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As filed with the Securities and Exchange Commission on May 3, 2000
Registration No. 333-83743
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 5
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IVI Checkmate Corp.
(Exact Name of Registrant as Specified in its Charter)
Delaware 3577 58-2375201
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code
Organization) Number)
1003 Mansell Road
Roswell, Georgia 30076
(770) 594-6000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
John J. Neubert
IVI Checkmate Corp.
1003 Mansell Road
Roswell, Georgia 30076
Phone: (770) 594-6000
Fax: (770) 594-6041
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With Copies To:
M. Hill Jeffries Robert D. Pannell
Alston & Bird LLP Nelson Mullins Riley & Scarborough,
One Atlantic Center L.L.P.
1201 West Peachtree Street First Union Plaza
Atlanta, Georgia 30309-3424 999 Peachtree Street
Phone: (404) 881-7000 Atlanta, Georgia 30309
Fax: (404) 881-4777 Phone: (404) 817-6000
Fax: (404) 817-6050
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Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after the merger described in this registration
statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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<CAPTION>
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Each Class of Securities Amount to be Offering Price Offering Registration
to be Registered Registered(1)(3) Per Share(2) Price(2) Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value..... 155,676 Shares $1.32 $205,491 $54.25
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</TABLE>
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(1) Represents the estimated maximum number of shares of common stock issuable
by the registrant upon consummation of the merger of NTN Merger Corp. with
and into National Transaction Network, Inc., assuming exercise of all
outstanding options to purchase common stock of NTN.
(2) Pursuant to Rule 457(f)(1), the registration fee was computed on the basis
of the average of the bid and ask price of National Transaction Network,
Inc. common stock as of April 26, 2000, which represents the market value
of the common stock of National Transactation Network, Inc. to be received
in the merger.
(3) The filing fee was previously paid on July 26, 1999.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>
[National Transaction Network, Inc. [IVI Checkmate Corp. Logo]
Logo]
Prospectus
Proxy Statement for a Special of
Meeting of Stockholders of IVI Checkmate Corp.
National Transaction Network, Inc.
PROPOSED MERGER
To the Stockholders of National Transaction Network, Inc.:
Your board of directors has agreed to a merger which will result in the
acquisition of National Transaction Network, Inc. by IVI Checkmate Corp., a
publicly-traded company headquartered in Roswell, Georgia, a suburb of
Atlanta. IVI Checkmate Corp., through its wholly owned subsidiary, IVI
Checkmate Inc., beneficially owns 82.0% of the issued and outstanding common
stock of NTN. If the merger is completed, you will be entitled to receive the
number of shares of IVI Checkmate Corp. common stock having a value equal to
$.30 multiplied by the number of shares of NTN common stock that you own.
Stated differently, you will be entitled to receive a merger exchange ratio
equal to $.30 worth of IVI Checkmate Corp. common stock for each of your
shares of NTN common stock.
IVI Checkmate Corp. common stock is traded on the Nasdaq National Market
under the symbol "CMIV" and on The Toronto Stock Exchange under the symbol
"IVC."
If the merger was completed on May 1, 2000, we estimate that IVI Checkmate
Corp. would issue approximately 55,470 shares of its common stock to NTN
stockholders in the merger, not including shares issuable upon exercise of NTN
options to be assumed by IVI Checkmate Corp. Those shares would represent less
than 1% of the outstanding common stock of IVI Checkmate Corp. after the
merger.
A special meeting of NTN stockholders will be held on Tuesday, June 13,
2000 at 10:00 a.m. at 1003 Mansell Road, Roswell, Georgia 30076. At the
special meeting, we will ask you to approve the merger agreement and the
merger. We cannot complete the merger unless the holders of a majority of the
outstanding shares of NTN common stock entitled to vote at the meeting approve
the merger agreement and the merger. Your vote is very important. Please
complete the enclosed proxy card and return it in the envelope provided, even
if you plan to attend the special meeting.
You should carefully consider the "Risk Factors" section beginning on page
9 of this proxy statement-prospectus.
/s/ L. Barry Thomson
-------------------------------------
Chief Executive Officer
Neither the SEC nor any state securities commission has approved
or disapproved of the shares of IVI Checkmate Corp. common stock to
be issued in the merger or determined if this proxy statement-
prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
The date of this proxy statement-prospectus is May 4, 2000. It is first
being mailed to you on May 8, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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Summary................................................................... 1
The Companies........................................................... 1
The Merger.............................................................. 2
Special Meeting of Stockholders......................................... 2
Voting Rights at the Special Meeting.................................... 2
Stockholder Vote Required to Approve the Merger......................... 2
Appraisal Rights of Dissenting Stockholders............................. 2
What You Will Receive in the Merger..................................... 3
Effect of the Merger on NTN Options..................................... 3
Our Reasons for the Merger.............................................. 3
Fairness Opinion of the Special Committee's Financial Advisor........... 3
Our Recommendation to Stockholders...................................... 3
Interests of Certain Persons in the Merger That May Be Different from
Yours.................................................................. 4
Regulatory Approval and Other Conditions................................ 4
Waiver, Amendment, and Termination...................................... 4
Completion of the Merger................................................ 4
Exchange of Stock Certificates.......................................... 5
Material Federal Income Tax Consequences of the Merger.................. 5
Accounting Treatment.................................................... 5
Comparative Market Prices of Common Stock............................... 5
NTN Stock Ownership..................................................... 6
Differences in Stockholders' Rights..................................... 6
Listing of IVI Checkmate Common Stock................................... 6
Summary Historical Financial Data......................................... 7
Risk Factors.............................................................. 9
A Warning About Forward-Looking Statements................................ 17
The Special Meeting....................................................... 18
Purpose................................................................. 18
Date, Place and Time.................................................... 18
Record Date............................................................. 18
NTN Stockholders Entitled to Vote....................................... 18
Vote Required; Voting at the Meeting.................................... 18
Voting of Proxies....................................................... 18
Solicitation of Proxies................................................. 19
Rights of Dissenting Stockholders....................................... 19
Recommendation of the Special Committee................................. 23
Recommendation of the NTN Board of Directors............................ 23
Recommendation of the Board of Directors of IVI Checkmate, IVI Checkmate
Inc. and NTN Merger Corp. ............................................. 23
Description of the Transaction............................................ 25
The Merger.............................................................. 25
What You Will Receive in the Merger..................................... 25
Effect of the Merger on NTN Options..................................... 26
Material Federal Income Tax Consequences of the Merger.................. 27
Background of and Reasons for the Merger................................ 28
Background of the Merger.............................................. 28
NTN's Reasons for the Merger.......................................... 33
IVI Checkmate's Reasons for the Merger................................ 34
Fairness Opinion of the Special Committee's Financial Advisor........... 36
</TABLE>
i
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<TABLE>
<CAPTION>
Page
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<S> <C>
Completion of the Merger............................................... 39
Distribution of IVI Checkmate Stock Certificates....................... 40
Conditions to Completion of the Merger................................. 40
Indemnification........................................................ 41
Regulatory Approval.................................................... 41
Waiver, Amendment and Termination...................................... 41
Conduct of Business Pending the Merger................................. 42
Management and Operations After the Merger............................. 42
Interests of Certain Persons in the Merger............................. 43
Accounting Treatment................................................... 44
Fees and Expenses...................................................... 44
Resales of IVI Checkmate Common Stock.................................. 44
Comparative Market Prices and Dividends.................................. 46
Business of IVI Checkmate................................................ 48
IVI Checkmate Selected Financial Data.................................... 49
IVI Checkmate Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 50
Overview............................................................... 50
Results of Operations.................................................. 50
Liquidity and Capital Resources........................................ 53
Year 2000 Issue........................................................ 53
Impact of Recent Accounting Standards.................................. 54
Inflation and Foreign Exchange Exposure................................ 54
Quantitative and Qualitative Disclosures About Market Risk............. 54
Business of NTN.......................................................... 56
NTN Selected Financial Data.............................................. 57
NTN Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 58
Overview............................................................... 58
Results of Operations.................................................. 58
Liquidity and Capital Resources........................................ 59
Year 2000.............................................................. 60
Recently Issued Accounting Standards................................... 60
Quantitative and Qualitative Disclosures about Market Risk............. 61
Information Concerning Directors and Executive Officers of IVI Checkmate
Corp.................................................................... 62
Board Committees....................................................... 64
Director Compensation.................................................. 65
Executive Compensation................................................. 65
Option Grants.......................................................... 67
Option Exercises and Fiscal Year-End Option Values..................... 67
Employment Agreements.................................................. 67
Report of the Compensation Committee of the Board of Directors of IVI
Checkmate............................................................. 69
Compensation Committee Interlocks and Insider Participation............ 70
No Litigation and Certain Transactions................................. 70
Stock Performance Graph................................................ 73
Information Concerning Directors and Executive Officers of IVI Checkmate
Inc. and NTN Merger Corp. .............................................. 74
Information Concerning Directors and Executive Officers of IVI
Checkmate Inc. ....................................................... 74
Information Concerning Directors and Executive Officers of NTN Merger
Corp. ................................................................ 75
Shares Beneficially Owned................................................ 76
Effect of the Merger on Rights of Stockholders........................... 77
Description of IVI Checkmate Capital Stock............................... 81
Other Matters............................................................ 81
Stockholder Proposals.................................................... 81
Experts.................................................................. 81
</TABLE>
ii
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<TABLE>
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Page
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Change in NTN Accountants.................................................. 82
Opinions................................................................... 82
Where You Can Find More Information........................................ 82
</TABLE>
<TABLE>
<S> <C>
APPENDICES:
Appendix A--Agreement and Plan of Merger................................. A-1
Appendix B--Section 262 of the Delaware General Corporation Law.......... B-1
Appendix C--Fairness Opinion of the Special Committee's Financial
Advisor................................................................. C-1
Appendix D--IVI Checkmate Financial Statements........................... D-1
Appendix E--NTN Financial Statements..................................... E-1
</TABLE>
iii
<PAGE>
SUMMARY
This summary highlights selected information from this proxy statement-
prospectus and may not contain all of the information that is important to you.
You should carefully read this entire document and the other documents we refer
to in this document. These documents will give you a more complete description
of the transaction we are proposing. We have included page references in this
summary to direct you to other places in this proxy statement-prospectus where
you can find a more complete description of the topics we have summarized.
The Companies (See page 48 for IVI Checkmate Corp. and page 56 for NTN.)
IVI Checkmate Corp.
1003 Mansell Road
Roswell, Georgia 30076
(770) 594-6000
IVI Checkmate Corp. is the third largest electronic transaction solutions
provider in North America, based on annual net revenues. Through its
subsidiaries, IVI Checkmate designs, develops and markets innovative payment
and value-added solutions that optimize transaction management at the point-of-
service in the retail, financial, hospitality, healthcare and transportation
industries. IVI Checkmate's software, hardware and professional services
minimize transaction costs, reduce operational complexity and improve
profitability for its customers in the U.S., Canada and Latin America. It
distributes its products through direct sales and various third party
distribution arrangements. IVI Checkmate's customers include banks, payment
processors, retail merchants, petroleum service stations, convenience-store
operators, supermarkets and other mass merchandisers, and government benefits
disbursers.
For the year ended December 31, 1999, IVI Checkmate generated net revenues
of approximately $97.9 million and a net loss of approximately $19.9 million.
On December 31, 1999, IVI Checkmate had consolidated assets of approximately
$73.5 million and consolidated stockholders' equity of approximately $45.1
million. For the first quarter ended March 31, 2000, IVI Checkmate generated
net revenues of approximately $23.3 million and a net loss of approximately
$0.8 million. For more information about IVI Checkmate, see "Where You Can Find
More Information" on page 81. When we refer to IVI Checkmate in this proxy
statement-prospectus, we mean IVI Checkmate Corp.
National Transaction Network, Inc.
117 Flanders Road
Westborough, Massachusetts 01581
(508) 870-3200
NTN designs, develops, integrates, markets and maintains electronic payment
systems for use in retail applications. NTN software performs many of the tasks
involved in electronic payment transactions, including the collection of
payment-related data at the point of sale, secure transmission of the data,
authorization and collection of the completed transaction and final reporting
of the transaction. NTN's Mainsail Software Product allows retailers to
authorize and process electronic funds transfer transactions at the retailers'
corporate offices without the services of an outside, third-party transaction
processor. NTN and its parent company, IVI Checkmate, offer a single-source,
end-to-end electronic payment solution to retailers at both the store and
corporate level.
For the year ended December 31, 1999, NTN generated total revenues of
approximately $4.7 million and a net loss of approximately $0.2 million. On
December 31, 1999, NTN had consolidated assets of approximately $2.1 million
and a consolidated stockholders' deficit of approximately $1.6 million. NTN
expects to announce its financial results for the first quarter ended March 31,
2000 on or about May 15, 2000.
IVI Checkmate Inc.
1003 Mansell Road
Roswell, Georgia 30076
(770) 594-6000
IVI Checkmate's operations in the United States are conducted through its
wholly owned subsidiary, IVI Checkmate Inc. IVI Checkmate Inc. designs,
develops and markets innovative payment and value-added solutions that optimize
transaction management at the point-of-service in the retail, financial,
hospitality, healthcare and transportation industries. IVI Checkmate Inc.'s
software, hardware and professional services are designed to minimize
transaction costs, reduce operational complexity and improve profitability for
IVI Checkmate's customers in the United States.
1
<PAGE>
NTN Merger Corp.
1003 Mansell Road
Roswell, Georgia 30076
(770) 594-6000
NTN Merger Corp., a wholly owned subsidiary of IVI Checkmate Inc., is a
Delaware corporation organized for the sole purpose of effectuating the merger.
Until the merger is completed, it is not anticipated that NTN Merger Corp. will
have any significant assets or liabilities, other than those arising under the
merger agreement or in connection with the merger, or will engage in any
activities other than those incidental to its formation and capitalization and
the merger.
The Merger (See page 25)
IVI Checkmate will acquire NTN by means of the merger of NTN Merger Corp.
into NTN. After the merger, NTN will operate as a wholly owned subsidiary of
IVI Checkmate Inc. The merger agreement is attached as Appendix A to this proxy
statement-prospectus. We encourage you to read the merger agreement as it is
the legal document that governs the merger.
Special Meeting of Stockholders (See page 18)
The special meeting will be held at 1003 Mansell Road, Roswell, Georgia
30076, at 10:00 a.m., on Tuesday, June 13, 2000. At the special meeting, we
will ask you to approve the merger and the merger agreement.
In order for the special meeting to be held, a quorum must be present. A
quorum is present if a majority of the outstanding shares of NTN common stock
entitled to vote are represented at the special meeting either in person or by
proxy.
Voting Rights at the Special Meeting (See page 18)
You are entitled to vote at the special meeting if you owned shares of NTN
common stock as of the close of business on May 1, 2000, the record date. As of
the record date, there were 3,325,468 shares of NTN common stock outstanding
and such shares of NTN common stock were held by 70 holders of record. You will
be entitled to one vote for each share of NTN common stock that you owned on
the record date. You may vote either by attending the special meeting and
voting your shares or by completing the enclosed proxy card and mailing it to
us in the enclosed envelope.
We are seeking your proxy to use at the special meeting. We have prepared
this proxy statement-prospectus to assist you in deciding how to vote. Whether
or not you plan to attend the meeting, please indicate on your proxy card how
you want to vote. Then sign, date and mail it to us as soon as possible so that
your shares will be represented at the special meeting. If you sign, date and
mail your proxy card without indicating how you wish to vote, your proxy will
be counted as a vote FOR the approval of the merger agreement and the merger.
If you fail to return your proxy card and fail to vote at the meeting, the
effect will be a vote against approval of the merger agreement and the merger.
If you sign a proxy, you may revoke it at any time before the special meeting
or by attending and voting at the special meeting.
Stockholder Vote Required to Approve the Merger (See page 18)
The affirmative vote of the holders of a majority of the outstanding shares
of NTN common stock entitled to vote at the meeting is required to approve the
merger agreement and the merger. IVI Checkmate has not entered into any voting
arrangements or stockholder agreements to vote shares at the meeting. However,
IVI Checkmate intends to cause its wholly owned subsidiary, IVI Checkmate Inc.,
which owns 82.0% of NTN's outstanding common stock, to vote its shares of NTN
common stock in favor of the approval of the merger agreement and the merger.
For more details, see "The Special Meeting--Vote Required; Voting at the
Meeting" beginning on page 18.
Appraisal Rights of Dissenting Stockholders (See page 19)
Under Delaware law, NTN stockholders who do not vote in favor of or consent
in writing to the merger and who follow the procedures prescribed under
Delaware law may require NTN to pay the "fair value" for their shares of NTN
common stock. For more details, see "The Special Meeting--Rights of Dissenting
Stockholders" beginning on page 19.
2
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What You Will Receive in the Merger (See page 25)
When we complete the merger, you will receive the number of shares of IVI
Checkmate common stock with a value equal to $.30 multiplied by the number of
your shares of NTN common stock. Stated differently, you will be entitled to
receive $.30 worth of IVI Checkmate common stock for each of your shares of NTN
common stock.
While the exact number of shares of IVI Checkmate common stock that you will
be entitled to receive can not be determined as of the date of the proxy
statement-prospectus, and you will not be able to determine such number at the
time of the special meeting, the number of shares of IVI Checkmate common stock
that you will be entitled to receive will be based on the average of the daily
closing prices for IVI Checkmate common stock on the Nasdaq National Market for
the 20 consecutive trading days ending two business days before the effective
date of the merger. For more information about what you will receive if the
merger is completed, see "Description of the Transaction--What You Will Receive
in the Merger" on page 25.
