewis........................................ 383,250(4) 2.1
President and Chief Executive Officer of U.S.
Operations and Director
John J. Neubert......................................... 365,801(5) 2.0
Executive Vice President Finance and
Administration, Chief Financial Officer, Secretary
and Treasurer
L. Barry Thomson........................................ 333,150(4) 1.8
President, Chief Executive Officer and Director
George Whitton.......................................... 207,150(6) 1.1
Vice Chairman of the Board
Peter E. Roode.......................................... 27,000(7) *
Director
Gerard Compain.......................................... 20,000(1)(2) *
Director
Bertil D. Nordin........................................ 11,916 *
Director
Paul W. Noblett......................................... -- --
Director
Gareth Owen.............................................
Director
All directors and executive officers as a group
(10 persons) 3,738,014(8) 19.5
</TABLE>
______________
* Less than one percent.
(1) Under the terms of an investment agreement between Ingenico and us, if we
issue additional shares of common stock in the future, Ingenico has the
right to purchase additional shares of common stock from us to maintain its
then-current percentage ownership of our common stock. See "Certain
Transactions--Ingenico Alliance." Ingenico's address is 9 quai de Dion
Bouton, Puteaux, France.
(2) Gerard Compain, who is the Managing Director of Ingenico, is considered to
beneficially own the shares held by Ingenico because of his ability to vote
and dispose of those shares on behalf of Ingenico. In addition, Mr.
Compain individually is the beneficial owner of 20,000 shares that he may
acquire upon the exercise of stock options. Mr. Compain's address is 9
quai de Dion Bouton, Puteaux, France.
(3) The shares shown include 33,722 shares owned by Stanford Technologies,
Inc., a corporation of which Mr. Spence and his wife are the sole
stockholders, and 178,850 shares that Mr. Spence may acquire upon the
exercise of stock options.
(4) Consists of shares that the named person may acquire upon the exercise of
stock options.
(5) Includes 319,373 shares that Mr. Neubert may acquire upon the exercise of
stock options.
(6) Includes 128,850 shares that Mr. Whitton may acquire upon the exercise of
stock options.
(7) Includes 20,000 shares that Mr. Roode may acquire upon the exercise of
stock options.
(8) Includes a total of 1,383,473 shares that the directors and executive
officers may acquire upon the exercise of stock options.
4
<PAGE>
PROPOSAL 1
APPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO PROVIDE FOR
A CLASSIFIED BOARD OF DIRECTORS
AND RELATED CHANGES
Description of the Proposal
The board of directors is seeking stockholder approval of an amendment to
the certificate of incorporation to provide for a classified board of directors.
The following is a discussion of the proposed amendment and the reasons for and
the possible effects of the proposed amendment.
Under the proposed amendment, the board of directors will be divided into
three classes. The directors in each class will hold office for initial terms
of one year, two years and three years, respectively. Following the expiration
of the initial terms, all terms will be for three years.
To implement the classification, the board proposes to add a new Article
Thirteenth to the certificate of incorporation to read as follows:
THIRTEENTH: (a) At the 1999 annual meeting of stockholders, the
directors elected by the stockholders shall be divided into three classes,
designated as Class I, Class II and Class III, with the term of office of
the Class I directors to expire at the 2000 annual meeting of stockholders,
the term of office of the Class II directors to expire at the 2001 annual
meeting of stockholders, and the term of office of the Class III directors
to expire at the 2002 annual meeting of stockholders. At each annual
meeting of stockholders following the initial classification and election,
directors elected to succeed those directors whose terms expire shall be
elected to hold office for a term expiring at the third annual meeting
following election and until a successor shall have been duly elected and
shall have qualified, with the term of office of one class expiring each
year. Any vacancies occurring in the board of directors that result from
the death, resignation, retirement, disqualification, removal from office
or other cause with respect to a director elected by all of the
stockholders having the right to vote as a single class, and any newly
created directorships resulting from an increase in the number of such
directors, shall be filled by a majority of the directors then in office,
whether or not a quorum, or by a sole remaining director; provided,
however, that if the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by this Certificate of
Incorporation or any amendment hereto, vacancies and newly created
directorships of such class or classes or series may only be filled by a
majority of the directors elected by such class or classes or series
thereof then in office, whether or not a quorum. Each director chosen to
fill a vacancy or to fill a newly created directorship shall hold office
until the next election of the class for which such director shall have
been chosen.
(b) Any director or the entire board of directors may be removed from
office at any time, but only for cause, by the holders of a majority of the
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shares then entitled to vote in an election of directors. For purposes of
this paragraph, "cause" shall mean personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties or willful violation of any
law, rule or regulation (other than traffic violations or similar minor
offenses).
If the proposed amendment to the certificate of incorporation is approved
by the stockholders at the annual meeting, the board will make conforming
amendments to Sections 3.2, 3.9 and 3.11 of the bylaws. In particular, these
conforming amendments would have the effect of eliminating the current provision
which grants to the stockholders, in addition to the board of directors, the
right to fill vacancies on the board and newly created directorships resulting
from an increase in the authorized number of directors. This right would be
vested solely in the directors then in office. The bylaw amendments also would
eliminate the current right of the stockholders to remove any director or the
entire board with or without cause by providing that directors may only be
removed for cause.
For a description of the composition of the proposed classes of directors,
see "Proposal 2 -- Election of Directors."
Purpose and Effects of the Proposal
A principal purpose of the proposed amendments to the certificate of
incorporation and bylaws is to reduce our vulnerability to unsolicited proposals
to acquire control of us in which the acquiror does not negotiate the terms of
the proposal with our board. The proposed amendments are intended to discourage
surprise takeover attempts, which the board believes are generally not in the
best interests of a company's stockholders, and to encourage potential acquirors
to negotiate with the board. The directors believe that an opportunity for the
board to determine whether a proposed change of control transaction would be in
your best interest as a stockholder and to possibly be able to negotiate more
favorable terms on your behalf is in the best interests of the stockholders.
Third parties sometimes accumulate substantial stock positions in public
companies as a prelude to a takeover, a restructuring or sale of all or part of
a company or other similar extraordinary corporate actions. Third parties often
undertake such actions without notice to or consultation with the target
company. In many cases, the purchaser seeks to cause one or more of its
representatives to be elected to the company's board of directors, and
frequently to obtain majority representation on the board of directors, to
increase the likelihood that the purchaser's proposed transaction will be
implemented by the target company. If the target company resists the efforts of
the purchaser to obtain representation on the board, the purchaser may commence
a proxy contest in an attempt to have its representatives elected to the board
in place of certain directors or the entire board.