IVI Checkmate will not issue any fractional shares of common stock. Rather,
IVI Checkmate will pay cash for any fractional share interest that any NTN
stockholder would otherwise receive in the merger. The cash payment will be in
an amount equal to the fraction multiplied by the 20-day average closing price
described in the preceding paragraph.
Effect of the Merger on NTN Options (See page 26)
From time to time, NTN has granted options to buy shares of NTN common stock
under its stock option plans. When the merger is completed, IVI Checkmate will
assume each outstanding option to buy NTN common stock. Each option will then
become an option to purchase IVI Checkmate common stock. The number of shares
of IVI common stock that may be purchased and the exercise price of the new
options will be adjusted to reflect the merger exchange ratio. All other terms
of the NTN options will remain the same. IVI Checkmate will assume all
outstanding options whether or not the option holder then has the right to
exercise the option.
Our Reasons for the Merger (See page 33 and 34)
Through a series of acquisitions, IVI Checkmate is seeking to transition
away from being a hardware-centered terminal supplier to becoming a value-based
systems provider offering total electronic payment solutions. The acquisition
of the NTN common stock not currently owned by IVI Checkmate and its
subsidiaries represents an opportunity for IVI Checkmate to provide versatile
payment solutions at the retail level. The merger will also allow NTN to
transition from a software supplier and systems integrator to a software
division focusing on a single product line, which management of both companies
believes should result in improved operations and profitability. In addition,
the merger will provide for extensive cost savings from the combined operation,
predominately in the areas of management, sales and marketing, accounting and
finance, systems shipment and deployment, and repair and hardware maintenance
operations. Due to these reasons, the boards of directors of each of NTN and
IVI Checkmate believe the merger will enhance the value of the IVI Checkmate
common stock to the holders of the resultant entity.
Fairness Opinion of the Special Committee's Financial Advisor (See page 36)
In deciding to approve the merger, the special committee of NTN's board of
directors considered an opinion from Southeast Appraisal Resource Associates,
Inc., that the $.30 merger exchange ratio is fair, from a financial point of
view, to the NTN stockholders. The full text of this opinion is attached to
this proxy statement-prospectus as Appendix C. We encourage you to read this
opinion. This opinion sets forth assumptions made, matters considered and
limitations on the review undertaken in connection with Southeast's opinion.
Southeast's opinion is directed to the board of directors of NTN and does not
constitute a recommendation to any NTN stockholder as to how to vote that
stockholder's shares of NTN common stock.
Our Recommendation to Stockholders (See page 20)
A special committee of the NTN board of directors, consisting of Christopher
F. Schellhorn, has determined, in part based on the opinion of Southeast
Appraisal Resource Associates, Inc., that the merger and the consideration to
be received in
3
<PAGE>
the merger are fair to, and in the best interests of, the stockholders of NTN,
other than IVI Checkmate and its affiliates, and has recommended approval of
the merger agreement by the NTN board of directors. Mr. Schellhorn is the only
director of NTN who is not otherwise employed by or affiliated with IVI
Checkmate or its subsidiaries. After considering the recommendation of the
special committee, NTN's board of directors unanimously approved the merger
agreement.
The board believes that the proposed merger is in your best interests and
unanimously recommends that you vote to approve the merger agreement and the
merger.
Interests of Certain Persons in the Merger That May Be Different from Yours
(See page 43)
The NTN director who comprises the special committee holds options to
acquire 15,000 shares of NTN common stock. No other officers or directors of
NTN hold options to acquire shares of NTN common stock. IVI Checkmate has
agreed to indemnify the present and former directors of NTN against liabilities
incurred prior to and in connection with the merger. Additionally,
IVI Checkmate has also agreed to use its reasonable efforts to maintain the
existing NTN directors' and officers' liability insurance policy for six years
following the merger. Your board of directors was aware of these interests and
considered them in approving and recommending the merger.
Regulatory Approval and Other Conditions (See pages 40 and 41)
Except for the filing of any documents required by the Securities and
Exchange Commission and the certificate of merger with the Secretary of State
of the State of Delaware, no other governmental authorization or regulatory
approval is required of IVI Checkmate or NTN in order to complete the merger.
In addition, the merger will be completed only if other conditions are met
or waived, if waivable, including:
. NTN stockholders approve the merger at the special meeting, which is
assured if IVI Checkmate votes the 82.0% of NTN common stock owned by its
wholly owned subsidiary IVI Checkmate Inc., as it intends;
. NTN and IVI Checkmate receive all necessary consents and approvals;
. neither IVI Checkmate nor NTN has breached any of its representations or
obligations under the merger agreement such that there is a material
adverse effect on IVI Checkmate or NTN; and
. Southeast Appraisal Resource Associates, Inc. shall have reaffirmed in
writing its fairness opinion.
In addition to these conditions, the merger agreement, attached to this
proxy statement-prospectus as Appendix A, describes other conditions that must
be met before the merger may be completed.
Waiver, Amendment, and Termination (See page 41)
IVI Checkmate and NTN may agree to terminate the merger agreement and elect
not to complete the merger at any time before the merger is completed, even if
NTN's stockholders have approved the merger.
Each of the parties also can terminate the merger in other circumstances and
for other reasons, including that the merger was not completed by September 30,
1999.
The merger agreement may be amended by the written agreement of IVI
Checkmate and NTN. Any provision of the merger agreement may be waived by the
written agreement of the party who waives the provision. The board of directors
of NTN must approve any amendment or waiver of a provision in the merger
agreement. The parties cannot amend or waive provisions in the merger agreement
which could change important terms and conditions in the merger agreement
without stockholder approval.
Completion of the Merger (See page 39)
The merger will become final at the time specified in the certificate of
merger to be filed with the Secretary of State of the State of Delaware. If the
NTN stockholders approve the merger at the
4
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special meeting, we currently anticipate that the merger will be completed on
or about June 13, 2000.
IVI Checkmate and NTN cannot assure you that they can obtain the necessary
stockholder approval or that the other conditions to consummation of the merger
can or will be satisfied.
Exchange of Stock Certificates (See page 40)
Promptly after the merger is completed, you will receive a letter and
instructions on how to surrender your NTN stock certificates in exchange for
IVI Checkmate stock certificates. You will need to carefully review and
complete these materials and return them as instructed along with your stock
certificates for NTN common stock. Please do not send NTN, IVI Checkmate or
their transfer agents any stock certificates until you receive these
instructions. If you elect to exercise your appraisal rights, you should follow
the procedures outlined in "The Special Meeting--Rights of Dissenting
Stockholders" section beginning on page 19.
Material Federal Income Tax Consequences of the Merger (See page 27)
We expect that, for federal income tax purposes, the exchange of your shares
of NTN common stock for shares of IVI Checkmate common stock will be treated as
a taxable sale rather than as a tax-free reorganization. Therefore, we expect
that you will recognize taxable gain or loss in an amount equal to the
difference between (1) the fair market value, at the time the merger is
completed, of the shares of IVI Checkmate common stock, including any
fractional share interest to which you are entitled and (2) your adjusted tax
basis of the shares of NTN common stock that you surrender. See the discussion
above under "--What You Will Receive in the Merger."
Tax matters are very complicated, and the tax consequences of the merger to
you will depend on your own situation. You should consult your own tax advisors
to determine the effect of the merger on you under federal, state, local and
foreign tax laws.
Accounting Treatment (See page 44)
IVI Checkmate will account for the merger under the purchase method of
accounting, in accordance with generally accepted accounting principles. Under
the purchase method of accounting, IVI Checkmate will allocate the purchase
price of NTN, including direct costs of the merger, to the assets acquired and
liabilities assumed based upon their estimated relative fair values, with the
excess purchase consideration allocated to goodwill. However, IVI Checkmate
does not anticipate the creation of any goodwill as a result of this
transaction because the purchase price is expected to be fully allocated to
identifiable intangible assets.
Comparative Market Prices of Common Stock (See page 46)
Shares of IVI Checkmate common stock are traded on the Nasdaq National
Market under the symbol "CMIV" and on The Toronto Stock Exchange under the
symbol "IVC." Shares of NTN common stock are listed on the pink sheets of the
National Quotations Bureau, Inc. under the symbol "NTRN" and included on the
Over The Counter Bulletin Board. The following table shows you the closing
sales prices for IVI Checkmate common stock, as reported on the Nasdaq National
Market, and the last sales price of the NTN common stock, based on inter-dealer
prices, without retail mark-up, mark-down or commissions, on July 20, 1999, the
last trading day before we announced the execution of the merger agreement, and
on May 1, 2000, the latest practicable date before the mailing of this proxy
statement-prospectus. The table also shows you the "equivalent price per NTN
Share" or the value you will receive in the merger for each share of NTN common
stock you own. See "Comparative Market Prices and Dividends," on page 46.
<TABLE>
<CAPTION>
NTN Equivalent
IVI Checkmate Common Price Per
Common Stock Stock NTN Share
------------- ------- ----------
<S> <C> <C> <C>
July 20, 1999.................................. $3.4375 $0.2656 $.30
May 1, 2000.................................... $2.9688 $ 0.195 $.30
</TABLE>
As noted earlier, the number of shares of IVI Checkmate common stock that
you will receive for your NTN common stock will be based on the average of the
daily closing prices for IVI Checkmate common stock for the 20 consecutive
trading days ending two business days prior to the effective date of the
merger. The market price of
5
<PAGE>
IVI Checkmate common stock will fluctuate prior to the merger. We can provide
no assurance as to what the market price of IVI Checkmate common stock will be
during the 20 consecutive days described above, and therefore, at the time of
the special meeting, we will not be able to determine the number of shares of
IVI Checkmate common stock you will receive for your NTN common stock. You
should obtain current stock price quotations for IVI Checkmate common stock.
NTN Stock Ownership (See page 76)
On the record date and as of the date of this proxy statement-prospectus:
. IVI Checkmate, through its wholly owned subsidiary IVI Checkmate Inc.,
owned 82.0% of the outstanding shares of NTN common stock;
. NTN's directors and executive officers and their affiliates owned none of
the outstanding shares of NTN common stock;
. IVI Checkmate's directors and executive officers and their affiliates
(other than IVI Checkmate Inc.) owned none of the outstanding shares of
NTN common stock; and
. NTN was not aware of any person beneficially owning more than 5% of its
common stock, other than IVI Checkmate Inc.
Differences in Stockholders' Rights (See page 77)
When the merger is completed, you will automatically become an IVI Checkmate
stockholder, unless you exercise your appraisal rights. Your rights as an NTN
stockholder are governed by the NTN certificate of incorporation and bylaws and
Delaware law. IVI Checkmate's stockholders also are governed by Delaware law.
Your rights as an IVI Checkmate stockholder will differ from the rights of a
NTN stockholder in important ways due to provisions in IVI Checkmate's
certificate of incorporation and bylaws which differ from NTN's certificate of
incorporation and bylaws.
Listing of IVI Checkmate Common Stock
IVI Checkmate has agreed to list the shares of IVI Checkmate common stock to
be issued in connection with the merger on the Nasdaq National Market and on
The Toronto Stock Exchange.
6
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The following tables present summary financial data for IVI Checkmate and
for NTN for each of the years in the five-year period ended December 31, 1999.
The information for each of IVI Checkmate and NTN as of December 31, 1999 and
1998 and for the three years in the period ended December 31, 1999 is based on
the financial statements of IVI Checkmate and NTN included as a part of this
proxy statement-prospectus. The summary financial data for IVI Checkmate as of
December 31, 1997 and 1996 and for the year ended December 31, 1996 have been
derived from the audited consolidated financial statements of IVI Checkmate but
are not included herein. The summary financial data for IVI Checkmate as of and
for the year ended December 31, 1995 have been derived from the unaudited
consolidated financial statements of IVI Checkmate but are not included herein.
The summary financial data for NTN as of December 31, 1997, 1996 and 1995 and
for each of the two years in the period ended December 31, 1996 have been
derived from audited financial statements of NTN but are not included herein.
For more financial information, see "IVI Checkmate Selected Financial Data"
beginning on page 49, "IVI Checkmate Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 50, "NTN
Selected Financial Data" beginning on page 57, "NTN Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page 58
and "Where You Can Find More Information" beginning on page 82 and the
financial statements of each of IVI Checkmate and NTN attached to this proxy
statement-prospectus as Appendix D and Appendix E, respectively.
You should read the following tables in conjunction with the financial
statements of IVI Checkmate and NTN described above and with the notes to them.
We have not provided pro forma financial statements showing how the merger
might have affected the financial condition and results of operations of IVI
Checkmate had the merger been completed on various dates in the past. This is
because the consolidated financial statements of IVI Checkmate as of those
dates and for the relevant fiscal periods, which are provided in Appendix D to
this proxy statement-prospectus, already reflect the financial condition and
results of operations of NTN as of those dates and for those periods, except
for immaterial adjustments to reflect the elimination of IVI Checkmate's
minority interest in NTN and the issuance of shares of IVI Checkmate common
stock to the stockholders of NTN in connection with the merger. We caution you,
however, that historical results are not necessarily indicative of results to
be expected for any future period.
7
<PAGE>
IVI Checkmate Summary Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1999 1998 1997 1996 1995
--------- -------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues.................. $ 97,934 $107,122 $92,665 $77,385 $79,686
Income (loss) before income
taxes........................ (18,057) (5,551) 2,381 (4,615) 6,167
Net income (loss)............. (19,934) (4,971) 3,236 (10,299) 3,480
Basic and diluted net income
(loss) per common share...... (1.13) (0.28) 0.19 (0.69) 0.24
<CAPTION>
December 31,
----------------------------------------------
1999 1998 1997 1996 1995
--------- -------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Total assets.................. $ 73,525 $ 82,829 $76,584 $69,787 $66,357
Long-term liabilities......... 1,504 787 2,085 1,124 1,598
Stockholders' equity.......... 45,130 55,017 57,412 53,029 51,130
NTN Summary Financial Data
<CAPTION>
Years Ended December 31,
----------------------------------------------
1999 1998 1997 1996 1995
--------- -------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total revenue................. $ 4,729 $ 5,051 $ 5,318 $ 5,013 $ 8,006
Income (loss) from
operations................... 81 (1,640) (411) (635) (105)
Net income (loss)............. (171) (1,806) (449) (615) (89)
Basic and diluted earnings
(loss) per common share...... (0.05) (0.55) (0.14) (0.19) (0.03)
<CAPTION>
December 31,
----------------------------------------------
1999 1998 1997 1996 1995
--------- -------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets.................. $ 2,134 $ 2,018 $ 2,639 $ 2,161 $ 2,345
Long-term liabilities......... 2,269 2,256 1,549 12 0
Stockholders' equity
(deficiency)................. (1,630) (1,589) 196 634 1,249
</TABLE>
8
<PAGE>
RISK FACTORS
If the merger is consummated, you will receive shares of IVI Checkmate
common stock in exchange for your shares of NTN common stock. You should be
aware of particular risks and uncertainties that are applicable to an
investment in IVI Checkmate common stock. Specifically, there are risks and
uncertainties that bear on IVI Checkmate's future financial results and that
may cause IVI Checkmate's future earnings and financial condition to be less
than IVI Checkmate's expectations.
IVI Checkmate may not achieve the increases in operating income that it expects
to result from the integration of NTN into IVI Checkmate.
IVI Checkmate cannot guarantee that it will realize the increases in
operating income that it anticipates from integrating NTN's operations and IVI
Checkmate's operations as fully or as quickly as it expects. Successful
integration of NTN's operations will depend primarily on IVI Checkmate's
ability to consolidate operations, systems and procedures and to eliminate
redundancies and costs. IVI Checkmate may be unable to integrate its operations
without encountering difficulties, including, without limitation, the loss of
key employees and customers, the disruption of its businesses, or possible
inconsistencies in standards, controls, procedures and policies.
If IVI Checkmate cannot keep up with changes in technology, IVI Checkmate might
be unable to effectively compete and might lose customers.
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, it may not successfully keep up with the new products and
technological advances of others. Several of IVI Checkmate's competitors have
introduced products and technologies that will compete with IVI Checkmate's
products and technologies. IVI Checkmate cannot guarantee that present or
potential customers will accept its new products and technologies or that they
will not choose to use IVI Checkmate's competitors' products and technologies.
If IVI Checkmate is 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 IVI Checkmate's business,
financial condition and results of operations.
IVI Checkmate relies on a limited number of large customers for a significant
percentage of its revenues so the loss of one or more of these customers could
produce a material and adverse effect.
IVI Checkmate relies on large banks and retail customers with a large number
of point-of-sale stations for a significant percentage of its revenues. IVI
Checkmate continues to diversify its customer base by developing strategic
alliances and partnerships to open more distribution channels and limit its
reliance on large customers. While IVI Checkmate continues to transact business
with its current customers and attract new ones, its revenues will decrease
significantly if it loses a large customer. IVI Checkmate may also be
unsuccessful in attracting new customers. The demand for IVI Checkmate's
products and services, especially from its large customers, may decline. If
these things occur, they could materially and adversely affect IVI Checkmate's
business, financial condition and results of operations.