Because our current certificate of incorporation and bylaws require the
entire board to stand for election each year, it is possible for a potential
acquiror, through a successful proxy contest, to cause any or all of the
incumbent directors to be removed without cause and replaced with the acquiror's
representatives at any single stockholders' meeting. The new board could then
approve and push through the acquiror's proposed transaction, which may or may
not be in the best interests of the other stockholders. Under these
circumstances, the incumbent directors would have no opportunity to negotiate
more favorable pricing and other terms on behalf of the other stockholders or to
prevent the transaction if, in the board's view, it would not be in the
stockholders' best interests.
If Proposal 1 is approved, the board of directors will be divided into
three classes effective as of the 1999 annual meeting, and only one of these
classes will stand for election at each subsequent annual meeting. As a result,
at least two stockholder meetings instead of one ordinarily will be required to
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change a majority of the board. Your board believes that this additional time
required for a potential hostile acquiror to obtain control of the board will
discourage hostile acquirors from commencing surprise takeover efforts and proxy
contests in which there is not an opportunity for the board to negotiate on
behalf of the stockholders. Instead, a classified board should encourage
potential acquirors to negotiate with the incumbent directors with the goal of
obtaining their approval of the transaction and recommendation of it to the
stockholders. Additionally, without the threat of imminent removal, the
incumbent directors should gain additional time to properly evaluate the
proposal, gather additional information, study alternative proposals and
effectively negotiate with the acquiror to help ensure that the best price and
other terms are obtained for the stockholders.
The board believes that this additional leverage resulting from a
classified board is critical in the face of an inadequate or unfair takeover
attempt of a company in a highly cyclical industry like the electronic funds
transfer/point-of-sale industry and for a company whose stock experiences
significant price volatility. For example, on June 25, 1998, the day Checkmate
and IVI were combined, our shares of common stock closed at $7.25 per share. On
July 13, 1998, less than one month later, the stock closed at $6.00, 13% lower;
and on September 2, 1998, the stock closed at $3.75, down 48% in just over two
months. Less than five months later, on January 22, 1999, the stock closed at
$7.25, over a 93% increase from its low of $3.75.
A hostile acquiror for our common stock on September 2, 1998, even one
offering a substantial premium over the then current market price, might have
been able to replace all of the incumbent directors and push through a
transaction in which it would have been able to acquire your shares well below
what the incumbent board considers to be the shares' true value at that time.
Again, the board believes that a classified board will discourage non-negotiated
transactions at inadequate prices and instead will encourage potential acquirors
to negotiate with the board. Consequently, the board believes that a classified
board is an important tool to help assure that you receive fair value for your
shares.
As contemplated by Delaware law (under which we are organized) for
companies that have a classified board of directors, paragraph (b) of proposed
Article Thirteenth provides that any director or the entire board of directors
may be removed from office by the stockholders only "for cause," as such term is
defined in paragraph (b). Our bylaws currently permit the stockholders to
remove directors with or without cause.
As discussed above, in the absence of a classified board and the other
provisions contained in proposed Article Thirteenth, a hostile acquiror, through
a successful proxy contest, could cause any or all of the incumbent directors to
be removed without cause and replaced by the acquiror's representatives.
Paragraph (b) of Article Thirteenth, together with corresponding amendments to
the bylaws that our board would make if Article Thirteenth is approved, are
intended to complement and further the purposes of the proposed classified
board.
Specifically, the provisions of paragraph (b) would prohibit a hostile
acquiror or any other stockholders from removing incumbent directors prior to
the scheduled expiration of their terms in the absence of cause, as defined.
Moreover, by providing that only the board of directors, rather than either the
board or the stockholders as is currently the case, may fill vacancies in the
board and newly created directorships, a hostile acquiror cannot appoint its own
representatives to the board in place of, or in addition to, the incumbent
directors. As a result, the classified board and related provisions contemplated
by Proposal 1 are intended to reduce our vulnerability to an unsolicited
takeover and, instead, to encourage potential acquirors to negotiate directly
with the board for the benefit of all stockholders.
The board of directors also believes that a classified board of directors
will promote continuity and stability in our management and policies because a
majority of the directors at any given time will
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have prior experience as directors of our company. The board further believes
that this continuity and stability will facilitate long-range planning by the
directors.
It should be noted that the classification of the board of directors and
related proposals, if adopted, would make it more difficult to change the
composition of the board. Consequently, the proposed changes may increase the
likelihood that incumbent directors will retain their positions. Additionally,
proposed Article Thirteenth and the related proposed bylaw amendments may make
more difficult or discourage a takeover, proxy contest or other change of
control transaction and your participation in such a transaction, even if it
would be favorable to your interests. Nevertheless, the board believes that the
benefits of an enhanced ability to negotiate with the proponent of an
unsolicited proposal to acquire control of your company, together with the
increased board stability and continuity fostered by a classified board and the
other proposed changes, outweigh the disadvantages of possibly discouraging
unsolicited proposals and possibly reducing the ability of stockholders to
change the composition of the board.
We are not proposing this amendment in response to any specific effort by
any person to accumulate our stock or to obtain control of us by means of a
takeover transaction, tender offer, proxy solicitation or otherwise. We are
proposing the amendment at this time because the board believes that a
classified board and related changes would serve the best interests of the
stockholders.
Existing Provisions Related to a Change of Control
Effective as of October 22, 1998, the board of directors implemented a
stockholder rights plan by declaring a dividend distribution of one right for
each outstanding share of common stock and for each exchangeable share. Future
issuances of our common stock and exchangeable shares will also include stock
purchase rights. The rights, if triggered by the board in its discretion in
response to a third party's acquisition of a significant percentage of our
stock, would cause substantial dilution to a person or group that attempts to
acquire us on terms not approved by our board. As a result, the existence of
the stockholder rights plan may serve to make more difficult or discourage a
non-negotiated attempt to acquire control of your company, although it is not
intended to preclude any prospective offer for shares at a price and on other
terms that are in your best interests as determined by the board of directors.
In general, the rights will not become exercisable unless a person or group
of affiliated persons becomes the beneficial owner of, or commences a tender
offer that would result in beneficial ownership of, 15% or more of the
outstanding shares of common stock and exchangeable shares. After such an event,
each right, other than rights held by the acquiror, could become exercisable for
the purchase of a number of shares of common stock having a market value equal
to two times the exercise price of the rights. The exercise price of the rights
is currently $30.00 per right. The rights agreement will expire in October 2008.
Our certificate of incorporation authorizes the board of directors, without
stockholder approval, to issue up to 1,000,000 shares of preferred stock having
such voting powers and other designations, preferences and rights as the board
may by resolution provide. The board could in the future issue shares of such
preferred stock to a friendly party on terms that might enable the friendly
party to help the board defeat an attempt by another party to acquire control of
the company that is opposed by the incumbent directors. We currently intend to
issue approximately 800,000 shares of preferred stock in connection with a
pending acquisition. However, the persons to whom the shares would be issued
are not affiliated with us, and we have no agreement or understanding with them
about how they are to vote those shares.
Ingenico currently owns approximately 8.7% of our stock (our common stock
and IVI's exchangeable shares combined). As discussed in "Stock Ownership"
above, we have granted Ingenico the right to purchase additional shares of
common stock from us to maintain its percentage ownership of
8
<PAGE>
our common stock if we issue additional shares in the future. By enabling
Ingenico to avoid dilution of its current ownership percentage and maintain its
position as a holder of a significant percentage of our stock, this right could
facilitate the ability of our incumbent directors to defeat any proposed change
of control transaction if Ingenico, which has a representative on our board of
directors, aligns itself with our board in opposition to any such proposed
change of control transaction.
Proposal 1 is not part of a plan by management to adopt a series of anti-
takeover amendments, and management currently has no intention of proposing
other anti-takeover measures in future proxy solicitations.
The board of directors believes that the classification of the board and
related changes contemplated by Proposal 1 are advisable and in the best
interests of the stockholders and recommends that you vote to approve the
proposed amendment to the certificate of incorporation.
PROPOSAL 2
ELECTION OF DIRECTORS
Nominees
The board of directors has set the authorized number of directors at nine,
and the board currently consists of nine members. However, Gareth Owen is not
standing for re-election at the annual meeting, and the board has not identified
a suitable candidate to replace him. The board intends to fill the vacancy as
soon as practicable.
Currently, the directors serve for terms of one year and until their
successors are elected and qualified. If the stockholders approve Proposal 1 at
the annual meeting, the board of directors will be divided into three classes.
Directors will be elected to hold office initially for terms of one, two and
three years and until their successors are elected and qualified. After the
expiration of those initial terms, all directors will be elected to serve three
year terms. If Proposal 1 is approved at the annual meeting, there will be one
Class I director, Paul W. Noblett, who will serve a one year term expiring at
the 2000 annual meeting. The Class II directors will be Gerard Compain, Bertil
D. Nordin and Peter E. Roode, who will serve two year terms expiring at the 2001
annual meeting. The Class III directors will be Gregory A. Lewis, J. Stanford
Spence, L. Barry Thomson and George Whitton. The Class III directors will serve
three year terms expiring at the 2002 annual meeting. If Proposal 1 is not
approved, all directors will be elected to serve for a term of one year and
until their successors are elected and qualified.
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<PAGE>
If any of the eight nominees is unable to serve, the board of directors may:
. designate a substitute nominee, in which case the named proxies or the
trustee, as applicable, will vote the shares represented by all valid
proxy cards for the election of the substitute nominee;
. allow the vacancy to remain open until a suitable candidate is located; or
. adopt a resolution to decrease the authorized number of directors.
At this time, the Board knows of no reason why any nominee might be
unavailable to serve.
The board of directors unanimously recommends that you vote for the
election as directors of the eight persons named above.
Information Regarding Nominees
Listed below are the names of the board's nominees for election as
directors. Also listed is each nominee's business experience, his age as of
December 31, 1998 and the year he first became a director. Unless indicated
otherwise, the positions stated are positions which are currently held and which
have been held for at least the past five years.
Mr. Compain was elected to the board in June 1998 as the designee of
our largest stockholder, Ingenico, in accordance with an investment agreement
entered into between Ingenico and IVI in 1992. See "Stock Ownership" and
"Certain Transactions--Ingenico Alliance." We have assumed the rights and
obligations of IVI under that agreement.
<TABLE>
<CAPTION>
Principal Occupation or Employment
Name and Other Business Affiliations Age Director Since
<S> <C> <C> <C>
Gerard Compain Mr. Compain has been Managing Director of Ingenico since 46 1998
1995. Ingenico is in the same business as we are, with
operations throughout the world and particular strength in
smart cards. From 1985 to 1995, Mr. Compain served in
various executive and operational positions with BULL PC,
which is the Payment Systems Division of Groupe Bull.
Mr. Compain joined IVI's board of directors in 1997 as
a designee of Ingenico.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C>
Gregory A. Lewis Mr. Lewis has been the President and Chief Executive Officer 53 1998
of our U.S. operations since June 1998. Mr. Lewis also is
President and a director of our majority owned subsidiary
National Transaction Network, Inc. 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 acquiror.
Paul W. Noblett Mr. Noblett has been President of Noblett and Associates, 52 1998
Inc., a business development, data processing and
communications consulting firm, since 1992. Mr. Noblett has
spent over 25 years in the payments industry, including
executive management positions with NaBANCO, MasterCard and
what is today MBNA.
Bertil D. Nordin Mr. Nordin is an investor in, and director or advisor to, 64 1998
several companies in computer related fields. Mr. Nordin was
Chairman of the Board of Directors of Digital Communications
Associates, Inc. from 1990 to 1993 and was President and
Chief Executive Officer of Digital Communications from 1981
to 1990. Prior to 1981, Mr. Nordin held executive positions
with a small business computer company and a recording
company and was a manager specializing in mergers and
acquisitions with a Big Six accounting firm.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C>
Peter E. Roode Mr. Roode has been President of Triarch Corporation since 61 1998
1987 and has been a Vice President since joining Triarch in
1976. Triarch is an investment company investing in small to
medium sized businesses. Mr. Roode is also a Chartered
Accountant. Mr. Roode has been a director of IVI since 1992.