9
<PAGE>
If competition in the electronic payment industry increases, it could limit IVI
Checkmate's ability to grow.
The electronic payment industry is very competitive and subject to rapid
technological change. IVI Checkmate expects competition to increase in the
future. To compete successfully in the future, IVI Checkmate must respond
promptly and effectively to changes in technology. IVI Checkmate must also
respond to its competitors' innovations and provide low cost products through
manufacturing efficiencies and other costs savings measures. Many of IVI
Checkmate's competitors have significantly greater financial, marketing,
service, support and technical resources than IVI Checkmate. Some of these
competitors also have greater name recognition than IVI Checkmate. Accordingly,
IVI Checkmate's competitors may be able to respond more quickly than IVI
Checkmate 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 IVI Checkmate. In addition, IVI Checkmate's profit
margins could decline because of competitive pricing pressures that may have a
material adverse effect on its business, financial condition, and results of
operations. Consequently, IVI Checkmate may not compete successfully against
current or future competitors, and the competitive pressures that it faces may
negatively affect its business, financial condition and results of operations.
IVI Checkmate attempts to differentiate itself from its competitors by
providing end-to-end solutions. IVI Checkmate's competitors include VeriFone,
Inc., a division of Hewlett-Packard Company, Hypercom Corp. and NBS
Technologies, Inc. Current and potential 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 IVI Checkmate's 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 restrictions, the loss of
current or prospective customers, fewer customer orders and reduced net income.
IVI Checkmate's hardware and software may contain defects and undetected errors
that could affect its performance, causing IVI Checkmate to lose customers,
spend large amounts to correct the problems or become subject to product
liability claims.
IVI Checkmate's hardware and software, including the security features on
IVI Checkmate's point-of-sale payment systems, may contain undetected defects
and errors. Although IVI Checkmate tests its hardware and software before
releasing it, IVI Checkmate may discover defects and errors in the future. Once
detected, IVI Checkmate 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 IVI Checkmate's 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;
. significant product liability claims;
. diversions of engineering and other resources from IVI Checkmate's other
product development efforts; and
. loss of credibility with IVI Checkmate's distributors and customers.
Therefore, any undetected defects and errors in IVI Checkmate's hardware and
software could adversely affect its business, financial condition and results
of operations.
10
<PAGE>
IVI Checkmate's operating results are difficult to predict, and unexpected
results could harm its stock price.
IVI Checkmate's future success depends on a number of factors, many of which
are unpredictable and beyond its 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 and year to year in the future.
For example, despite a generally consistent trend of increases in net revenues,
IVI Checkmate recorded net income (loss) of approximately $3,480,000 in 1995,
($10,299,000) in 1996, $3,236,000 in 1997, ($4,971,000) in 1998 and
($19,934,000) in 1999.
Factors which may cause IVI Checkmate's quarterly and yearly operating
results, cash flows and liquidity, and therefore its stock price, to fluctuate
include:
. the timing of the introduction of new or enhanced products and services
offered by IVI Checkmate or its competitors;
. IVI Checkmate's customers' inventory levels of its products, which may
affect the timing of future orders;
. competitive pricing pressures;
. the number, size and successful integration of acquired companies and
relationships with alliance partners; and
. foreign currency exposures.
Quarterly and yearly revenues and expenses are difficult to predict because
the market for IVI Checkmate's products and services is rapidly evolving. IVI
Checkmate's expense levels are based, in part, on its expectations about future
revenues. IVI Checkmate typically records a disproportionate amount of its
revenue for each quarter in the final month of the quarter, while expenses are
generally incurred more evenly throughout the period. If IVI Checkmate's actual
revenue levels do not meet its projections or if its expenses exceed its
projections, operating results would likely be negatively affected. Due to many
factors, IVI Checkmate believes that period-to-period comparisons of its
business are not necessarily meaningful. Because IVI Checkmate's industry
changes so quickly, its operating results in future quarters could be below the
expectations of public market analysts and investors. If IVI Checkmate did not
meet these expectations, its 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.
Government and industry regulations may result in increased costs and a delay
in the introduction of new products.
IVI Checkmate must 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 these products. If IVI Checkmate
has any delays in obtaining necessary certifications with respect to future
products, its business, financial condition and results of operations could be
negatively affected.
11
<PAGE>
IVI Checkmate is subject to regulation by the Federal Communications
Commission 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, IVI Checkmate could be negatively
affected.
Because IVI Checkmate has only limited protection of its proprietary technology
and intellectual property rights, others may copy them and harm IVI Checkmate's
ability to compete.
IVI Checkmate's operations could be materially and adversely affected if it
is not adequately able to protect its proprietary software, audit techniques
and methodologies, and other proprietary intellectual property rights. IVI
Checkmate relies on a combination of patents, copyrights, trademarks, trade
secrets, nondisclosure and other contractual arrangements and technical
measures to protect its proprietary rights. While IVI Checkmate currently holds
several U.S. and Canadian patents, IVI Checkmate mainly relies on copyright to
protect its operating systems and various other software programs.
Nevertheless, IVI Checkmate could be negatively affected if its competitors
successfully incorporate this technology into their products.
Despite IVI Checkmate's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of its products or obtain and
use information that IVI Checkmate regards as proprietary. IVI Checkmate could
be negatively affected if its means of protecting its proprietary information
is inadequate. IVI Checkmate may also be unable to deter misappropriation of
its proprietary information, detect unauthorized use and take appropriate steps
to enforce its intellectual property rights. Furthermore, IVI Checkmate's
competitors also may independently develop technologies that are substantially
equivalent or superior to its technology.
IVI Checkmate may not be successful in avoiding claims that it infringes
others' proprietary rights and could be required to pay judgments or licensing
fees.
Although IVI Checkmate believes that its services and products do not
infringe on the intellectual property rights of others, IVI Checkmate cannot
prevent someone else from asserting a claim against it in the future for
violating their technology rights. In the ordinary course of IVI Checkmate's
business, third parties may claim that IVI Checkmate's services infringe on
their patent, copyright or trademark rights. IVI Checkmate also may be subject
to court actions alleging that it violated a third party's copyright or
trademark rights. Third parties making infringement claims may have
significantly greater resources than IVI Checkmate does to pursue litigation,
and IVI Checkmate cannot be certain that it 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 IVI Checkmate to enter into royalty or licensing
agreements. As a result of an infringement claim, IVI Checkmate could be
required to discontinue use of a specific technology, trade name or service
mark. In these instances, it could be expensive for IVI Checkmate to develop or
buy replacement technology or market a new name. Consequently, whether
justified or not, infringement claims could have a negative effect on IVI
Checkmate's business, financial condition and results of operations.
Any failure of supply chain manufacturers and suppliers to timely provide
necessary components and services could cause production delays and a loss of
customers.
IVI Checkmate currently depends on third-party manufacturers and suppliers
for the assembly of certain products and components. While there are many such
manufacturers and suppliers in the marketplace, IVI Checkmate currently uses
only a limited number of them and if any of the current manufacturers or
suppliers were to go out of business or be unable to meet the supply
commitments or demands of IVI Checkmate, production of products and delivery of
services could be delayed until an alternative manufacturer or supplier is
found.
12
<PAGE>
The use of outside manufacturers and suppliers also subjects IVI Checkmate
to the following additional risks:
. 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.
While IVI Checkmate maintains additional inventory of certain products and
continually evaluates alternative sources of supply, the delays and risks
described above could adversely affect IVI Checkmate's business, financial
condition and results of operations.
IVI Checkmate is subject to the risk of product liability claims, which could
materially and adversely affect its business and financial results.
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 its exposure to potential product liability claims. However, these
provisions may not be effective under the laws of all jurisdictions. The
insurance that IVI Checkmate maintains 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. Therefore a successful product liability claim brought against
IVI Checkmate could materially and adversely affect its business, financial
condition and results of operations. In addition, defending a product liability
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 IVI Checkmate's
business, financial condition and results of operations.
If IVI Checkmate is unable to attract and retain key personnel, it may have to
employ less qualified personnel and may experience high turnover costs.
IVI Checkmate's future performance depends upon the continued services 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 IVI Checkmate's business, financial condition and results of
operations.
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. IVI Checkmate competes for qualified
personnel against numerous companies, including larger, more established
companies with significantly greater financial resources than its own.
Significant competition exists for qualified technical, managerial and
marketing personnel. At times IVI Checkmate has experienced and continues to
experience difficulty retaining and recruiting qualified personnel. If IVI
Checkmate is unable to hire and retain qualified personnel in the future, it
could materially and adversely affect IVI Checkmate's business, financial
condition and results of operations.
IVI Checkmate's stock ownership is concentrated, which will make it difficult
for you to exert control over IVI Checkmate or to replace IVI Checkmate's
management.
Based on information as of December 31, 1999, IVI Checkmate's directors,
officers and their affiliates beneficially own approximately 3,848,114 shares
(approximately 20%) of its common stock, including shares exchangeable for
common stock and exercisable options to purchase common stock. IVI Checkmate's
directors, officers and their affiliates also hold options to acquire 208,334
shares of common stock that are not immediately exercisable. Consequently, IVI
Checkmate's directors, officers and their affiliates could, as
13
<PAGE>
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.
IVI Checkmate cannot be sure that the Year 2000 problem will not affect its
business.
Through March 21, 2000, IVI Checkmate has had no significant problems
related to Year 2000 issues associated with its products or the computer
systems, software and other equipment that it uses. However, unanticipated Year
2000 problems could still occur, and IVI Checkmate cannot guarantee that the
Year 2000 problem will not adversely affect its business, financial condition
or results of operations.
If IVI Checkmate is unable to effectively manage its growth, its business could
suffer.
IVI Checkmate's future operating results will depend heavily on its ability
to manage its business and make appropriate changes in the face of its growth
and changing industry conditions. If IVI Checkmate does not respond
appropriately to growth and change, the quality of its services, its ability to
retain key personnel and its business in general could be negatively affected.
If IVI Checkmate does not correctly predict its growth, its business, financial
condition and results of operations could be negatively affected.
IVI Checkmate is subject to risks associated with making acquisitions, which
could materially and adversely affect IVI Checkmate's business and financial
results and otherwise limit IVI Checkmate's ability to grow through
acquisitions.
As part of IVI Checkmate's 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 IVI
Checkmate;
. obtain sufficient financing on acceptable terms to fund strategic
alliances, partnerships and acquisitions;
. complete strategic alliances, partnerships and acquisitions on terms
favorable to IVI Checkmate;
. 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 IVI Checkmate may not
perform as expected;
. technologies, products or businesses acquired by IVI Checkmate may not
achieve levels of revenues, profitability or productivity comparable to
those of IVI Checkmate's existing technologies, products and operations;
. strategic alliances, partnerships and acquisitions may divert the
attention of management and IVI Checkmate's resources;
. IVI Checkmate may experience difficulty in assimilating the acquired
operations and personnel; and
. IVI Checkmate may experience difficulty in retaining, hiring and training
key personnel.
14
<PAGE>
Any or all of these risks could materially and adversely affect IVI
Checkmate's business, financial condition or results of operations.
IVI Checkmate has adopted measures that have anti-takeover effects, which may
discourage transactions that may be beneficial to stockholders.
Under IVI Checkmate's 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 IVI Checkmate has distributed rights to purchase shares of its
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 IVI Checkmate does business may result in currency transaction losses.
A portion of IVI Checkmate's 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 IVI Checkmate's business,
financial condition and results of operations 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. IVI Checkmate attempts to
balance its revenues and expenses in each currency to minimize net foreign
currency risk. To the extent that IVI Checkmate is unable to balance revenues
and expenses in a currency, fluctuations in the value of the currency in which
IVI Checkmate conducts its business relative to the functional currency have
caused and will continue to cause currency transaction gains and losses. IVI
Checkmate cannot accurately predict the impact of future exchange rate
fluctuations on its results of operations. These currency exchange risks could
materially and adversely affect IVI Checkmate's business, financial condition
and results of operations.
IVI Checkmate has not sought to hedge the risks associated with fluctuations
in exchange rates but may undertake transactions of this type in the future.
Any hedging techniques which IVI Checkmate implements in the future may not be
successful, and hedging techniques that IVI Checkmate uses could exacerbate
exchange rate losses.
A large number of shares of IVI Checkmate's stock are currently eligible for
public sale, which could cause IVI Checkmate's stock price to drop.
Sales of a substantial number of shares of IVI Checkmate common stock in the
public market, or the prospect of these sales, could adversely affect the
market price of IVI Checkmate common stock. These sales or the prospect of
these sales could also impair IVI Checkmate's ability to raise needed funds in
the capital markets at a time and price favorable to it. As of December 31,
1999, IVI Checkmate had approximately 18,147,569 shares of common stock
outstanding, including approximately 5,356,000 exchangeable shares of IVI
Checkmate Ltd. which are exchangeable by the holders at any time for shares of
IVI Checkmate common stock on a one-for-one basis. Most 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. As of December 31, 1999, all of the
approximately 18,147,569 outstanding shares were eligible for sale in the
public market. However, the approximately 2,354,541 outstanding shares owned as
of December 31, 1999 by IVI Checkmate's directors and executive officers and
their affiliates are eligible for sale in the public market at such times and
in such amounts as are permitted under Rule 144 of the SEC.
15
<PAGE>
As of December 31, 1999, IVI Checkmate had options outstanding under various
stock option plans to purchase a total of approximately 3,727,000 shares of
common stock at a weighted average exercise price of $6.07 per share. IVI
Checkmate has reserved an additional 880,730 shares of common stock that it may
issue upon the exercise of options that may be granted in the future under
these plans. Substantially all of the shares that are issuable upon the
exercise of these options, as well as the shares that are issuable under the
IVI Checkmate employee stock purchase plan, have been registered under the
Securities Act. All of these shares will be freely tradable in the public
market, except for shares held by IVI Checkmate's affiliates which will be
eligible for public sale in such amounts as are permitted under Rule 144.
16
<PAGE>
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Some of the statements in this proxy statement-prospectus, including some
statements in "Summary" beginning on page 1, "Risk Factors" beginning on page
9, "Description of the Transaction" beginning on page 25 and IVI Checkmate's
and NTN's "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on pages 50 and 58, respectively, as well as
some statements in IVI Checkmate's and NTN's SEC filings that are incorporated
by reference in this proxy statement-prospectus, are forward-looking statements
about management's expectations of what may happen in the future. Statements
that are not historical facts are forward-looking statements. These statements
are based on the beliefs and assumptions of IVI Checkmate's and NTN's
management and on information currently available to them. Forward-looking
statements can sometimes be identified by the use of forward-looking words like
"anticipate," "believe," "estimate," "expect," "intend," "may," "plan" and
similar expressions.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. IVI Checkmate's and NTN's future
results and stockholder value may differ significantly from those expressed in
or implied by the forward-looking statements contained in this proxy statement-
prospectus and in the information incorporated in this proxy statement-
prospectus. See "Where You Can Find More Information" on page 82. Many of the
factors that will determine these results and values are beyond management's
ability to control or predict. A number of important factors could cause actual
results to be very different from and worse than management's expectations
expressed in or implied by any forward-looking statement. These factors
include, but are not limited to, those discussed in "Risk Factors" beginning on
page 9.
Management of IVI Checkmate and NTN believe that their forward-looking
statements are reasonable. However, you should not place undue reliance on
these forward-looking statements, which are based only on current expectations.
Forward-looking statements speak only as of the date they are made, and IVI
Checkmate and NTN undertake no obligation to publicly update any of them in
light of new information or future events.
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THE SPECIAL MEETING
Purpose
IVI Checkmate and NTN are furnishing this proxy statement-prospectus to NTN
stockholders in connection with the solicitation of proxies by NTN's board of
directors. The NTN board of directors will use the proxies at the special
meeting of stockholders of NTN to be held on Tuesday, June 13, 2000 and at any
adjournment or postponement thereof.
At the special meeting, NTN stockholders will be asked to vote upon the
proposal to approve the agreement and plan of merger attached to this proxy
statement-prospectus as Appendix A and to authorize the merger of NTN Merger
Corp., a wholly owned subsidiary of IVI Checkmate Inc., into NTN. As a result,
NTN will become a wholly owned subsidiary of IVI Checkmate Inc.
Date, Place and Time
The special meeting of NTN's stockholders will be held on Tuesday, June 13,
2000, at 1003 Mansell Road, Roswell, Georgia 30076, commencing at 10:00 a.m.,
local time.
Record Date
The NTN board of directors fixed the close of business on May 1, 2000 as the
record date for the special meeting. Accordingly, only holders of NTN common
stock of record at the close of business on May 1, 2000, will be entitled to
notice of and to vote at the special meeting.
NTN Stockholders Entitled to Vote
As of May 1, 2000, there were 3,325,468 shares of NTN common stock
outstanding and such shares of NTN common stock were held by 70 holders of
record. Each share of NTN common stock entitles the holder thereof to one vote.
As of May 1, 2000, the directors and executive officers of NTN owned none of
the outstanding shares of NTN common stock, although one of the directors of
NTN held exercisable options to acquire 15,000 shares of NTN common stock.
Vote Required; Voting at the Meeting
The holders of a majority of the outstanding shares of NTN common stock
entitled to vote at the special meeting, present in person or by proxy, are
necessary for a quorum to exist at the special meeting.
Approval of the agreement and plan of merger and authorization of the merger
requires the affirmative vote of the holders of a majority of the outstanding
shares of NTN common stock entitled to vote at the meeting. The merger is not
structured so as to require the affirmative vote of a majority of the
stockholders other than IVI Checkmate Inc.