J. Stanford Spence Mr. Spence has been our Chairman of the Board since June 69 1998
1998. Mr. Spence was the founder of Checkmate, has been the
Chief Executive Officer of Checkmate since July 1997 and,
except for two brief periods, has been Chairman of the Board
of Checkmate and its predecessors since its founding in 1973.
He also served as interim Chief Executive Officer of
Checkmate from May 1994 until August 1994. Mr. Spence
conceived of and managed the development of the patented
technology which led to the point-of-sale check readers sold
by Checkmate. Mr. Spence has been Chairman of the Board of
Directors, Chief Executive Officer and owner of Stanford
Technologies, Inc., a financial software development company
in Austin, Texas, since 1985. Mr. Spence is also the founder
and Chairman of Ultimate Privacy Corporation, a cryptology
software company. Mr. Spence has previously owned companies
in the mortgage banking, real estate, insurance and software
industries.
L. Barry Thomson Mr. Thomson has been our President, Chief Executive Officer 57 1998
and a director 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. Mr. Thomson also is Chief
Executive Officer and a di of our majority owned subsidiary
National Transaction Network. Formerly President and CEO of
Aluma Systems Corporation, a construction technology company
in Toronto, 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 LLP).
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C>
George Whitton Mr. Whitton has been our Vice Chairman of the Board since 63 1998
June 1998. Mr. Whitton has been Chairman of the Board of IVI
since 1986 and was the Chief Executive Officer of IVI from
1986 to 1996. Mr. Whitton also is a director of our majority
owned subsidiary National Transaction Network. After serving
in various senior operations and sales management positions
with IBM Canada, Mr. Whitton joined Canada Permanent Trust, a
trust and banking institution, where he served as Vice
President of Information Services from 1973 to 1976. From
1976 to 1979, Mr. Whitton was Vice President Systems for the
Canadian Imperial Bank of Commerce, Canada's second largest
bank. From 1979 to 1987, Mr. Whitton was President and Owner
of Howarth & Smith, a typography, printing and data
management company.
</TABLE>
Board Committees
The board of directors conducts its business through meetings of the full
board and through committees of the board. In June 1998, upon the completion of
the combination between IVI and Checkmate, the board was expanded from four to
eight members and began its management of the new combined company. In August
1998, the board established four standing committees of the board. These
committees are the Audit Committee, Compensation Committee, Executive Committee
and Nomination and Governance Committee.
During 1998, the board of directors met four times, consisting of two regular
meeting and two special meetings, and acted by unanimous consent in lieu of
meeting on four occasions. Each director attended at least 75% of the aggregate
of all meetings of the board and any committee on which he served during 1998.
The Audit Committee oversees our budget and all of our financial operations;
oversees management's performance with regard to its financial responsibilities
and disclosure obligations; makes recommendations as to the engagement or
termination of our outside auditors; reviews the overall audit plan to determine
whether the plan is appropriate and recommends improvements. reviews the
internal and external audits; and reviews internal accounting controls. The
Audit Committee consists of Messrs. Roode (Chairman), Noblett, Nordin, Spence
and Whitton. The Audit Committee met once in 1998.
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<PAGE>
The Compensation Committee reviews, evaluates and approves the compensation
arrangements of senior management; administers our compensation programs,
including the design of, the establishment of performance targets under, and
grants and awards under compensation plans in which officers are eligible to
participate; and determines other forms of compensation for our officers and
employees. The Compensation Committee consists of Messrs. Nordin (Chairman) and
Roode. This Committee did not meet in 1998.
The Executive Committee acts on behalf of the full board, to the extent
permitted by law, between meetings of the full board. The Executive Committee
consists of Messrs. Spence (Chairman), Compain, Lewis, Thomson and Whitton. The
Executive Committee did not meet in 1998.
The Nomination and Governance Committee evaluates the board's performance;
recommends nominees for election to the board; recommends candidates for
membership on the committees of the board; recommends a successor Chief
Executive Officer should there be a vacancy; establishes and monitors a
corporate code of conduct; and reviews director conflicts of interest. The
Nomination and Governance Committee consists of Messrs. Spence (Chairman),
Compain and Whitton. This Committee met once in 1998. The Nomination and
Governance Committee seeks potential nominees for board membership in various
ways and will consider suggestions submitted by stockholders. Such suggestions
should be submitted to our Corporate Secretary. For a description of
requirements regarding stockholder nominations for director and other
stockholder proposals, see "Stockholders' Proposals for 2000 Annual Meeting."
Director Compensation
We pay each of our non-employee directors an annual retainer of $4,000, a fee
of $1,250 for each board meting attended in person and a fee of $250 for each
board meeting in which the director participates by telephone. We also pay each
chairman of a board committee an annual retainer of $2,000.
We also grant each non-employee director options each year for the purchase of
10,000 shares of our common stock. The options vest on the first anniversary of
the grant date. Options granted for service in 1998 have an exercise price of
$6.81 per share, which was not less than the market price of our common stock on
the grant date.
We do not provide retirement benefits, medical benefits or other benefit
programs to our non-employee directors.
We do not compensate directors who are employees of IVI Checkmate or its
subsidiaries for their services as directors.
14
<PAGE>
____________
EXECUTIVE COMPENSATION
Summary Compensation
The following table summarizes the compensation paid or accrued by us
in each of the fiscal years ended December 31, 1996, 1997 and 1998 with regard
to L. Barry Thomson, our Chief Executive Officer, and all other executive
officers whose annual compensation and bonus was $100,000 or more for 1998. We
refer to these executives as the Named Executive Officers. The compensation
shown in the table includes amounts paid not only by IVI Checkmate but also by
IVI, Checkmate and their subsidiaries during each of the three years, including
for the periods before the combination of IVI and Checkmate.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation Awards
-------------------- -------------------
Securities
Name and Principal Fiscal Underlying All Other
Position(1) Year Salary ($) Bonus ($) Options (#) (2) Compensation ($)(3)
- ---------------------------- ------ ---------- --------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
L. Barry Thomson 1998 $280,000 $ -- 233,250 --
President and 1997 $180,530 $36,100 150,000 --
Chief Executive Officer 1996 $170,000 $36,650 30,000 --
Gregory A. Lewis (4) 1998 $321,000 $ -- -- $10,421
President and Chief Executive 1997 $ 70,432 $15,000 383,250 $ 8,870
Officer of U.S. Operations
John J. Neubert 1998 $228,000 $ -- -- $11,834
Executive Vice President 1997 $129,600 -- -- $11,525
Finance and Administration 1996 $129,600 $43,500 -- --
Chief Financial Officer,
Secretary and Treasurer
</TABLE>
____________________
(1) See "Proposal 2 Election of Directors Information Regarding Nominees."