IVI Checkmate has not entered into any voting arrangements or stockholder
agreements to vote shares at the special meeting. However, IVI Checkmate, which
is the beneficial owner of 82.0% of the outstanding shares of NTN common stock,
intends to vote, through its wholly owned subsidiary IVI Checkmate Inc., its
shares in favor of the approval of the merger agreement and the merger, which
would assure approval of the agreement and plan of merger. None of the
directors or officers of IVI Checkmate beneficially owns any shares of NTN
common stock. NTN is not aware, as of the date of this proxy statement-
prospectus, of any person beneficially owning more than 5% of its common stock,
other than IVI Checkmate Inc.
Voting of Proxies
All properly executed proxies received before the vote at the special
meeting and not revoked will be voted in accordance with the instructions
indicated on the proxies. If no instructions are indicated, such proxies
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<PAGE>
will be voted FOR the proposal to approve the merger agreement and the merger,
and the proxy holder may vote the proxy in its discretion as to any other
matter which may properly come before the meeting.
Any abstentions and broker non-votes will have the same effect as a vote
AGAINST the approval of the merger agreement and the merger.
A NTN stockholder who has given a proxy may revoke it by:
. giving written notice of revocation to the Corporate Secretary of NTN, L.
Barry Thomson,
. delivering a later-dated proxy to L. Barry Thomson, or
. attending the special meeting and voting in person.
Any written notice of revocation or any subsequent proxy must be sent so as
to be delivered at or before the taking of the vote at the special meeting to
National Transaction Network, Inc., 117 Flanders Road, Westborough,
Massachusetts 01581, Attention: L. Barry Thomson.
Solicitation of Proxies
The expenses of the solicitation of proxies for the special meeting will be
borne by NTN, including the expenses incurred in connection with filing,
printing and mailing this proxy statement-prospectus and the forms of proxy to
the NTN stockholders, except if the merger is not completed, all printing
expenses and filing fees associated with the preparation and distribution of
this proxy statement-prospectus shall be paid by IVI Checkmate. For more
information on fees and expenses of the transaction, see "Description of the
Transaction--Fees And Expenses" on page 44.
In addition to solicitation by mail, directors, officers and employees of
NTN may solicit proxies in person or by telephone, telegram or other means of
communication. These persons will receive no additional compensation for
solicitation of proxies but may be reimbursed for reasonable out-of-pocket
expenses.
Rights of Dissenting Stockholders
If the merger is completed, holders of NTN common stock who object to the
merger are entitled to appraisal rights under Delaware law. In order to
exercise appraisal rights, NTN stockholders must strictly adhere to the
provisions of Delaware law governing appraisal rights. The following is a
summary of the relevant provisions of Delaware law. The description below is
only a summary and is qualified by reference to the relevant provisions of
Delaware law, a copy of which is attached hereto as Appendix B.
In order to exercise appraisal rights, you must take the following steps:
. send a written objection to the merger to NTN before the special meeting
stating your intention to demand payment for your shares of NTN common
stock if the merger is approved and the merger occurs,
. not vote in favor of the merger,
. continue to hold your NTN common stock through the effective date of the
merger, and
. send a written demand to NTN for payment for your shares of NTN common
stock within 20 days after you receive notice from NTN that the merger
has occurred, which will be sent by NTN within 10 days after the merger
is completed.
The written objection and written demand should be delivered to National
Transaction Network, Inc., 117 Flanders Road, Westborough, Massachusetts 01581,
Attention: L. Barry Thomson, and we recommend that you send the objection and
demand by registered or certified mail, return receipt requested.
Please note that, if you file a written objection with NTN prior to the
special meeting, you do not need to vote against the merger. NTN does not
intend to file a petition to determine the fair value and therefore, any
19
<PAGE>
stockholder of NTN seeking appraisal rights will be solely responsible for
instituting any action. However, if you file a written objection with NTN prior
to the special meeting and vote in favor of the merger, you will be deemed to
have waived your right to exercise appraisal rights.
If you have followed the procedures set forth above and the merger is
completed, either NTN or you may file a petition in the Delaware Court of
Chancery within 120 days after the merger to determine the "fair value" of your
NTN common stock. After a hearing, the court will determine the fair value of
your NTN common stock and, if appropriate, a fair rate of interest on the
amount to be paid. In determining the fair value of your NTN common stock, the
court will exclude any value arising from the accomplishment or expectation of
the merger. The court may consider many relevant factors, including the market
value, asset value and earnings prospects of NTN, to determine the fair value
of your NTN common stock. The court will then order NTN to make payment to you
of the value of your shares of NTN common stock plus interest, if any.
The fair value of the NTN common stock could be worth more than, the same as
or less than the value of the IVI Checkmate common stock you would otherwise
have received by exchanging your shares of NTN common stock for shares of IVI
Checkmate common stock.
Your appraisal rights are your only remedy if you object to the merger,
unless the merger is determined to have been illegal, fraudulent or in breach
of the fiduciary duties of the NTN board of directors.
If you exercise your appraisal rights, after the merger is completed you
will not have any rights as an NTN or IVI Checkmate stockholder, including the
right to receive notices of meetings, vote at meetings or receive dividends, if
any. You may withdraw your demand for appraisal rights within 60 days after the
merger has occurred, and you will then receive IVI Checkmate common stock
offered for shares of NTN common stock in the merger.
Recommendation of the Special Committee
NTN's board of directors created the special committee, which consists of
the sole NTN director who is not employed by or affiliated with NTN, IVI
Checkmate, IVI Checkmate Inc., NTN Merger Corp. or any of their subsidiaries or
affiliates, except in his capacity as a director of NTN, to act solely on
behalf of the NTN stockholders other than IVI Checkmate Inc. and its affiliates
for purposes of negotiating the merger. The special committee retained Nelson,
Mullins, Riley & Scarborough, L.L.P. as its independent legal counsel and
Southeast Appraisal Resource Associates, Inc. as the independent financial
advisor of the special committee, to assist it in negotiating and determining
the fairness of the merger on behalf of the NTN stockholders other than IVI
Checkmate Inc. and its affiliates. At a meeting of the special committee on May
18, 1999, the special committee approved the merger consideration, being $.30
worth of IVI Checkmate common stock for each share of NTN common stock. On July
20, 1999, following a presentation by Southeast to the full NTN board of
directors as to its opinion that the merger consideration, on the terms set
forth in the merger agreement, was fair to the NTN stockholders, other than IVI
Checkmate Inc. and its affiliates, from a financial point of view, the special
committee concluded the merger and the merger consideration are fair to, and in
the best interests of, the NTN stockholders, other than IVI Checkmate Inc. and
its affiliates, and recommended to the board of directors that it approve the
merger agreement. Based in part on the recommendation of the special committee
and considering the written fairness opinion received from Southeast, the board
of directors of NTN unanimously:
. determined that the merger is fair to, and in the best interests of, the
NTN stockholders, other than IVI Checkmate Inc. and its affiliates;
. approved the merger agreement and the transactions contemplated thereby
and authorized the execution, delivery and performance thereof by NTN;
and
. resolved to recommend that the stockholders of NTN approve the merger
agreement and the transactions contemplated thereby.
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<PAGE>
The board of directors of NTN believes that the terms of the merger
agreement are fair to, and in the best interests of, NTN and the NTN
stockholders, other than IVI Checkmate Inc. and its affiliates. In reaching its
conclusion, the board of directors of NTN adopted the recommendation of the
special committee as set forth below.
The special committee, in reaching its conclusion that the merger is fair
to, and in the best interests of, the NTN stockholders, other than IVI
Checkmate Inc. and its affiliates, and in determining to recommend approval of
the merger agreement and the merger to the board of directors of NTN,
considered a number of factors, including, without limitation:
. The oral presentation of Southeast to the special committee on June 22,
1999 and to the full board of directors on July 20, 1999, and the written
opinion of Southeast dated July 20, 1999 to the effect that, as of the
date of such opinion and stated in such opinion, the merger consideration
was fair, from a financial point of view, to the NTN stockholders, other
than IVI Checkmate Inc. and its affiliates. For more information
regarding this opinion, see "Description of the Transaction--Fairness
Opinion of the Special Committee's Financial Advisor" beginning on page
36. The opinion of Southeast, which has been updated to January 14, 2000,
is attached hereto as Appendix C. The special committee has accepted the
analysis of Southeast as set forth in its opinion. You are urged to read
such opinion carefully in its entirety.
. The special committee's conclusion that the merger consideration
represented the highest price that IVI Checkmate would be willing to pay
in acquiring the NTN common stock held by the NTN stockholders, other
than IVI Checkmate Inc. and its affiliates. This determination was the
result of the special committee's substantial negotiations with IVI
Checkmate in an attempt to obtain the highest possible price. IVI
Checkmate initially indicated to the special committee that IVI Checkmate
was interested in acquiring such NTN common stock for a "price in the
teens," that is, between $0.13 and $0.19 per share. At that time, the
special committee was aware that the recent low inter-dealer quotations
for NTN common stock were around $0.28 per share, and the special
committee informed IVI Checkmate that a "price in the teens" was
unacceptable. The special committee adopted a strategy of negotiations in
which its goal was to achieve a price in excess of the inter-dealer
quotations for NTN common stock at the time of establishing the sales
price. IVI Checkmate was not convinced that inter-dealer quotations in a
thin trading market were persuasive indicators of the fair market value
of NTN common stock. The special committee and IVI Checkmate mutually
agreed to obtain an appraisal of the market value of a minority position
in the common stock of NTN as of December 31, 1998. This appraisal, which
resulted in an opinion of value of $0.26 per share, supported the special
committee's position that a "price in the teens" was inadequate and that
the inter-dealer quotations on NTN common stock were useful references
when assessing the fair market value of the NTN common stock. Ultimately,
the special committee was able to obtain agreement with IVI Checkmate on
a price of $0.30 per share, which represented a premium over the latest
inter-dealer quotation.
. The terms of the merger agreement that the special committee was able to
negotiate, including without limitation, the amount and form of
consideration; the nature of the parties' representations, warranties,
covenants and agreements; and the conditions to the obligations of IVI
Checkmate and NTN. In conducting such negotiations, the special committee
retained Nelson Mullins, an unaffiliated representative, to act solely on
behalf of the special committee and the NTN stockholders, other than IVI
Checkmate Inc. and its affiliates. In particular, the special committee
viewed favorably the fact that the merger agreement contained a limited
number of representations and warranties by NTN and a limited number of
conditions to consummation of the merger, thus making consummation of the
transaction more likely than one in which the agreement imposed more
significant conditions to consummation. The special committee also
considered favorable to its determination the fact that the merger
agreement could be terminated without making any payment to IVI
Checkmate, other than payment for fees and expenses.
. The possibility that, in the absence of a merger agreement, IVI Checkmate
could increase its beneficial ownership of NTN common stock in a
transaction not approved by NTN or the special committee
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<PAGE>
through asserting the influence of the 82.0% ownership interest held by
IVI Checkmate Inc., a wholly owned subsidiary of IVI Checkmate. For
example, IVI Checkmate could have conducted a tender offer for shares of
NTN common stock without approval by NTN or the special committee.
Additionally, at times when IVI Checkmate was not in possession of
material nonpublic information concerning NTN, IVI Checkmate could have
increased its beneficial ownership of NTN common stock through open market
purchases without approval by NTN or the special committee. The special
committee and its counsel did not conduct a legal analysis of the degree
to which, if any, IVI Checkmate might have a fiduciary or similar duty to
the NTN stockholders to deal fairly with them such that IVI Checkmate's
ability to conduct a tender offer or open market purchase of NTN common
stock might be precluded or materially constrained. However, they did not
believe that IVI Checkmate would necessarily be precluded or materially
constrained from conducting such a tender offer or open market purchase.
The possibility of a non-consensual transaction supported the decision of
the special committee to recommend approval of the merger agreement and
the merger with IVI Checkmate to the board of directors of NTN. This is
because the merger with IVI Checkmate would avoid the uncertainties
associated with whether, when and on what terms IVI Checkmate might begin,
abandon or consummate a non-consensual transaction. In addition, the
merger with IVI Checkmate would avoid the uncertainties associated with
evolving legal doctrines regarding whether and to what extent the board of
directors of a majority-held subsidiary such as NTN might have a fiduciary
duty to the minority holders to object to or seek to enjoin a non-
censensual transaction on the grounds that the parent had a fiduciary duty
to treat the minority holders fairly.
. The fact that the merger consideration represented a premium of
approximately 13% over the last reported sales price of the NTN common
stock on July 19, 1999, the day immediately preceding the approval of the
merger agreement by the special committee and the NTN board of directors.
. The special committee's knowledge of the business, financial condition,
results of operations and prospects of NTN. The special committee was
generally familiar with and knowledgeable about NTN's affairs, including
the present and possible future economic and competitive environment in
which NTN operates its business. The special committee also noted the
continued potential liability associated with public disclosure
requirements applicable to publicly held companies generally, as well as
the additional regulatory burdens and expenses imposed on NTN due to
NTN's status as a publicly-held company.
. The historical trading prices of the NTN common stock and the limited
trading volume and market for the NTN common stock, resulting in limited
liquidity for the stockholders, other than IVI Checkmate and its
affiliates.
. The availability of dissenters' rights to the stockholders who do not
vote in favor of the merger agreement and who perfect such rights under
the applicable provisions of the Delaware General Corporation Law. For
more information on dissenters' rights, see "--Rights of Dissenting
Stockholders" on page 19.
In view of the number and disparate nature of the factors considered by the
special committee, the special committee did not assign relative weights to the
factors considered in reaching its conclusions. The special committee did,
however, rely significantly on the presentations and opinion of Southeast
described in the first bullet point in the preceding paragraph.
The member of the special committee, as well as the other directors of NTN,
are indemnified by NTN under NTN's certificate of incorporation and the
applicable provisions of the Delaware General Corporation Law, and are
exculpated from liabilities specified in NTN's certificate of incorporation,
with respect to their actions in connection with the merger. The member of the
special committee is also covered by directors and officers liability insurance
maintained by NTN. Mr. Schellhorn has received no additional compensation from
NTN for service on the special committee, other than the compensation payable
to all directors of NTN.
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Recommendation of the NTN Board of Directors
The board of directors of NTN has unanimously concluded that the merger and
the merger consideration are fair to the NTN stockholders, other than IVI
Checkmate Inc. and its affiliates, and unanimously recommends that you vote in
favor of the merger agreement based upon the following factors:
. the conclusions of the special committee;
. the opinion of the special committee's financial advisor, Southeast
Appraisal Resource Associates, Inc., to the effect that the merger
consideration to be received in the merger is fair from a financial point
of view to the NTN stockholders, other than IVI Checkmate Inc. and its
affiliates; and
. the factors referred to above as having been taken into account by the
special committee, which the NTN board of directors adopts as its own.
In view of the wide variety of factors considered in connection with its
evaluation of the merger and the merger consideration, the NTN board of
directors did not find it practicable to assign relative weights to the factors
considered in reaching its decision and, therefore, did not quantify or
otherwise attach relative weights to the specific factors considered by the
board.
The NTN board of directors also believes that the proposed merger is
procedurally fair to the NTN stockholders, other than IVI Checkmate Inc. and
its affiliates, based on several factors. First, the NTN board of directors
formed a special committee comprised of the sole director who is not employed
by NTN or otherwise affiliated with NTN or its affiliates. The special
committee conducted and coordinated all negotiations with IVI Checkmate
regarding the merger and the consideration to be paid to the stockholders.
Second, the special committee engaged its own independent legal counsel, Nelson
Mullins, to provide legal advice to the special committee in connection with
the merger. Nelson Mullins, in consultation with the special committee,
conducted negotiations of the merger agreement with Alston & Bird LLP, an
Atlanta law firm representing IVI Checkmate. Third, the special committee
engaged an independent financial advisor, Southeast Appraisal Resource
Associates, Inc., to render an opinion regarding the fairness of the merger
consideration. Fourth, Southeast did in fact render an opinion that the merger
consideration is fair, from a financial point of view, to the NTN stockholders,
other than IVI Checkmate Inc. and its affiliates. Finally, NTN stockholders who
do not want to accept the merger consideration may have dissenter's rights
under the Delaware General Corporation Law.
Recommendation of the Board of Directors of IVI Checkmate, IVI Checkmate Inc.
and NTN Merger Corp.
The board of directors of each of IVI Checkmate, IVI Checkmate Inc. and NTN
Merger Corp. has unanimously concluded that the merger and the merger
consideration are fair to the NTN stockholders, other than IVI Checkmate Inc.
and its affiliates, and each unanimously recommends that you vote in favor of
the merger based upon the following factors:
.the conclusions and recommendations of the special committee and the NTN
board of directors;
. the fact that the merger consideration and the other terms and conditions
of the merger agreement were the result of arms' length good faith
negotiations between the special committee and its advisors and the
representatives of IVI Checkmate and its advisors;
. the fact that Southeast Appraisal Resource Associates, Inc. issued a
fairness opinion to NTN to the effect that the merger is fair from a
financial point of view to the NTN stockholders, other than IVI Checkmate
Inc. and its affiliates; and
. the other factors referred to above as having been taken into account by
the special committee and the NTN board of directors, which the board of
directors of IVI Checkmate, the board of directors of IVI Checkmate Inc.
and the board of directors of NTN Merger Corp. each adopt as their own.