(2) Represents shares underlying options to purchase common stock. We have not
granted any stock appreciation rights.
(3) Consists of (a) matching contributions that we made to our 401(k) plan
based on a percentage of the Named Executive Officer's contribution to the
401(k) plan and (b) amounts that we paid on behalf of the Named Executive
Officers for term life insurance for the benefit of the Named Executive
Officers.
(4) Mr. Lewis was not employed by us or any of our subsidiaries until he joined
Checkmate in August 1997.
15
<PAGE>
Option Grants
The following table provides information regarding stock options granted to
the Named Executive Officers during 1998. We have not granted any stock
appreciation rights.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock Price
Individual Grants Appreciation for Option Term (2)
-------------------------------------------------------------------- ------------------------------------
Percent of Total
Number of Securities Options Granted to Exercise or
Underlying Options Employees in Base Price Expiration
Name Granted (#)(1) Fiscal Year ($/sh) Date 5% ($) 10% ($)
- --------------------- --------------------- ------------------ ------------ ----------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
L. Barry Thomson...... 233,250 20.2% $6.81 6/25/07 $876,000 $2,157,000
Gregory A. Lewis...... -0- -- -- -- -- --
John J. Neubert....... -0- -- -- -- -- --
</TABLE>
(1) The indicated options were fully vested on the date of grant.
(2) Amounts reported in these columns represent hypothetical amounts that may
be realized upon exercise of options immediately prior to the expiration of
their term, assuming the specified compounded rates of appreciation of the
common stock over the term of the options. These numbers are calculated
based on rules promulgated by the Securities and Exchange Commission and do
not reflect our estimate of future stock price growth. Actual gains, if
any, on stock option exercises and common stock holdings are dependent on
the timing of the exercises and the future performance of the common stock.
We provide no guarantee that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by the
individuals. This table does not take into account any appreciation of the
price of the common stock from the date of grant to the current date.
Option Exercises and Fiscal Year-End Option Values
The following table sets forth information regarding the number of
unexercised options held by the Named Executive Officers at December 31, 1998
and the aggregate dollar value of those unexercised options as of December 31,
1998. None of the Named Executive Officers exercised any stock options during
1998.
16
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year End Option Values
Number of Securities Value of
Underlying Unexercised
Unexercised Options In-The-Money Options at
at December 31, December 31, 1998
1998 (#) ($) (1)
--------------------- ------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- --------------------- --------------------- ------------------------
<S> <C> <C>
L. Barry Thomson.....
Gregory A. Lewis.....
John J. Neubert......
</TABLE>
____________________
(1) Such value is equal to the difference between the option exercise price and
the closing sale price of our common stock on the Nasdaq National Market on
December 31, 1998, multiplied by the number of shares underlying the
option.
Employment Agreements
On June 25, 1998, we entered into an employment agreement with L. Barry
Thomson with regard to Mr. Thomson's services as our President and Chief
Executive Officer and as President and Chief Executive Officer of IVI. Mr.
Thomson is entitled to an annual salary of at least $325,000 for 1998, $350,000
for 1999 and $385,000 for 2000, as well as the possibility of annual bonuses if
certain performance goals are satisfied. The agreement also provided for the
grant to Mr. Thomson of options under our 1998 Long-Term Incentive Plan for the
purchase of 233,250 shares of our common stock at a price of $6.81 per share
and, on January 14, 1999, options for the purchase of 150,000 additional shares
of our common stock. The exercise price of the options for 150,000 shares is
$5.50 per share. All of these options vest upon grant and expire nine years
from the date of grant.
The management services agreement provides that if Mr. Thomson's
employment is terminated by us for cause or as a result of Mr. Thomson's
disability or death or if terminated by Mr. Thomson, Mr. Thomson will be
entitled to his salary earned up to the date of termination and, other than in
the case of termination for cause, pro rata entitlement under the then current
bonus program. If Mr. Thomson's employment is terminated by us for any other
reason, he will be entitled to a lump sum payment equal to three times the
aggregate of his annual salary and bonus paid and/or earned in the immediately
preceding year.
On January 1, 1998, Checkmate and Gregory A. Lewis entered into a three
year employment agreement providing for his employment as President and Chief
Operating Officer of Checkmate at a base salary of $321,000 in 1998, $345,000
in 1999 and $371,000 in 2000. Also on January 1, 1998, Checkmate and John J.
Neubert entered into a three year employment agreement providing for his
employment as
17
<PAGE>
Executive Vice President and Chief Financial Officer of Checkmate at a base
salary of $228,000 in 1998, $243,000 in 1999 and $258,000 in 2000. The
employment agreements also provide the opportunity for annual bonuses if certain
performance goals are satisfied. The employment agreements provide that after
the end of the second year of the employment term and at the end of each
subsequent year, the employment period will automatically be extended so as to
terminate two years from such renewal date. The employment agreements provide
further that if the employment of Messrs. Lewis or Neubert is terminated by Mr.
Lewis or Mr. Neubert for good reason, by Checkmate other than for cause, death
or disability, or because the term expires, the terminated employee will receive
a lump sum payment equal to, (1) his unpaid base salary up to the date of
termination, (2) the product of his annual bonus for the year of the date of
termination and a fraction, the numerator of which is the number of days in the
year up to the date of termination and the denominator of which is 365, and (3)
a severance payment equal to the present value of the income stream represented
by a continuation of his base salary and target annual bonus, unless the date of
termination occurs within two years of a change of control, in which case the
severance payment is equal to two times the appropriate base salary and annual
bonus for the terminated employee in effect for that year, and all unvested
stock options held by him on the date of termination will immediately vest as of
the date of termination. If employment is terminated due to Mr. Lewis' or Mr.