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In view of the wide variety of factors considered in connection with its
evaluation of the merger and the merger consideration, neither IVI Checkmate's
board of directors, IVI Checkmate Inc.'s board of directors nor NTN Merger
Corp.'s board of directors found it practicable to assign relative weights to
the factors considered in reaching its respective decision and, therefore, the
members of such boards did not quantify or otherwise attach relative weights to
the specific factors considered by the special committee, the NTN board of
directors, the IVI Checkmate board of directors, the IVI Checkmate Inc. board
of directors and the NTN Merger Corp. board of directors.
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<PAGE>
DESCRIPTION OF THE TRANSACTION
The following information describes material aspects of the merger. This
description is only a summary of the terms and conditions of the merger
agreement. It is qualified in its entirety by the Appendices hereto, including
the text of the merger agreement, which is attached as Appendix A to this proxy
statement-prospectus and is incorporated herein by this reference thereto. You
are urged to read the Appendices in their entirety.
The Merger
The merger agreement provides for the acquisition of NTN by IVI Checkmate
pursuant to the merger of NTN Merger Corp., a wholly owned subsidiary of IVI
Checkmate Inc., with and into NTN. NTN will be the surviving corporation
resulting from the merger and will be a wholly owned subsidiary of IVI
Checkmate Inc. The common stock of NTN Merger Corp. will cease to be
outstanding and shall be converted into one share of the common stock of NTN.
IVI Checkmate, through its wholly owned subsidiary IVI Checkmate Inc., owns
approximately 82.0% of the total outstanding common stock of NTN and intends to
vote such shares in favor of the approval of the merger agreement and the
merger.
What You Will Receive in the Merger
When we complete the merger, you will receive a merger exchange ratio equal
to the number of shares of IVI Checkmate common stock valued at $.30 multiplied
by the number of your shares of NTN common stock. For example, if you own 1,000
shares of NTN common stock, you would receive $300.00 worth of IVI Checkmate
common stock, if the merger is completed. While at the time of the special
meeting, we will not be able to determine the number of shares of IVI Checkmate
common stock that will be issued for each share of NTN common stock, the value
of the IVI Checkmate common stock, which will determine the exact number of
shares of IVI Checkmate common stock that you will receive, will be based on
the average of the daily closing prices for IVI Checkmate common stock for the
20 consecutive trading days ending two business days prior to the effective
date of the merger. For example, if you own 1,000 shares of NTN common stock
and the merger had been completed on May 1, 2000, then the average of the daily
closing prices for IVI Checkmate common stock on the NASDAQ National Market for
the 20 consecutive trading days ending two business days prior to May 1, 2000
would be $3.2406 and you would receive 92.6 shares of IVI Checkmate common
stock upon the completion of the merger. For information regarding the
historical prices of, and other information concerning, the IVI Checkmate
common stock and the NTN common stock, see "Comparative Market Prices and
Dividends" beginning on page 46.
Based on the merger exchange ratio of $.30 worth of IVI Checkmate common
stock for each share of NTN common stock and assuming that the fair market
value of a share of IVI Checkmate common stock over the 20 day period ending
two business days prior to the effective date of the merger is $3.2406, IVI
Checkmate estimates that, assuming no exercise of outstanding NTN stock options
prior to the merger, upon completion of the merger IVI Checkmate will:
. issue approximately 55,470 shares of its common stock to NTN
stockholders, and
. grant options for the purchase of approximately 31,023 shares of IVI
Checkmate common stock to the holders of the NTN stock options.
The number of shares of IVI Checkmate common stock that you will receive
upon completion of the merger may fluctuate depending on the daily closing
prices of the IVI Checkmate common stock on the Nasdaq National Market on each
of the 20 consecutive trading days ending two business days prior to the
completion date of the merger. The following table sets forth the average of
the daily closing prices of the IVI Checkmate common stock on the Nasdaq
National Market on each of the 20 consecutive trading days ending two business
days prior to May 1, 2000, together with averages reflecting 10% and 20%
increases and declines from the calculated average. The table shows the number
of shares of IVI Checkmate common stock you would receive for each share of NTN
common stock you own, as well as the total approximate number of IVI Checkmate
common stock to be issued, not including shares issuable upon exercise of NTN
options to be assumed by IVI Checkmate, under each scenario if the merger were
completed on May 1, 2000.
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<TABLE>
<CAPTION>
Number of Shares of IVI Total Shares of IVI
Checkmate Common Stock Checkmate Common Stock
Assumed Average Per Share of NTN To Be Issued to NTN
Closing Price Common Stock Stockholders
--------------- ----------------------- ----------------------
<S> <C> <C>
2.5925 .1157 69,308
2.9165 .1029 61,640
3.2406 .0926 55,470
3.5647 .0842 50,438
3.8887 .0771 46,185
</TABLE>
Based on the number of shares of IVI Checkmate common stock, the number of
stock options outstanding and the assumed average closing price of $3.2406 on
May 1, 2000, after the merger, IVI Checkmate would have a total of
approximately 18,211,039 shares of IVI Checkmate common stock outstanding and
options for the purchase of approximately 3,813,248 shares of IVI Checkmate
common stock outstanding.
IVI Checkmate will not issue any fractional shares of common stock in the
merger. Rather, IVI Checkmate will pay cash for any fractional share interest
any NTN stockholder otherwise would have received in the merger. The cash
payment will be in an amount equal to the fraction multiplied by the average of
the daily closing prices for IVI Checkmate common stock for the 20 consecutive
trading days ending two business days prior to the effective date of the
merger.
The merger exchange ratio and aggregate consideration to be received by the
holders of NTN common stock in the merger were based on the appraisal and
fairness opinion performed for the board of directors of NTN by Southeast
Appraisal Resource Associates, Inc., the full text of which is attached to this
proxy statement-prospectus as Appendix C, and the market price of the NTN
common stock over the 60 days prior to the execution of the merger agreement.
The total estimated value in acquiring the NTN shares not currently
beneficially owned by IVI Checkmate is approximately $179,708, which represents
a premium of approximately 54% over the total market value of the publicly-
traded NTN common stock on May 1, 2000. For more information on the
methodologies used by Southeast in rendering their opinion, see "--Fairness
Opinion of the Special Committee's Financial Advisor" beginning on page 36.
Effect of the Merger on NTN Options
When the merger is completed, each option granted under NTN's stock option
plan that is outstanding, whether or not exercisable, will become an option to
purchase shares of IVI Checkmate common stock. IVI Checkmate will assume each
option in accordance with the terms of NTN's stock option plans and the stock
option agreement that evidences the option and will deliver IVI Checkmate
common stock upon the exercise of each option. After the merger becomes
effective,
. IVI Checkmate and the compensation committee of its board of directors
will be substituted for NTN and the committee of NTN's board of directors
administering NTN's plan;
. each option assumed by IVI Checkmate may be exercised only for shares of
IVI Checkmate common stock;
. the number of shares of IVI Checkmate common stock subject to the option
will be equal to the number of shares of NTN common stock subject to the
option immediately before the merger is completed multiplied by a merger
exchange ratio equal to $.30 divided by the average of the daily closing
prices for IVI Checkmate common stock for the 20 consecutive trading days
ending two business days prior to the effective date of the merger; and
. the per share exercise price of each option will equal the exercise price
of the option immediately before the merger divided by a merger exchange
ratio equal to $.30 divided by the average of the daily closing prices
for IVI Checkmate common stock for the 20 consecutive trading days ending
two business days prior to the effective date of the merger.
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IVI Checkmate will not issue any fractional part of a share of common stock
upon exercise of an option. Rather, IVI Checkmate will pay cash for any
fractional share interest any former NTN option holder would otherwise receive
upon exercise of the option. The cash payment will be in an amount equal to the
fraction multiplied by the average of the daily closing prices for IVI
Checkmate common stock for the 20 consecutive trading days ending two business
days prior to the effective date of the merger.
For information with respect to stock options held by NTN's management, see
"--Interests of Certain Persons in the Merger" beginning on page 43.
Material Federal Income Tax Consequences of the Merger
The following is a discussion of the anticipated federal income tax
consequences of the merger to stockholders of NTN. This discussion does not
address:
. state, local, or foreign tax consequences of the merger;
. federal income tax consequences to NTN stockholders who are subject to
special rules under the Internal Revenue Code, such as foreign persons,
tax-exempt organizations, insurance companies, financial institutions,
dealers in stocks and securities, persons who hold such stock as part of
a "straddle" or "conversion transaction" for federal income tax purposes
and persons who do not own such stock as a capital asset;
. federal income tax consequences affecting shares of NTN common stock
acquired upon the exercise of stock options, stock purchase plan rights,
or otherwise as compensation;
. the tax consequences to holders of warrants, options, or other rights to
acquire shares of such stock;
. the tax consequences to IVI Checkmate and NTN resulting from any required
change in accounting methods; and
. the tax consequences to IVI Checkmate and NTN of any income and deferred
gain recognized pursuant to Treasury Regulations issued under Section
1502 of the Internal Revenue Code.
Assuming that the merger is completed in accordance with the merger
agreement, IVI Checkmate believes that the exchange of NTN common stock for IVI
Checkmate common stock will be treated as a taxable transaction, such that each
NTN stockholder, other than IVI Checkmate Inc., will be treated as having sold
his or her shares of NTN common stock for cash equal to the fair market value,
at the effective time of the merger, of the shares of IVI Checkmate common
stock, including any fractional share interest, to which the NTN stockholder is
entitled. As a result, IVI Checkmate believes that the following federal income
tax consequences will occur:
. Under Section 1001 of the Internal Revenue Code, gain or loss will be
realized and recognized by each NTN stockholder in an amount equal to the
difference between such fair market value of the IVI Checkmate common
stock, including any fractional share interest, received and the adjusted
basis of the shares of NTN common stock surrendered.
. The aggregate tax basis of the IVI Checkmate common stock to be received
by an NTN stockholder in the merger, including any fractional share
interest, will be equal to such aggregate fair market value of the IVI
Checkmate common stock received.
. A stockholder who holds his or her shares of NTN common stock as a
capital asset may report a gain as a long term capital gain if the
stockholder has held the stock for more than one year, and must report
any loss as a capital loss regardless of the holding period.
. A stockholder who is an individual can deduct capital losses only to the
extent of capital gains recognized for the year, plus an additional
$3,000 of capital loss ($1,500 in the case of a married individual filing
separately).
. The payment of cash to a stockholder of NTN in lieu of a fractional share
interest of IVI Checkmate common stock will be treated for federal income
tax purposes as if the fractional share interest was distributed as part
of the exchange and then was redeemed by IVI Checkmate. Any such cash
payment
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will be treated as having been received as a distribution in full payment
in exchange for the IVI Checkmate common stock redeemed, as provided in
Section 302 of the Internal Revenue Code, and therefore will be treated as
a capital gain or loss.
. Where solely cash is received by a stockholder of NTN in exchange for NTN
common stock pursuant to the exercise of dissenters' rights, the cash
will be treated as having been received in redemption of the holder's NTN
common stock, subject to the provisions and limitations of Section 302 of
the Internal Revenue Code, and therefore will be treated as a capital
gain or loss.
It is IVI Checkmate's position that the exchange of shares should be treated
as a taxable sale rather than as a tax free reorganization because IVI
Checkmate Inc. acquired the shares of NTN common stock that it currently owns
in exchange for nonvoting preferred stock of IVI Checkmate, Inc. prior to the
anticipated effective date of the merger, at which time it will acquire the
remaining 18% of the outstanding NTN common stock that it does not currently
own in exchange for IVI Checkmate common stock. The earlier acquisition would,
more likely than not, be viewed as made in connection with the currently
proposed merger. For a more detailed description of that transaction, see "--
Background of and Reasons for the Merger" below. Based on those facts, the
combined acquisition of all of the common stock of NTN by IVI Checkmate Inc.
will not be solely in exchange for voting stock of IVI Checkmate, as required
by Section 368(a)(1)(B) of the Internal Revenue Code in order to treat a
proposed acquisition of stock as a tax free reorganization.
IVI Checkmate and NTN have not sought, and do not intend to seek, a ruling
from the Internal Revenue Service or an opinion of counsel as to the federal
income tax consequences of the merger. Further, the tax consequences of the
merger may vary depending upon the particular circumstances of each stockholder
of NTN. Accordingly, stockholders of NTN are urged to consult their own tax
advisors as to the specific tax consequences to them of the merger, including
the applicability and effect of state, local, and foreign tax laws.
Background of and Reasons for the Merger
Background of the Merger
In September 1996, International Verifact Inc., a Toronto, Ontario, Canada-
based company, acquired ownership of 2,726,440 shares of common stock of NTN in
a private transaction, which amount currently constitutes 82.0% of the
outstanding NTN common stock. International Verifact acquired such interest in
exchange for shares of International Verifact common stock having an aggregate
market value of approximately $1,254,000. In June 1998, IVI Checkmate, which
had been organized in January 1998, acquired all of the outstanding common
stock of International Verifact as well as all of the outstanding common stock
of Checkmate Electronics, Inc. of Roswell, Georgia. International Verifact and
Checkmate Electronics now operate as subsidiaries of IVI Checkmate under the
names IVI Checkmate Ltd. and IVI Checkmate Inc., respectively. IVI Checkmate
Ltd. subsequently transferred its shares of NTN common stock to IVI Checkmate
Inc. in exchange for shares of preferred stock of IVI Checkmate Inc.
In the last quarter of 1998, IVI Checkmate began an evaluation of the
financial status of NTN and IVI Checkmate's interests in NTN. Based on this
evaluation, IVI Checkmate concluded that NTN was unable to generate sufficient
revenues to be self-sustaining and therefore would continue to require loans
from IVI Checkmate's subsidiaries to finance NTN's operations. On the other
hand, IVI Checkmate determined that some of the products and services offered
by NTN, including particularly, a software product that is integral to the
functioning of telecommunication switches and NTN's customization services
related to this product, complemented IVI Checkmate's goal of providing
comprehensive end-to-end point of service payment solutions. Based on these
conclusions, L. Barry Thomson, as IVI Checkmate's President and Chief Executive
Officer, proposed to NTN's board of directors in November 1998 the possibility
of IVI Checkmate or one of its subsidiaries acquiring all of the outstanding
stock of NTN.
Immediately thereafter, Mr. Thomson approached Christopher F. Schellhorn, a
director of NTN since March 1997, to determine Mr. Schellhorn's willingness to
serve as the sole member of a special committee of independent directors of NTN
to represent the interests of the approximately 75 stockholders of record of
NTN other than IVI Checkmate Inc. in any proposed transaction. Mr. Schellhorn
agreed to serve as the special
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committee. Mr. Thomson's request was based on two important qualifications of
Mr. Schellhorn. First, Mr. Schellhorn is the only director of NTN not otherwise
affiliated with IVI Checkmate or its subsidiaries, as an officer, director or
stockholder. Second, Mr. Schellhorn has an extensive background in retail
payment transaction processing, the focus of NTN's business. Mr. Schellhorn has
served as the director of operations since August 1997 and Chief Operating
Officer since May 1999 of Integrion Financial Network, Inc., a provider of
interactive banking, bill payment and electronic commerce services to financial
institutions in North America. Mr. Schellhorn also gained experience in retail
payment transaction processing in similar positions with VISA Interactive,
Inc., International Verifact Inc., which is now a subsidiary of IVI Checkmate
known as IVI Checkmate Ltd., Market Imaging Systems, Inc., Wegmans Transaction
Services, a division of Wegmans Food Markets, Inc., and Business Modeling
Techniques, Inc.
On various occasions from November 1998 to January 1999, Mr. Schellhorn
discussed with Mr. Thomson the structure and timetable of the proposed
transaction in very general terms. Mr. Thomson made no specific offer on behalf
of IVI Checkmate as to the terms of the transaction but instead encouraged Mr.
Schellhorn to undertake efforts to determine the value of NTN and to approach
IVI Checkmate with a proposal as to fair offer terms.
In December 1998, Mr. Schellhorn initiated efforts to determine the value of
NTN. Mr. Schellhorn performed research with regard to the engagement of a firm
to perform an appraisal of NTN. After extensive review of literature from three
firms, Mr. Schellhorn initiated discussions with representatives of Southeast
Appraisal Resource Associates, Inc. of Atlanta, Georgia. Formed in 1988,
Southeast provides multi-disciplined appraisal and valuation services to firms
and individuals located in the southeastern United States and to firms and
individuals located elsewhere but seeking valuation assistance in the
southeastern United States. Southeast indicated to Mr. Schellhorn that, since
its formation, it has played a key role in transactions valued at approximately
$4 billion. The special committee interviewed the principals of Southeast with
a focus on learning about Southeast's familiarity with technology from a
software development standpoint. The special committee also reviewed written
materials submitted by Southeast which described the principals' backgrounds
and credentials. Moreover, the special committee evaluated the examples
provided by Southeast of the technology based businesses that Southeast had
valued and the financial analyses employed in each valuation. The special
committee concluded that Southeast had experience and expertise in valuing
technology based businesses that had many of the characteristics of NTN's
software development business. After completion of these initial discussions,
Mr. Schellhorn concluded that Southeast was sufficiently knowledgeable as to
technology businesses generally and NTN's product offerings specifically to
fairly value NTN. Based on such discussions and after consultation with Mr.
John J. Neubert, then NTN's Chief Financial Officer, Mr. Schellhorn engaged
Southeast to perform a valuation of NTN, and Mr. Schellhorn requested
management of NTN to provide Southeast with financial and other information
relating to NTN.
On January 8, 1999, the board of directors of NTN, by unanimous written
consent, established a special committee of the board and authorized it to:
. investigate the desirability of a transaction in which IVI Checkmate, or
a subsidiary of IVI Checkmate, would purchase all of the outstanding
shares of stock of NTN not owned by IVI Checkmate Inc. for cash and/or
other property in order to maximize the value of the stockholders'
investment in NTN;
. establish the price to be paid to the stockholders in any transaction
that the special committee may recommend;
. make a recommendation to the full board of directors of NTN regarding the
advisability of a transaction, the form of the transaction, and the
amount and form of consideration to be paid to stockholders in the
transaction; and
. take any such other actions as are necessary.
The board of directors also appointed Mr. Schellhorn, as the only director of
NTN who was not a director, officer or significant stockholder of IVI Checkmate
or its subsidiaries, as the sole member of the special committee. The special
committee was authorized to negotiate a fair price and other terms in relation
to IVI
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Checkmate's only proposal, the acquisition of the minority position in NTN. It
was not authorized or equipped to "shop" NTN or otherwise pursue alternatives
to the IVI Checkmate merger.
At the same time, the NTN board of directors further authorized NTN to
increase the principal amount of its borrowings from IVI Checkmate Ltd. to
$2,500,000 and to borrow up to the principal amount of $1,000,000 from IVI
Checkmate Inc.
Shortly thereafter, Ernst & Young LLP submitted a report on NTN's financial
statements for the year ended December 31, 1998 which contained an opinion that
was qualified due to uncertainty as to NTN's ability to continue as a going
concern.
Over the course of the following five weeks, Mr. Schellhorn continued his
communications with Southeast in order to obtain a valuation of NTN which he
could use as a basis for proposing offer terms to IVI Checkmate. On February
15, 1999, Southeast informed Mr. Schellhorn that it had completed an appraisal
of the fair market value of a minority interest in the common stock of NTN as
of December 31, 1998. Southeast then offered its opinion that, as of December
31, 1998, the fair market value of a share of common stock of NTN was equitably
represented in the amount of $0.26 per share. Southeast explained in its
opinion that "fair market value" is defined as the amount at which property
would change hands between a willing seller and a willing buyer when neither is
acting under compulsion and when both have reasonable knowledge of the relevant
facts.
Southeast further explained that it had employed three methods for
valuation. The first method, the share transaction method, involves
examinations of actual transactions in the common shares of a company in a
period near the evaluation date. The share transaction method yielded a
valuation of $0.29 per share. Southeast cautioned, however, that though the
best evidence of fair market value of publicly traded common stock is
ordinarily the most recent bid price for the common stock on the applicable
stock exchange, the stock of NTN, while nominally public, has relatively little
trading volume. Consequently, Southeast concluded that the use of other
valuation techniques, rather than sole reliance on public transactions, would
be appropriate.
The second valuation method employed by Southeast, the capital markets
method, involves the identification of publicly traded companies similar to the
company subject to the valuation, the determination of certain multiples of
financial benchmarks to explain the stock prices of such publicly traded
companies, the application of such multiples to the company subject to the
valuation, and the application of a discount for lack of marketability of the
stock of the company subject to the valuation. The capital markets method
yielded a valuation of $1.377 per share.
The third valuation method employed by Southeast, the discounted cash flow
method, involves estimates of a company's future cash flow on a debt-free
basis, the application of a discount to compute the present value of this
future cash flow, and the application of a further discount for lack of
marketability of the stock of a company. The discounted cash flow method
yielded a valuation of $0.248 per share.
Although it was not ignored in the appraisal done by Southeast, the capital
markets method was accorded no weight in arriving at their conclusion. The
capital markets method examined five measures of financial performance and the
associated price multiple related to each measure for the six public companies
(guideline companies) selected for comparison. These measures were: 1) net
income; 2) after-tax cash flow; 3) earnings before interest and taxes;
4) earnings before interest, taxes, depreciation and amortization; and
5) revenues.
Of the six companies selected for comparison, all but one had positive
indicators of value for each measure, whereas NTN had only one positive
indicator (revenues). Thus, there was only one point of comparison between NTN
and the guideline companies. Two additional valuation methods were used in
Southeast's appraisal: the share transaction method and the discounted cash
flow method. In Southeast's opinion, these measures provided more reliable
indicators of value than that provided by the capital markets method. Southeast
ascribed to the share transaction method and the discounted cash flow method
equal weight, which resulted in a value of $0.264 per share, rounded to $0.26
per share for NTN.
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Over approximately the next three months, the attention of the board of
directors and management of IVI Checkmate was diverted to a number of other
matters, including an acquisition. As a result, the parties did not engage in
substantive discussions or negotiations during this period with regard to a
proposed transaction involving NTN. During this period, however, Mr. Neubert
resigned as Chief Financial Officer of NTN, but retained his position as Chief
Financial Officer of IVI Checkmate. In addition, during this period, all of the
directors of NTN, other than Mr. Schellhorn, agreed to rescind all options held
by them for the purchase of NTN common stock. These directors were Messrs.
Gregory Lewis, John Neubert, Barry Thomson and George Whitton, who were also
officers and/or directors of IVI Checkmate. These individuals, who did not
receive any payment for the surrender of their options, rescinded an aggregate
total of 43,333 options to avoid the possibility of realizing any benefit from
these options as a result of the merger.
In May 1999, Mr. Neubert, as the Chief Financial Officer of IVI Checkmate,
contacted Mr. Schellhorn to resume the discussions regarding a proposed
transaction. After some negotiations regarding the appropriate form of the
transaction and purchase price for the stock, including discussions of the
valuation of NTN, the parties agreed that:
. IVI Checkmate would offer to purchase all of the NTN outstanding common
stock not held by IVI Checkmate Inc. in exchange for shares of common
stock of IVI Checkmate;
. IVI Checkmate would purchase those shares of NTN common stock at a price
of $0.30 per share;
. For purposes of determining the number of shares of IVI Checkmate common
stock to be issued at this purchase price, IVI Checkmate's common stock
would be deemed to have a value equal to the average of the closing
prices for IVI Checkmate's common stock over the 20 trading days ending
two business days prior to the closing of the merger; and
. NTN would be merged with a subsidiary of IVI Checkmate Inc., with NTN as
the surviving corporation.
During this period, Mr. Schellhorn engaged Nelson Mullins Riley &
Scarborough, L.L.P., an Atlanta law firm which advises on mergers and
acquisitions, securities law and corporate finance, among other things, to act
as counsel in the negotiation of merger documents with IVI Checkmate. Over the
course of May, June and July 1999, Nelson Mullins consulted with Mr. Schellhorn
and his associates, provided advice on the triangular merger structure of the
merger and the measuring period for valuing IVI Checkmate's common stock, and
conducted negotiations of the merger documents with Alston & Bird LLP, an
Atlanta law firm representing IVI Checkmate. Nelson Mullins provided this
advice both before and after being formally engaged as counsel. However, as
indicated in the first sentence of this paragraph, Nelson Mullins was engaged
"to act as counsel in the negotiation of merger documents with IVI Checkmate,"
and in fact that was the principal role Nelson Mullins performed. Mr.
Schellhorn discussed the price of the NTN common stock with Mr. Thompson and
Mr. Neubert. Neither Nelson Mullins nor Southeast participated in those price
discussions. However, Mr. Schellhorn was aided in the price discussions by
possession of Southeast's February 15, 1999 appraisal of the market value of a
minority interest in the common stock of NTN as of December 31, 1998.
During this period, Mr. Schellhorn also engaged Southeast to provide a
fairness opinion with regard to the above-referenced transaction for the
benefit of the board of directors of NTN. Southeast served as the special
committee's financial advisor; Southeast did not serve as NTN's financial
advisor, even though its opinion letter is addressed to NTN's board of
directors.
Mr. Schellhorn, together with representatives of Southeast and Nelson,
Mullins, met again on June 22, 1999 to discuss the current offer from IVI
Checkmate. Mr. Schellhorn asked Southeast whether it would deliver a fairness
opinion based on a merger exchange ratio of $.30 worth of IVI Checkmate common
stock for each share of NTN common stock. Southeast indicated that it would be
willing to give an opinion that such amount was fair, from a financial point of
view, to the stockholders of NTN other than IVI Checkmate Inc. and its
affiliates. After further discussion, Mr. Schellhorn, acting as the special
committee, approved the merger at the offered price, subject to receipt of a
final fairness opinion from Southeast, and on the terms described herein.
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Mr. Schellhorn met again on July 20, 1999 with the full board of directors
of NTN. At this meeting, Mr. Schellhorn and the board of NTN received a
presentation from Southeast that the offering price from IVI Checkmate was fair
to the stockholders of NTN, other than IVI Checkmate Inc. and its affiliates,
from a financial point of view. After further discussion, Mr. Schellhorn,
acting as the special committee, concluded, based to a significant degree on
the opinion of Southeast and the other factors described below under "--NTN's
Reasons for the Merger," that the terms of the merger were fair to, and in the
best interests of, the stockholders of NTN, other than IVI Checkmate Inc. and
its affiliates, and recommended that the NTN board of directors do the
following:
. approve the merger agreement in the form presented to the special
committee, with such changes as are approved by Mr. Schellhorn;
. determine that the merger is fair to, and in the best interest of, the
NTN stockholders other than IVI Checkmate Inc. and its affiliates; and
. recommend that the stockholders of NTN approve the merger agreement.
The NTN board of directors then unanimously took these actions.
The board of directors of IVI Checkmate, acting by unanimous written consent
on July 20, 1999 after reviewing the terms of the merger agreement and related
transactions, as well as the opinion received by the NTN special committee
stating that the consideration to be received by the NTN stockholders was fair,
from a financial point of view, to the stockholders of NTN, other than IVI
Checkmate Inc. and its affiliates, concluded, based to a significant degree on
the opinion of Southeast and the other factors described below under "--IVI
Checkmate's Reasons for the Merger," that the terms of the merger and the
merger agreement are fair to, and in the best interests of IVI Checkmate and
the stockholders of NTN other than IVI Checkmate and its subsidiaries. The IVI
Checkmate board of directors approved the merger agreement in the form
presented to the board, with such changes as are approved by L. Barry Thomson,
President and Chief Executive Officer of IVI Checkmate, or John J. Neubert,
Executive Vice President and Chief Financial Officer of IVI Checkmate.
On July 21, 1999, following the execution of the merger agreement, IVI
Checkmate and NTN issued the following joint press release:
NATIONAL TRANSACTION NETWORK AND IVI CHECKMATE
ENTER INTO MERGER AGREEMENT
Atlanta, Georgia
Toronto, Canada
Westborough, Massachusetts
July 21, 1999
IVI CHECKMATE CORP. (Nasdaq: CMIV; TSE: IVC/IVI) and NATIONAL
TRANSACTION NETWORK, INC. (OTCBB: NTRN) today announced that they had
entered into an agreement that will result in the acquisition by IVI
Checkmate Corp., through its wholly owned subsidiary IVI Checkmate Inc., of
all of the shares of National Transaction Network, Inc. common stock that
it does not presently own. IVI Checkmate Corp., through IVI Checkmate Inc.,
currently owns 2,726,440, or approximately 82.0%, of National Transaction
Network's 3,325,468 shares of common stock outstanding.
The acquisition will be accomplished in the form of a merger between
National Transaction Network and a wholly owned subsidiary of IVI Checkmate
Inc. formed for this purpose and should be completed in the next one to
three months, subject to approval by National Transaction Network's
stockholders and depending on the timing of regulatory reviews and
approvals. A special committee consisting of an independent director of
National Transaction Network and management of IVI Checkmate Corp. agreed
on merger consideration of $0.30 worth of common stock of IVI Checkmate
Corp. for each share of National Transaction Network common stock.
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IVI Checkmate Corp. is the third largest electronic transaction
solutions provider in North America and designs, develops and markets
innovative payment and value-added solutions that optimize transaction
management at the point-of-service in the retail, financial, travel and
entertainment, healthcare and transportation industries. IVI Checkmate
Corp.'s software, hardware, and professional services minimize transaction
costs, reduce operational complexity, and improve profitability for its
customers in the U.S., Canada and Latin America.
National Transaction Network, Inc. designs, develops, integrates,
markets and maintains electronic payment systems for use in retail
applications. National Transaction Network software performs many of the
tasks involved in electronic payment transactions, including the collection
of payment-related data at the point of sale, secure transmission of the
data, authorization and collection of the completed transaction and final
reporting of the transaction.
National Transaction Network and IVI Checkmate Corp. offer a single-
source, end-to-end electronic payment solution to retailers at both store
and corporate level.
NTN's Reasons for the Merger
NTN's Current Financial Situation
NTN currently is unable to generate sufficient revenues from operations to
be self-sustaining. For the years 1996, 1997 and 1998, NTN incurred losses from
operations of approximately $1.6 million, $400,000 and $600,000, respectively,
and net losses of similar or larger amounts in those years. NTN has recently
financed its operations in part through loans from IVI Checkmate's
subsidiaries. In January 1999, the NTN board of directors authorized NTN to
increase the principal amounts of its borrowings from IVI Checkmate Ltd. to
$2,500,000 and to borrow up to the principal amount of $1,000,000 from IVI
Checkmate Inc. NTN is currently in debt to these subsidiaries in the principal
amount of approximately $2,450,000. At December 31, 1999, NTN had an
accumulated deficit of approximately $14.9 million and negative stockholders'
equity of approximately $1.6 million. Furthermore, NTN's ability to obtain
equity or debt financing from outside sources is severely limited by:
.NTN's history of operating losses,
.NTN's substantial indebtedness referenced above,
.NTN's substantial accumulated deficit and negative stockholder's equity,
and
.the ownership of approximately 82.0% of the outstanding common stock of
NTN by IVI Checkmate Inc.
Under the circumstances in which NTN is currently operating, NTN is unlikely to
generate sufficient revenues from operations to remain in business as a going
concern, and IVI Checkmate and its affiliates have no obligation to extend
additional loans to NTN.
NTN's current financial situation prompted NTN's board of directors to
consider and approve the transaction with IVI Checkmate because the IVI
Checkmate transaction offered the possibility that the stockholders of NTN,
other than IVI Checkmate Inc., could realize value and liquidity by exchanging
their OTC Bulletin Board-quoted NTN shares for shares of a stock traded on the
Nasdaq National Market. By contrast, if NTN ceased doing business, the already
weak trading market demand for NTN common stock could be expected to cease to
exist, thereby eliminating the possibility of an NTN stockholder's receiving
value through open market sales. Additionally, an NTN stockholder could not
receive value through a liquidation of NTN since NTN's liabilities exceed its
assets, leaving no funds available for distribution to its stockholders.
Fair Offer Terms
NTN's board of directors has reviewed (a) the opinion of Southeast Appraisal
Resource Associates, Inc., as delivered to the special committee appointed by
NTN's board of directors, to the effect that the consideration to be received
by the stockholders of NTN through the proposed merger is fair from a financial
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point of view and (b) the merger agreement and other documents relating to the
proposed transaction, and the NTN board has concluded that the terms of the
proposed transaction are fair to NTN and its stockholders other than IVI
Checkmate Inc. and its affiliates.
The foregoing discussion of information and factors deemed material by the
NTN board in considering the merger agreement and the merger is not intended to
be exhaustive but is believed to include all material factors considered by the
NTN board of directors.
The board of directors of NTN has unanimously approved the merger agreement and
unanimously recommends to the stockholders of NTN that you approve the merger
agreement and the merger.
IVI Checkmate's Reasons for the Merger
IVI Checkmate's Business Strategy
IVI Checkmate is the third largest electronic transaction solutions provider
in North America. IVI Checkmate designs, develops and markets innovative
payment and value-added solutions that optimize transaction management at the
point of service in the retail, financial, hospitality, healthcare and
transportation industries. IVI Checkmate's software, hardware and professional
services minimize transaction costs, reduce operational complexity and improve
profitability for its customers in the U.S., Canada and Latin America.
In an effort to increase revenues, enhance operating margins and maintain
its product leadership position, IVI Checkmate is transitioning away from being
a hardware-centered terminal supplier to becoming a value-based systems
provider offering end-to-end electronic payment solutions. To achieve this
goal, IVI Checkmate adopted a growth strategy to move from being primarily a
hardware supplier to becoming a total solutions provider. The objective is to
provide to its customer's "eN to eN Solutions." These solutions will consist of
consumer-activated terminals and payment peripherals, in-store payments and
transaction processing software, high-speed transaction routers and value added
application servers. In addition to providing its retailer customers with
control over their payment system, IVI Checkmate will also offer value added
solutions such as electronic marketing, check conversion, off-line debit
conversion, signature capture and charge back protection, integrated check
management systems and other payments and transaction oriented eN to eN
solutions which will enable them to generate increased revenue.
To achieve that objective, IVI Checkmate has made three strategic
acquisitions in the retail arena. First, in December 1997, Checkmate acquired
the assets of Total Retail Solutions, a Florida based corporation. Total Retail
Solutions' expertise included developing payment and transaction processing
applications embedded in point of service systems as well as the ability to
connect IVI Checkmate's devices to such point of service systems.