Neubert's death, the employee's estate or beneficiary will be entitled to
receive his unpaid base salary up to the date of his death and a pro rata
portion of his target annual bonus for the year. If employment is terminated as
a result of Mr. Lewis' or Mr. Neubert's disability, retirement or voluntary
termination without good reason or by Checkmate for cause, the terminated
employee will be entitled to receive his unpaid base salary up to the date of
termination and a pro rata portion of his target annual bonus for the year.
BOARD OF DIRECTORS'
REPORT ON EXECUTIVE COMPENSATION
This report by the board of directors discusses the board's compensation
objectives and policies applicable to our executive officers for 1998. The
report reviews the board's policy generally with respect to the compensation of
all executive officers as a group for 1998 and specifically reviews the
compensation established for our Chief Executive Officer for 1998 as reported in
the Summary Compensation Table. We did not form the Compensation Committee until
August 1998, which was after the compensation of our executive officers for 1998
had been established.
Compensation Policy for Executive Officers
Our compensation policies for our executive officers are intended to
create a direct relationship between the level of compensation paid to our
executives and our current and long-term level of performance. The board
believes that this relationship is best implemented by providing a compensation
package consisting of separate components, all of which are designed to enhance
our overall performance. These components are base salary, annual bonus
and long-term incentive compensation in the form of stock options.
18
<PAGE>
The board established the 1998 base salaries of the executive officers at
levels that are designed to reflect the executive's position and to be
competitive with the base salaries of similarly situated executives at companies
of similar size and revenue levels in our industry. The board also took into
account, among other things, the executive's performance during the prior year
and his responsibilities with the new combined company. The board did not
provide for bonuses for the executive officers in 1998 but has established
specific, performance-based bonus goals for each executive officer for 1999.
Our long-term incentive compensation plan for our executive officers is
based on our 1998 Long-Term Incentive Plan. This plan promotes ownership of our
common stock, which in turn provides a common interest between the stockholders
and the executive officers. In establishing the 1998 Long-Term Incentive Plan,
the board concluded that incentive compensation opportunities in the form of
stock option grants should be set and that any compensation received under the
plan should be directly linked to our performance, as reflected by increases in
the price of our common stock and the contribution of the executive officer to
the increase in value. Under the plan, options, usually granted annually, have
an exercise price equal to or greater than the fair market value of the shares
on the date of grant and, to encourage a long-term perspective, may have an
exercise period of up to ten years. Unexercised options are forfeited if the
officer leaves the company before the options vest or, if already vested, if the
officer fails to exercise them before the end of a stated period following
termination of employment. In granting options, the board reviews the amount of
options granted to executives at other comparable companies in our industry, the
awards granted to other employees within our company, the individual's position
at the company and his role in helping the company achieve its goals. During
1998, options for the purchase of a total of 233,250 shares of common stock,
equal to 20.2% of all options granted to our employees during 1998, were granted
to Messrs. Thomson, Lewis and Neubert. See "Executive Compensation Option
Grants." Year-end stock option values are reflected in "Executive Compensation-
Option Exercises and Fiscal Year-End Option Values."
Chief Executive Officer Compensation
In structuring the 1998 compensation plan for Mr. Thomson,
19
<PAGE>
the board considered the alignment of his compensation with our financial
performance to be essential. Accordingly, the board negotiated a compensation
structure that tied high levels of compensation for Mr. Thomson to a substantial
improvement in corporate performance, including new product and service
developments, that would correspondingly enhance stockholder value.
Specifically, effective as of the combination of IVI and Checkmate in June
1998, Mr. Thomson was entitled to receive a base salary at a rate of $325,000
per year. The base salary was an increase over Mr. Thomson's 1997 base salary
and was awarded to Mr. Thomson by the board in its subjective discretion
based on IVI's financial performance in 1997 and the significantly expanded role
and responsibilities to be undertaken by Mr. Thomson following the combination.
With regard to longer term incentive compensation, the board granted Mr.
Thomson options to purchase 233,250 shares of common stock in 1998 and, in
recognition of the expiration in January 1999 of other options held by Mr.
Thomson, agreed to grant to him in January 1999 options to purchase 150,000
additional shares. See "Executive Compensation - Employment Agreements." These
option grants are intended to directly link Mr. Thomson's performance and
compensation to the stockholders' return on our common stock.
Policy on Deductibility of Compensation
Section 162(m) of the Internal Revenue Code limits the tax deduction to $1
million for annual compensation paid to each of Messrs. Thomson, Lewis and
Neubert unless several requirements are met. The board has reviewed these
requirements and believes that all compensation paid to the executive officers
in 1998 is fully deductible. We also believe that compensation paid under the
1998 Long Term Incentive Plan will continue to be deductible. Our present
intention is to comply with the requirements of Section 162(m) unless and until
it is determined that compliance would not be in the best interest of IVI
Checkmate and its stockholders.
BOARD OF DIRECTORS
Gerard Compain Gareth Owen
Gregory A. Lewis Peter E. Roode
Paul W. Noblett J. Stanford Spence
Bertil D. Nordin L. Barry Thomson
George Whitton
20
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The board of directors did not create the Compensation Committee until
August 1998, and the Compensation Committee took no action in 1998. As
described in "Board of Directors' Report on Executive Compensation," the board
of directors as a whole determined the compensation of our executive officers
for 1998. During 1998, Messrs. L. Barry Thomson, Gregory A. Lewis, John J.
Neubert and George Whitton, all of whom are executive officers of IVI Checkmate
or its subsidiaries, participated as directors in deliberations of our board
concerning executive officer compensation for 1998. Messrs. Thomson, Lewis,
Neubert and Whitton also served during 1998 on the board of directors of our
majority owned subsidiary National Transaction Network, Inc., which board
establishes the compensation of the executive officers of National Transaction
Network. Messrs. Thomson, Lewis and Neubert are executive officers of National
Transaction Network.
CERTAIN TRANSACTIONS
Ingenico Alliance. On December 17, 1996, IVI entered into a strategic
alliance with Ingenico. Ingenico owned approximately 8.7% of our outstanding
common stock and exchangeable shares of IVI as of December 31, 1998. 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. Gerard Compain, who is a member of our
board of directors, is the Managing Director of Ingenico.