The second strategic retail market acquisition, made in September 1998, was
the acquisition of the stock of Plourde Computer Services, Inc. Plourde's
expertise is providing in-store payments and transaction processing engines and
software for IBM and Windows NT based POS systems.
In April 1999, IVI Checkmate acquired the assets of the Financial Systems
subsidiary of DataCard Corporation. This acquisition provided IVI Checkmate
with additional electronic funds transfer products, accelerated IVI Checkmate's
entry into the small retail business and the travel and entertainment markets,
and provided IVI Checkmate with its initial entry into the petroleum market.
NTN represents a fourth source of opportunity in the retail market. While
NTN has a systems integration business that resells hardware and in-store
payments software to retailers, its primary asset is Mainsail, a retail host
switch which can be both a transaction router and a value added application
server. Mainsail will be renamed eN-Concert Enterprise and marketed as part of
IVI Checkmate's eN to eN Solution.
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Benefits to IVI Checkmate
The acquisition of NTN better positions IVI Checkmate to provide versatile
payment solutions that are seamlessly integrated into a retailer's legacy and
new store systems or integrated as part of a Value Added Reseller store system
offering. NTN's leadership in multi-lane retail payment applications and its
Retail Host Switch payment solution are a key element in IVI Checkmate's
strategy of providing end to end payment solutions to the retail industry.
The acquisition of NTN will further IVI Checkmate's goal of offering a full
eN to eN payments solution. Work has already been completed to interface IVI
Checkmate's consumer activated terminals and payment peripherals to its eN-
Concert Store product, which enables retailers to better control all aspects of
a customer transaction. IVI Checkmate is currently developing an interface
between eN-Concert Store and eN-Concert Enterprise.
Once the initial system is tested and installed, IVI Checkmate will invest
in the hardware, store software and host software to bring to market additional
value added applications. These additional value added applications and
solutions will be marketed to existing IVI Checkmate customers as well as to
NTN's eN-Concert Enterprise customers. This should provide additional revenue
to invest in new applications as well as provide additional benefits to
retailers, making the entire eN to eN Solution easier to justify and sell.
By offering not only consumer activated terminals and payment peripherals
but also a full eN to eN software solution, IVI Checkmate expects to increase
the average sale per customer as well as be able to command higher product
margins. In addition, IVI Checkmate intends to offer a full range of
professional services for implementation, project management and support, which
will increase revenue and serve as a recurring revenue stream.
Impact on NTN
Following the merger, NTN will transition from a software supplier and
systems integrator to a software division of IVI Checkmate, operating as a
wholly owned subsidiary of IVI Checkmate Inc. and focusing on the retail host
switch product formally known as Mainsail. The resulting organization will be
known as the eN-Concert Enterprise product division. This focus on one product
line should result in improved operations and profitability.
The eN-Concert Enterprise product division will consist of product
development, project management, quality assurance and implementation
resources. The eN-Concert Enterprise product division will sell its products
and services through the IVI Checkmate sales channels. The hardware deployment
and repair service functions and all accounting and financial reporting
functions will be moved to Atlanta. What remains will be a focused business
group that will not have to carry the high overhead that NTN currently has to
carry. This should result in the eN-Concert Enterprise product division
becoming and remaining profitable.
Anticipated Savings
While no qualitative analysis was performed by management, it is
management's belief that IVI Checkmate will realize savings from the combined
operation. However, as management did not use factual studies or create actual
value projections related to the anticipated savings it believes will be
realized, these beliefs were not considered when making a recommendation to the
NTN stockholders to approve the merger agreement. Notwithstanding the
aforementioned, management believes savings should be realized in five areas:
. management;
. sales and marketing;
. accounting and finance;
. systems shipment and deployment; and
. repair and hardware maintenance operations.
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Following the merger, the new eN-Concert Enterprise division will report to
IVI Checkmate's Vice President of eN-Concert Solutions. This will result in the
elimination of the position of Vice President and General Manager of NTN. The
current Vice President and General Manager of NTN will be reassigned within IVI
Checkmate to an open position.
Rather than layer multiple sales forces calling on the same customers, IVI
Checkmate will use two primary channels to bring these eN to eN solutions to
the retail market. IVI Checkmate will market to the top 100 retailers through a
direct sales organization and to the next tier with a distributor channel. Both
channels will offer eN-Concert Enterprise as part of the eN to eN solution.
As noted, following the merger, all accounting and financial reporting
functions will be transferred to and consolidated in Atlanta. A reduction in
accounting and financial headcount will result in savings to the combined
entity. In addition, the costs NTN incurred from being a public company will be
eliminated. There will also be savings from interest on NTN's bank line of
credit because IVI Checkmate has sufficient working capital to fund the eN-
Concert Enterprise division.
NTN's hardware deployment operation also will be transferred to Atlanta,
where the combined volume should reduce product costs and efficiencies of the
combined operations should reduce production costs, resulting in improved gross
margins for the systems shipped to former NTN customers. As noted, the hardware
maintenance and hardware repair operations will also be transferred to Atlanta,
resulting in the elimination of one position.
Fairness Opinion of the Special Committee's Financial Advisor
Opinion. The special committee retained Southeast Appraisal Resource
Associates, Inc. to assist it in evaluating the fairness to the NTN
stockholders, other than IVI Checkmate Inc. and its affiliates, from a
financial point of view, of the merger consideration. Southeast was not asked
to consider the merits of the merger as compared to any alternative business
strategies in rendering its opinion. Southeast is not in the business of
providing strategic direction and is not equipped to "shop" a business.
Southeast was requested to render an opinion with respect to the only proposal
made to the special committee. On July 20, 1999, Southeast delivered to the
special committee a written opinion stating that "the consideration to be
received by the shareholders of NTN (excluding shares held by NTN or by IVI
Checkmate Corp. or any of its subsidiaries) through the proposed merger is fair
to them from a financial point of view." Subsequently, Southeast updated this
written opinion to January 14, 2000.
Sources of Information for Opinion. In arriving at its opinion, Southeast:
.reviewed the merger agreement;
. held discussions with senior officers, directors and other
representatives and advisors of NTN and senior officers and other
representatives and advisors of IVI Checkmate concerning the businesses,
operations, and prospects of NTN and IVI Checkmate;
. examined publicly available business and financial information relating
to NTN and IVI Checkmate as well as financial forecasts and other
information and data for NTN and IVI Checkmate which were provided to or
otherwise discussed with Southeast by the respective management of each
of NTN and IVI Checkmate, including information relating to strategic
implications and operational benefits anticipated to result from the
merger and financial projections provided by NTN for the year ending
December 31, 1999, which consisted of a forecast in revenues of
approximately $3.1 million and a loss before taxes of approximately
$13,000;
. reviewed the financial terms of the merger agreement in relation to (a)
current and historical market prices and trading volumes of the NTN
common stock and the IVI Checkmate common stock, (b) the historical and
projected earnings and other operating data of NTN and IVI Checkmate, and
(c) the capitalization and financial condition of NTN and IVI Checkmate;
. considered, to the extent available, the financial terms of other
transactions recently effected which Southeast considered relevant in
evaluating the merger and analyzed certain financial, stock market and
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other publicly available information relating to the businesses of other
companies whose operations Southeast considered relevant in evaluating
those of NTN and IVI Checkmate;
. evaluated the potential pro forma financial impact of the merger on IVI
Checkmate; and
. conducted such other analyses and examinations and considered such other
financial, economic and market criteria as Southeast deemed appropriate
in arriving at its opinion.
Limitations on Opinion. In rendering its opinion, Southeast assumed and
relied, without independent verification, upon the accuracy and completeness of
all financial and other information and data publicly available or furnished to
or otherwise reviewed by or discussed with Southeast. With respect to financial
forecasts and other information and data provided to or otherwise reviewed by
or discussed with Southeast, Southeast was advised by the managements of NTN
and IVI Checkmate that such forecasts and other information and data were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of each of NTN and IVI Checkmate as to the
future financial performance of NTN and IVI Checkmate and the strategic
implications and operational benefits anticipated to result from the merger.
Southeast assumed that the merger will be treated as a taxable event for U.S.
federal income tax purposes and as a purchase transaction in accordance with
U.S. generally accepted accounting principles. Southeast's opinion relates to
the relative values of NTN and IVI Checkmate. Southeast expresses no opinion as
to what the value of the common stock of IVI Checkmate actually will be when
issued to NTN's stockholders pursuant to the merger or the price at which the
IVI Checkmate common stock will trade subsequent to the merger. Southeast was
not requested to, and did not, solicit third party indications of interest in
the possible acquisition of NTN. Southeast was not asked to consider, and the
opinion does not address, the relative merits of the merger as compared to any
alternative business strategies that might exist for NTN or the effect of any
other transaction in which NTN might engage. Southeast acted as financial
advisor to the NTN special committee in connection with the merger. Southeast's
opinion is not intended to be and does not constitute a recommendation to any
stockholder of NTN as to how such stockholder should vote, or take any other
action, with respect to the merger agreement or any matters relating to the
merger agreement.
Analysis Employed in Opinion. The opinion does not provide significant
detail with regard to the analysis upon which Southeast bases its opinion; the
opinion does, however, reference the appraisal conducted by Southeast of the
fair market value of the NTN common stock, on a minority interest basis, as of
December 31, 1998. In the appraisal, Southeast opined that the fair market
value of a share of NTN common stock was equitably represented in the amount of
$0.26 per share. The offer made by IVI Checkmate to the remaining stockholders
of NTN was for the equivalent of $0.30 per share. Since the offer was in excess
of the fair market value of the common stock of NTN, Southeast concluded that
the offer was fair from a financial point of view to the stockholders of NTN.
In its appraisal, Southeast explained that it had employed three methods for
valuation. Each of these methods will be discussed in turn.
. Share Transaction Method
Southeast examined actual transactions conducted on the over the
counter (OTC) NASDAQ Bulletin Board involving NTN common stock in a
period near the valuation date. During 1998, 475,000 shares were
traded. This represented an annual turnover of 14.3% of NTN's total
outstanding of 3,325,468 shares. Average weekly trading volume was
9,100 shares, which included weeks in which no activity occurred. This
represents an average turnover of less than 0.3% of the total shares.
A total of 3,100 shares of NTN common stock were traded at $0.28 per
share on the valuation date of December 31, 1998. For the month of
December, a total of 14,000 shares were traded with a range of $0.28 to
$0.3125 per share. For the first six and one-half months of 1999, a
total of 26,400 shares were traded at $.28 per share. On July 12, 1999,
the last date in which shares of NTN were traded prior to Southeast's
July 20, 1999 fairness opinion, 400 shares were traded at a price of
$.28 per share.
Ordinarily, the best evidence of fair market value of shares of
common stock (as if freely traded) that are publicly traded is the most
recent bid price for the common stock on the applicable stock
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exchange. In this case, the common stock of NTN, while nominally
public, has relatively little trading volume. Consequently, the use of
other valuation techniques, rather than sole reliance on public
transactions, is appropriate.
.Capital Markets Method
Southeast identified six publicly traded companies similar to NTN and
studied five measures of financial performance for each of these
companies. These six guideline companies were as follows:
Comtrex Systems
Concord EFS
CSG Systems Int'l
Hyperion Corp.
Nova Corporation
Trans Sys Architects
The financial performance measures used were revenues, after tax
earnings, after tax cash flow, earnings before interest and taxes,
known as EBIT, and earnings before interest, taxes and depreciation and
amortization, known as EBITDA. In view of NTN's discontinuance of
direct equipment sales, Southeast selected projected 1999 financial
measures for use in this analysis. For 1999, NTN projected positive
results only for EBIT and revenues. Additionally, except for Comtrex
Systems, NTN is considerably smaller, has historically lower margins
and lower sales growth than the guideline companies.
In view of these factors, Southeast believed that multiples of 35%
below the median of the guideline companies were appropriate for NTN.
Multiplying the adjusted ratios by the EBIT and revenues resulted in
indicators of the total market capitalization of NTN. From these
measures was subtracted the total debt of $2,150,000 that resulted in
an indicator of equity value. Since the indicator based on EBIT was
less than the total debt, the equity value indicator was not
meaningful. Consequently, the only meaningful indicator of value was
based on the revenue measure. The value indicator of $6,105,328 was
selected as the indicator of the value of the equity capital on a
freely traded basis.
As noted above, there is a limited public market for NTN's shares, so
the shares do have a measure of marketability. Several studies have
been conducted to determine the effect that lack of marketability has
on prices. According to Southeast, in these most recent studies related
to U.S. securities, the discount ranged between 23% and 45%. Since
NTN's shares are traded publicly (albeit to a limited extent),
Southeast concluded that a discount of 25% was appropriate in this
case. Applying this discount resulted in an indicator of value of
$4,578,996, which was divided by the total common shares outstanding of
3,325,824, which resulted in a value indicator of $1.377 per share
based on the capital markets method.
Ultimately, Southeast accorded no weight to the capital markets
method because only one point of comparison, revenues, was applicable
to NTN in relation to the guideline companies.
.Discounted Cash Flow Method
Southeast made a pro forma analysis to estimate NTN's available cash
flow on a debt-free basis. Available cash flow is the amount that could
be paid out to the suppliers of debt and equity capital without
impairment of NTN's business operations.
Available cash flow was then discounted to its present value. The
residual, or perpetuity value, at the end of the forecast period was
also discounted to indicate present value. The sum of these two
components represent the amount a prudent investor would pay for an
operating business entity on an independent basis. To value the
stockholders' equity, the market value of the debt is then subtracted
to derive the equity value.
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In order to develop a cash flow forecast Southeast examined historic
performance and industry trends, and discussed expected future
performance of NTN with management.
A critical component of the discounted cash flow analysis is the
selection of the discount rate, or cost of capital. The base rate is
developed in a process that incorporates aspects of economic theory and
the capital asset pricing model.
Southeast adjusted the basic model to account for NTN's size and
operating risk in comparison to typical public companies and for any
fundamental factors that affect NTN's risk.
Southeast used 7.8% as the difference between risk-free rate of
return and the market rate of return, and added a premium of 5.36% to
take into account the additional risk of investing in small
capitalization stocks.
To reflect the narrower scope of NTN's customer base and other
business and operating risks specific to NTN, including the recent
refocusing on the Mainsail product line and the discontinuance of
equipment selling, Southeast added a company-specific premium of 3.0%.
Southeast used these factors in determining a present value of
forecasted cash flows, and selected a perpetuity growth rate of 6% for
purposes of determining the residual value of NTN. Using these
assumptions and factors, Southeast determined the present enterprise
value of NTN to be $3,249,047. From this Southeast subtracted NTN debt
of $2,150,000, which resulted in a freely traded minority equity value
of $1,099,047, in the aggregate. Southeast applied a marketability
discount of 25% to recognize the limited marketability of the equity in
NTN, which resulted in an aggregate equity value, on a minority basis
of $824,285. This value was divided by 3,325,824 shares outstanding
which resulted in a value indicator of $0.248 per share, based on the
discounted cash flow method.
Information Regarding Southeast Appraisal Resource Associates, Inc. Formed
in 1988, Southeast provides multi-disciplined appraisal and valuation services
to firms and individuals located in the southeastern United States, which
operate in that region or nationally, and firms and individuals located
elsewhere and seeking valuation assistance in the southeastern United States.
Southeast indicated to the special committee that, since its formation, it has
played a key role in transactions valued in the aggregate at approximately
$4 billion. After completion of (1) research regarding Southeast's
qualifications to provide a valuation and a fairness opinion and (2) initial
discussions with Southeast, the special committee engaged Southeast based on
the special committee's conclusion that Southeast was sufficiently
knowledgeable as to technology businesses generally and NTN's product offerings
specifically to fairly value NTN and to render a fairness opinion. NTN agreed
to pay Southeast a fee of $8,000, which it deemed to be a reasonable and
customary fee upon the rendering of the valuation and the fairness opinion.
Full Text of Opinion Attached. The full text of the written opinion of
Southeast Appraisal Resource Associates, Inc., dated January 14, 2000, which
sets forth the assumptions made, matters considered, and limitations on the
review undertaken, is attached hereto as Appendix C and is incorporated herein
by reference. Southeast reviewed both economic conditions and the financial
performance and condition of NTN through the January 14, 2000 date of the
fairness opinion. It basically updated the analysis that was originally
performed for the prior opinion. Holders of NTN common stock are urged to read
the opinion carefully in its entirety. The summary of the opinion of Southeast
set forth above is qualified by reference to the full text of such opinion.
Completion of the Merger
Subject to the conditions to the obligations of the parties to effect the
merger, the merger will be completed on the date and at the time specified in
the certificate of merger to be filed with the Secretary of State of the State
of Delaware. Unless IVI Checkmate and NTN agree otherwise, they will use
reasonable efforts to complete the merger. IVI Checkmate and NTN anticipate
that the merger will become effective on or about June 13, 2000. However,
delays could occur.
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IVI Checkmate and NTN cannot assure you that they will be able to obtain
necessary approvals for the merger or that they will be able to satisfy other
conditions to completion of the merger. Either NTN's or IVI Checkmate's board
of directors may terminate the merger agreement at any time because the merger
was not completed by September 30, 1999. IVI Checkmate and NTN may extend the
date on which they may terminate the merger agreement if both parties agree to
an extension in writing. For more information, see "--Conditions to Completion
of the Merger" below and "--Waiver, Amendment and Termination" beginning on
page 41.