The alliance enabled IVI to gain exclusive rights to market Ingenico
products and technology in the Americas, to gain access to Ingenico's smart card
technology, to raise capital and to benefit from joint product development,
purchasing and manufacturing. The strategic alliance provides Ingenico with
access to the North American market for its products. In furtherance of their
alliance, IVI and Ingenico entered into a master alliance agreement dated
December 5, 1996, as amended on December 17, 1996, and five separate agreements,
each dealing with a separate aspect of the alliance.
The master alliance agreement established the general framework of the
alliance and set out certain provisions which govern all aspects of the
alliance. Specifically, the master alliance agreement provided that Ingenico and
IVI would enter into a marketing and distribution agreement, a Latin America
joint venture shareholders' agreement, a joint development and procurement
agreement, a technology license agreement and an investment agreement.
Pursuant to the investment agreement, Ingenico and its Chairman, Jean-
Jacques Poutrel, purchased 1,439,000 shares of IVI's common stock in December
1996, equal at the time to approximately 16.7% of IVI's outstanding common
stock, for approximately $7,240,000. Additionally, IVI granted to Ingenico a
future participation right enabling Ingenico to preserve its percentage
ownership of IVI's common stock on a non-diluted basis by subscribing to
purchase additional shares of IVI's common stock if IVI issues additional shares
of IVI's common stock. The price payable by Ingenico for additional IVI common
shares would be that offered to other purchasers in the event of a private
placement or public offering, or, in certain cases, a price equal to the
weighted average trading price of the common shares during the 30 trading days
preceding notice to Ingenico of the issuance by IVI of additional shares of
IVI's common stock.
Under the investment agreement, IVI also agreed to take the steps necessary
to reconstitute the board of directors of IVI so that it would be
21
<PAGE>
comprised of eight members, two of whom initially would be nominees of Ingenico.
The board of directors of IVI has since been expanded to nine members. One
nominee of Ingenico is to be a member of the Nomination and Governance Committee
of the board. If Ingenico's ownership position in IVI decreased to a percentage
of less than 15% but more than 5% on a non-diluted basis, then Ingenico would be
permitted only one nominee on the board of directors. If Ingenico's ownership
position in IVI decreased below 5%, it would no longer have the right to
nominate a director of IVI. Ingenico's current ownership of our stock has
decreased to approximately 8.7%. As a result, Ingenico is permitted only one
representative on our board, which is Mr. Compain.
At the time of the combination of IVI and Checkmate on June 25, 1998, IVI
Checkmate, IVI and Ingenico entered into an assignment, assumption and consent
agreement under which the agreements with Ingenico were assigned by IVI to us
and were assumed by us. The result is that we now have all of the right, title,
interest, liabilities and obligations that IVI had under the agreements with
Ingenico.
Pursuant to the marketing and distribution agreement, we purchased products
from Ingenico in 1998 for a total of $6.8 million.
Noblett Transaction. Paul W. Noblett, who is one of our directors, is
President and a director of Noblett and Associates and is a director of DMRI and
Globalcard Services. In exchange for consulting services provided to us or our
subsidiaries by these companies in 1998, we paid $50,250 to Noblett and
Associates (6% of Noblett and Associates' 1998 revenues), $34,500 to DMRI (38%
of DMRI's 1998 revenues) and $110,000 to Globalcard Services (8% of Globalcard
Services' 1998 revenues). We do not expect to do any significant amount of
business with any of these companies in 1999.
Nordin Transaction. In 1998, we paid $60,000 to Bertil D. Nordin, who is
one of our directors, for management advisory services provided to us by Mr.
Nordin.
Spence Agreement. In 1984, Checkmate entered into an agreement that gave
Mr. Spence exclusive rights to sell and market Checkmate's magnetic ink
character recognition reader products. Subsequently, after determining that
Checkmate should market its own products, Checkmate entered into a settlement
agreement with Mr. Spence and Stanford Technologies, Inc., which is owned by Mr.
Spence and his wife. Under this agreement, Mr. Spence and Stanford Technologies
transferred to Checkmate all of their rights to market Checkmate's magnetic ink
character recognition quality analyzers. Mr. Spence and Stanford Technologies
also agreed to refrain from competing against Checkmate for a period of eleven
years following his resignation or removal from Checkmate's board of directors.
In exchange for these benefits, the agreement requires Checkmate to make minimum
monthly payments totaling at least $15,000 per month (of which $10,000 is
adjusted semi-annually for inflation). Checkmate may elect to accelerate the
payments by paying 5% of sales if this amount exceeds the minimum aggregate
amount due. Payments under the agreement will terminate upon the earlier of June
30, 2000 or that time at which payments made under the agreement will equal
$1,758,321 (plus adjustments for inflation). Checkmate paid $224,323 to Stanford
Technologies in 1998 under the agreement. As of December 31, 1998, a total of
$1,967,497 (including $247,497 of inflation adjustments) had been paid by
Checkmate to Stanford Technologies under the agreement.
22
<PAGE>
STOCK PERFORMANCE GRAPH
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 IVI's common stock was also traded
on The Toronto Stock Exchange under the symbol "IVI." Following the
combination, the IVI Checkmate common stock began trading on the Nasdaq National
Market and The Toronto Stock Exchange under the symbols "CMIV" and "IVC,"
respectively, and IVI's exchangeable shares began trading on The Toronto Stock
Exchange under the symbol "IVI." The IVI exchangeable shares, which are
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 following stock performance graph and accompanying table compare the
cumulative return on each of the IVI common stock and the Checkmate common stock
from December 31, 1993 to June 25, 1998 and on the IVI Checkmate common stock
from June 26, 1998 to December 31, 1998 with the cumulative total return of the
Nasdaq Stock Market U.S. Index, the Nasdaq Computer Manufacturing Companies
Index and The Toronto Stock Exchange Index over the same period. The
comparative data assumes that:
. $100.00 was invested on December 31, 1993 proportionally by market
capitalizations in the common stock of IVI and the common stock of
Checkmate and in each of the indices referred to above,
. $100.00 was invested on June 26, 1998 in the common stock of IVI
Checkmate, and
. dividends, if any, were reinvested.
[Insert graph here]
<TABLE>
<CAPTION>
December 31, June 26, Dec. 31,
--------------------------------------------------------- --------- ----------
1993 1994 1995 1996 1997 1998 1998
------------ ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
IVI $100.00 $ 41.94 $ 56.14 $ 37.07 $ 54.93 $ 49.52 $ -0-
Checkmate 100.00 76.32 155.26 136.84 72.37 81.58 -0-
IVI Checkmate -0- -0- -0- -0- -0- 100.00 67.74
Nasdaq U.S. Index 100.00 97.75 138.23 170.04 208.75 250.89 292.94
Nasdaq Computer Manufacturing 100.00 109.83 173.00 232.31 281.02 409.43 610.28
Companies Index
The Toronto Stock Exchange 100.00 99.07 110.82 139.34 157.50 173.19 152.48
Index
</TABLE>
23
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The United States securities laws require our directors and executive
officers and any persons who beneficially own more than ten percent of our
common stock to file with the Securities and Exchange Commission and the Nasdaq
Stock Market initial reports of ownership and reports of changes in ownership of
our securities. To our knowledge, based solely on a review of the copies of the
reports furnished to us and written representations that no other reports were
required, during 1998 all executive officers, directors and any beneficial
owners of more than ten percent of our stock made all required filings.
STOCKHOLDERS' PROPOSALS FOR 2000 ANNUAL MEETING
Director nominations and other proposals of stockholders intended to be
presented to a vote of the stockholders at our 2000 annual meeting, together
with certain related information specified in Section 2.7 (A)(2) of our bylaws,
must be submitted to our Corporate Secretary in writing between February 20,
2000 and March 21, 2000 in order for such matters to be properly brought before
the 2000 annual meeting. Separate from the requirements of the preceding
sentence, director nominations and other proposals of stockholders intended to
be presented at the 2000 annual meeting must, in addition to satisfying the
requirements of the preceding sentence, also be submitted in writing to our
Corporate Secretary, together with the information specified in Securities and
Exchange Commission Rule 14a-8, no later than December __, 1999 in order to be
included in our proxy materials for the 2000 annual meeting. All nominations,
proposals and related information should be submitted within the specified time
periods by certified mail, return receipt requested, to our Corporate Secretary
at 1003 Mansell Road, Roswell, Georgia, 30076. A copy of Section 2.7 (A)(2) of
our bylaws will be provided upon request in writing to our Corporate Secretary
at this address.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP has audited the financial statements of Checkmate since
1993 and of IVI Checkmate since 1998 and will continue in that capacity during
1999. Coopers & Lybrand, Chartered Accountants, has audited the financial
statements of IVI since 1984. Representatives of Ernst & Young LLP will be
present at the annual meeting and will be available to respond to appropriate
questions.
INFORMATION ABOUT ATTENDING THE ANNUAL MEETING
The annual meeting will be held in the Great Oak Ballroom at the Holiday
Inn located at 1075 Holcomb Bridge Road in Roswell, Georgia. If you plan to
attend the annual meeting, please so indicate by checking the box on your proxy
card and returning the proxy card to us. This will help us in planning for the
annual meeting. A map showing the meeting location appears on the following
page.
Roswell, Georgia
April , 1999
By order of the Board of Directors,
/s/ John J. Neubert
John J. Neubert
Corporate Secretary
24
<PAGE>
[MAP TO ANNUAL MEETING]
Take I-85 North to Exit 29 (Ga. 400 North). Go approximately 10 miles on Ga. 400
North to exit 7B (Mansell Road). Take a right off the ramp and go to the second
traffic light. Take a left onto Dogwood Road and the hotel will be at the top of
the hill on the left.
25
<PAGE>
IVI CHECKMATE CORP.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE 1999 ANNUAL MEETING OF
STOCKHOLDERS.
If I am a holder of shares of common stock of IVI Checkmate Corp., I hereby
appoint Margaret Burkett and Victor Young, and each of them, proxies, with full
power of substitution, to vote all shares of common stock of IVI Checkmate Corp.
that I am entitled to vote at the 1999 Annual Meeting of Stockholders of IVI
Checkmate Corp. and at any adjournments thereof as indicated below as to
Proposals 1 and 2. If I am a holder of exchangeable shares of IVI Checkmate
Ltd., I direct ____________, ______________ and _________________, and each of
them, as trustees, to vote all exchangeable shares that I am entitled to vote at
the annual meeting and at any adjournments thereof as indicated below as to
Proposals 1 and 2. In either case, such persons are further authorized to
vote in their discretion on (1) the election of any person as a director if a
director nominee named in Proposal 2 is unable to serve or for good cause will
not serve, (2) matters which the board of directors did not know would be
presented to the annual meeting a reasonable time before the proxy solicitation
was made, and (3) matters incident to the conduct of the meeting.
THIS PROXY CARD WILL BE VOTED AS DIRECTED. IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY CARD WILL BE VOTED "FOR" PROPOSAL 1 AND "FOR" THE ELECTION OF THE
EIGHT NOMINEES NAMED IN PROPOSAL 2.
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE
LISTED PROPOSALS.
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
1. Amendment of the certificate of [_] FOR [_] AGAINST [_] ABSTAIN
incorporation to adopt a classified
board and related changes
- ----------------------------------------------------------------------------------------------------------------
2. Election of directors:* [_] FOR ALL [_] WITHHOLD ALL
Gerard Compain
Gregory A. Lewis For, except vote withheld from the following
Paul W. Noblett nominee(s):____________________________
Bertil D. Nordin
Gareth Owen
Peter E. Roode
J. Stanford Spence
L. Barry Thomson
George Whitton
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
I plan to attend the Annual Meeting [_] Change of address on reverse side [_]
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* If Proposal 1 to classify the board of directors is approved at the annual
meeting, the election of Paul W. Noblett as a director to serve until the
2000 annual meeting, Gerard Compain, Bertil D. Nordin and Peter E. Roode as
directors to serve until the 2001 annual meeting, and Gregory A. Lewis,
J. Stanford Spence, L. Barry Thomson and George Whitton as directors to serve
until the 2002 annual meeting, and each to serve until his successor is
elected and qualified. If Proposal 1 is not approved, the election of the
above-named nominees as directors to serve until the 2000 annual meeting and
until their successors are elected and qualified.
SIGNATURE(S): DATE: , 1999
---------------------------- ----------------
----------------------------
<PAGE>
REVERSE SIDE:
Change of Address: -----------------------------------------
-----------------------------------------
-----------------------------------------
(If you have written in the above space,
please mark the corresponding box on the
reverse side of this card)