Distribution of IVI Checkmate Stock Certificates
Promptly after the merger is completed, each NTN stockholder at the time of
completion of the merger will be mailed a letter of transmittal and
instructions for the exchange of the certificates representing shares of NTN
common stock for certificates representing shares of IVI Checkmate common
stock.
You should not send in your certificates until you receive a letter of
transmittal and instructions.
After you surrender to the exchange agent certificates for NTN common stock
with a properly completed letter of transmittal, the exchange agent will mail
you a certificate or certificates representing the number of shares of IVI
Checkmate common stock to which you are entitled and a check for the amount to
be paid in lieu of any fractional share, without interest, if any, together
with all undelivered dividends or distributions in respect of the shares of IVI
Checkmate common stock, without interest thereon, if any. IVI Checkmate will
not be obligated to deliver the consideration to you, as a former NTN
stockholder, until you have surrendered your NTN common stock certificates.
Whenever a dividend or other distribution is declared by IVI Checkmate on
IVI Checkmate common stock with a record date after the date on which the
merger was completed, the declaration will include dividends or other
distributions on all shares of IVI Checkmate common stock that may be issued in
the merger. However, IVI Checkmate will not pay any dividend or other
distribution that is payable after the completion of the merger to any former
NTN stockholder who has not surrendered his or her NTN stock certificate until
the holder surrenders the certificate. If any NTN stockholder's stock
certificate has been lost, stolen or destroyed, the exchange agent will issue
the shares of IVI Checkmate common stock and any cash in lieu of fractional
shares upon such stockholder's submission of an affidavit claiming the
certificate to be lost, stolen or destroyed by the stockholder of record, the
posting of a bond in such amount as IVI Checkmate may reasonably direct as
indemnity against any claim that may be made against IVI Checkmate with respect
to the certificate, and submission of any other documents necessary to effect
the exchange of the shares represented by the certificate.
At the time the merger is completed, the stock transfer books of NTN will be
closed and no transfer of shares of NTN common stock by any stockholder will
thereafter be made or recognized. If certificates for shares of NTN common
stock are presented for transfer after the merger is completed, they will be
canceled and exchanged for shares of IVI Checkmate common stock, a check for
the amount due in lieu of fractional shares, if any, and any undelivered
dividends on the IVI Checkmate common stock. Any certificates for IVI Checkmate
common stock, cash and any dividends or distributions not claimed by NTN's
stockholders within two years from completion of the merger will become the
property of IVI Checkmate.
Conditions to Completion of the Merger
IVI Checkmate, IVI Checkmate Inc., NTN and NTN Merger Corp. are required to
complete the merger only after the satisfaction of various conditions. These
conditions include:
. the approval of the merger by the board of directors of NTN, IVI
Checkmate, IVI Checkmate Inc. and NTN Merger Corp.;
. the approval of the merger by the holders of a majority of the
outstanding shares of NTN common stock;
. obtaining all required filings, consents, approvals and waivers from any
governmental or public agency necessary to complete the merger;
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. the SEC declaring this registration statement effective under the
Securities Act;
. no inaccuracies in the representations and warranties of IVI Checkmate,
IVI Checkmate Inc., NTN and NTN Merger Corp. as set forth in the merger
agreement, as of the date the merger is completed such that the aggregate
effect of such inaccuracies has, or is reasonably likely to have, a
material adverse effect on such party will have occurred;
. the performance and compliance by IVI Checkmate, IVI Checkmate Inc., NTN
and NTN Merger Corp. of all agreements and covenants set forth in the
merger agreement in all material respects;
. no event, change or occurrence, or any combination of events, changes or
occurrences, that has, or is reasonably likely to have, a material
adverse effect on NTN from the date of the merger agreement to the date
the merger is completed will have occurred;
. no action, suit, investigation or proceeding pending, threatened or
affecting NTN or IVI Checkmate or IVI Checkmate Inc. or any of their
officers or directors which could prevent or delay the merger will have
occurred;
. no law will be in effect, and no order or action will have been taken by
any court, governmental, or regulatory authority of competent
jurisdiction, prohibiting or restricting the merger or making it illegal;
. the receipt by NTN of the reaffirmation by Southeast Appraisal Resource
Associates, Inc. of its opinion as to the fairness of the merger and the
merger consideration; and
. the satisfaction of other conditions, including the receipt of various
certificates from the officers of NTN and IVI Checkmate.
We cannot assure you as to when or if the conditions to the merger can or
will be satisfied or waived by the party permitted to do so. Because the merger
was not effected on or before September 30, 1999, except as described otherwise
in this proxy statement-prospectus or the merger agreement, the board of
directors of either NTN or IVI Checkmate may terminate the agreement and plan
of merger and abandon the merger. For more information regarding waivers under,
and amendments and termination of, the merger agreement, see "--Waiver,
Amendment, and Termination" below.
Indemnification
IVI Checkmate has agreed to indemnify the present and former directors and
officers of NTN against liabilities arising out of actions or omissions
occurring at or prior to the time the merger is completed to the full extent
permitted under Delaware law and NTN's certificate of incorporation and bylaws.
IVI Checkmate has also agreed to use its reasonable efforts to maintain in
effect for a period of six years after completion of the merger, NTN's existing
directors and officers liability insurance policy or a policy similar to NTN's
existing insurance policy. IVI Checkmate will cause NTN to provide such
indemnification and directors' and officers' liability insurance to the extent
it does not.
Regulatory Approval
NTN and IVI Checkmate are not aware of any material governmental approvals
or actions that are required to complete the merger, except for the documents
which must be filed with the SEC and the certificate of merger to be filed with
the Secretary of State of the State of Delaware. Should any other approval or
action be required, IVI Checkmate and NTN contemplate that they would seek such
approval or action.
Waiver, Amendment and Termination
To the extent permitted by law, the boards of directors of IVI Checkmate and
NTN may agree in writing to amend the merger agreement before the time the
merger becomes effective. In addition, before the merger becomes effective,
either NTN or IVI Checkmate, or both, may waive any provision under the merger
agreement. To be effective, an amendment or a waiver must be approved by the
board of directors of NTN or
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IVI Checkmate, as appropriate, and must be in writing and signed by an
authorized officer of NTN or IVI Checkmate, as the case may be. However, after
the stockholders of NTN have approved the merger, any amendment or waiver which
changes the amount they will receive in exchange for their shares of NTN common
stock or in any other way adversely affects them, must be approved by such
stockholders.
At any time before the merger becomes effective, the boards of directors of
IVI Checkmate and NTN may agree to terminate the merger agreement. In addition,
either NTN's board of directors or IVI Checkmate's board of directors may
terminate the merger agreement:
. because the merger was not completed by September 30, 1999;
. if any law or order makes the completion of the merger illegal or
prohibited and the order is final and nonappealable;
. if the stockholders of NTN fail to approve the merger agreement and the
merger at the special meeting; or
. if the board of directors of NTN or the special committee withdraws,
modifies or changes or resolves to withdraw, modify or change its
recommendation of the merger to the NTN stockholders, recommends or
authorizes entering into any other acquisition proposal or other similar
transaction in a manner that would adversely affect IVI Checkmate or NTN
Merger Corp.
If the merger is terminated, the merger agreement will become void and have
no effect, except that section 11.5 of the merger agreement, which governs the
payment of expenses, will survive.
Conduct of Business Pending the Merger
The merger agreement obligates NTN to conduct its business only in the
usual, regular and ordinary course before the merger becomes effective and
imposes limitations on the operations of NTN. These limitations are listed in
Article 6 of the merger agreement which is attached as Appendix A to this proxy
statement-prospectus.
NTN has also agreed that neither it nor any of its representatives will
directly or indirectly solicit, or participate in negotiations with respect to,
any proposal for the acquisition of NTN by a third party; provided, that, to
the extent necessary to comply with the fiduciary duties of NTN's board of
directors as advised by the special committee, NTN may furnish information
concerning NTN to, and participate in negotiations with respect to the
acquisition of NTN by, a third party.
IVI Checkmate and NTN have also agreed to use best efforts and to take all
actions necessary to complete the merger.
Management and Operations After the Merger
As a result of this transaction, IVI Checkmate intends to transition NTN
from a software supplier and systems integrator to a software division of IVI
Checkmate. The slimmed down NTN, which will become a wholly owned subsidiary of
IVI Checkmate Inc., will focus on the retail host switch product formally known
as Mainsail. The resulting organization will be known as the eN-Concert
Enterprise product division. Management of IVI Checkmate believes this focus on
one product line should result in improved operations and profitability.
The eN-Concert Enterprise product division will consist of development,
quality assurance, project management, quality assurance and implementation
resources and will sell its products and services through the IVI Checkmate
sales channels.
Following the completion of the merger, IVI Checkmate intends to move the
hardware deployment and repair service functions to Atlanta, as well as all
accounting functions of IVI Checkmate.
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What remains as NTN will be a focused business group that will not have to
carry the high overhead that NTN previously carried. Management of IVI
Checkmate believes this should result in the eN-Concert Enterprise product
division having additional opportunities and growth for the remaining
employees.
The merger will not change the present management team or board of directors
of IVI Checkmate or IVI Checkmate Inc. Under the merger agreement, the current
directors of NTN Merger Corp. are to serve as the directors of NTN after the
merger and the current officers of NTN are to serve as the officers of NTN
after the merger.
Information concerning the current management of NTN is included in the
documents incorporated by reference in this proxy statement-prospectus. See
"Where You Can Find More Information" beginning on page 82. Information
concerning the current management of IVI Checkmate, IVI Checkmate Inc. and NTN
Merger Corp. is set forth in "Information Concerning Directors and Executive
Officers of IVI Checkmate Corp" beginning on page 62 and "Information
Concerning Directors and Executive Officers of IVI Checkmate Inc. and NTN
Merger Corp." on page 74.
Interests of Certain Persons in the Merger
Members of NTN's management and board of directors may be deemed to have
interests in the merger that are in addition to their interests as stockholders
of NTN generally. NTN's board of directors was aware of these interests and
considered them, among other matters, in approving the merger agreement.
Ownership of IVI Checkmate, IVI Checkmate Inc. and NTN Merger Corp. IVI
Checkmate is a publicly traded company with approximately 305 stockholders of
record as of May 1, 2000, the latest practicable date before the mailing of
this proxy statement-prospectus. IVI Checkmate owns 100% of the common stock of
IVI Checkmate Inc., which owns 100% of the common stock of NTN Merger Corp.,
which was organized by IVI Checkmate Inc. solely for the purpose of enabling
IVI Checkmate to acquire, pursuant to the merger agreement, the entire equity
interest in NTN.
Through its wholly owned subsidiary, IVI Checkmate Inc., IVI Checkmate
beneficially owns 2,726,440 shares of NTN, representing 82.0% of the
outstanding shares of common stock of NTN. By voting the shares of NTN common
stock owned by IVI Checkmate Inc. for the merger and the merger agreement as it
intends, IVI Checkmate can be assured of the merger being approved by the
required amount of NTN stockholders. However, as provided in the merger
agreement, IVI Checkmate will not receive any consideration for the
cancellation of the shares of NTN common stock owned by it or its affiliates.
Treatment of NTN Options. At the effective time, each outstanding option
granted by NTN to purchase shares of NTN common stock will be converted into an
option to acquire IVI Checkmate common stock having the same terms and
conditions as the NTN option had before the merger was completed. The number of
shares that the new IVI Checkmate option will be exercisable for and the
exercise price of the new IVI Checkmate option will reflect the merger exchange
ratio at which shares of NTN common stock are exchanged for shares of IVI
Checkmate common stock in the merger. Mr. Schellhorn, the sole member of the
special committee of the NTN board of directors formed for conducting the
transaction, possesses options to purchase 15,000 shares of NTN common stock.
Indemnification; Directors and Officers Insurance. IVI Checkmate has agreed
to indemnify the present and former directors and officers of NTN against
liabilities arising out of actions or omissions occurring at or prior to the
time the merger is completed, to the full extent permitted under Delaware law
and NTN's certificate of incorporation and bylaws. IVI Checkmate has also
agreed to use its reasonable efforts to maintain in effect for a period of six
years after completion of the merger, NTN's existing directors' and officers'
liability insurance policy, or a policy similar to NTN's existing insurance
policy. IVI Checkmate will cause NTN to provide such indemnification and
directors' and officers' liability insurance to the extent it does not.
43
<PAGE>
Other. On August 18, 1997, NTN entered into a Convertible Subordinated Note
Purchase Agreement, as amended on October 31, 1997 and December 31, 1998, with
IVI Checkmate Ltd., a wholly owned subsidiary of IVI Checkmate, whereby NTN may
from time to time issue and sell to IVI Checkmate Ltd., and IVI Checkmate Ltd.
agrees to purchase, up to $2,500,000 aggregate principal amount of NTN's
Convertible Subordinated Notes. The notes have a five-year term, bear interest
at a rate per annum equal to the prime rate plus 2% (9.75% at December 31,
1999) and are secured by NTN's assets. The notes are convertible into shares of
NTN common stock at any time in accordance with the terms of the agreement
governing the note; however, the conversion price per share shall be equal to
no less than the fair market value of NTN's common stock. In addition, the
notes are subject to registration rights if NTN determines to register other
shares of its common stock under the Securities Act of 1933. Interest payments
on the notes are deferred until maturity.
In 1997, NTN issued notes to IVI Checkmate Ltd. in the aggregate principal
amount of $1,500,000 and in 1998 issued an additional note to IVI Checkmate
Ltd. in the principal amount of $650,000. All notes mature in 2002. IVI
Checkmate Ltd. did not advance any funding to NTN under the note agreement in
1999. Accrued interest under the notes totaled $118,525 at December 31, 1999.
On July 20, 1999, IVI Checkmate Ltd. and IVI Checkmate Inc. entered into an
Exchange Agreement concerning the NTN Convertible Subordinated Notes. Under the
Exchange Agreement, IVI Checkmate Inc. issued 2,150,000 shares of its Series B
Preferred Stock to IVI Checkmate Ltd. in exchange for the outstanding
convertible subordinated notes issued to IVI Checkmate Ltd. by NTN on September
19, 1997, November 24, 1997 and December 31, 1998 in the principal amounts of
$400,000, $1,100,000 and $650,000, respectively. Consequently, the merger will
have no direct effect on IVI Checkmate Ltd. because it no longer owns any
interest in NTN.
In 1999, IVI Checkmate provided NTN with cash advances totaling $850,000 to
fund NTN's working capital requirements. The interest rate payable on these
cash advances is prime rate plus 2% per year, and the advances are repayable on
demand. At December 31, 1999, the full $850,000 of cash advances plus minimal
interest remained outstanding.
Except for the arrangements discussed in this section above, there are no
material contracts between IVI Checkmate or its subsidiaries and NTN.
Accounting Treatment
IVI Checkmate will account for the merger as a purchase transaction for
accounting and financial reporting purposes. Under this method of accounting,
IVI Checkmate will allocate the purchase price of NTN, including direct costs
of the merger, to the assets acquired and liabilities assumed based upon their
estimated relative fair values with the excess purchase consideration allocated
to goodwill. However, IVI Checkmate does not anticipate the creation of any
goodwill as a result of this transaction because the purchase price is expected
to be fully allocated to identifiable intangible assets.
Fees and Expenses
IVI Checkmate and NTN will each pay its own expenses in connection with the
merger, including filing, registration and application fees, printing fees, and
fees and expenses of its own financial or other consultants, investment
bankers, accountants and counsel, except that if the merger is not completed,
IVI Checkmate will pay all filing and printing fees.
Resales of IVI Checkmate Common Stock
The IVI Checkmate common stock to be issued to stockholders of NTN in the
merger will be registered under the Securities Act of 1933. As a result, all
shares of IVI Checkmate common stock received by stockholders of NTN in the
merger will be freely transferable after the merger by those stockholders of
NTN who are not considered to be "affiliates" of NTN or IVI Checkmate.
"Affiliates" generally are defined as persons or entities who control, are
controlled by, or are under common control with NTN or IVI Checkmate at the
time of the special meeting (generally, executive officers, directors, and 10%
or greater stockholders).
44
<PAGE>
Rule 145 under the Securities Act restricts the sale of IVI Checkmate common
stock received in the merger by affiliates of NTN and certain of their family
members and related entities. Under the rule, during the first 12-month period
after the merger is completed, affiliates of NTN or IVI Checkmate may resell
publicly the IVI Checkmate common stock they receive in the merger but only
within certain limitations as to the amount of IVI Checkmate common stock they
can sell in any three-month period and as to the manner of sale. After the one-
year period, affiliates of NTN who are not affiliates of IVI Checkmate may
resell their shares without restriction. IVI Checkmate must continue to satisfy
its reporting requirements under the Securities Exchange Act of 1934 in order
for affiliates to resell, under Rule 145 as described in the preceding two
sentences, shares of IVI Checkmate common stock received in the merger.
However, after at least two years has passed since the date of the merger,
persons who are not, and have not been within the preceding three months,
affiliates of IVI Checkmate may resell their shares received in the merger even
if IVI Checkmate does not continue to satisfy its reporting obligations under
the Securities Exchange Act.
Affiliates also would be permitted to resell IVI Checkmate common stock
received in the merger pursuant to an effective registration statement under
the Securities Act or an available exemption from the registration requirements
of the Securities Act other than Rule 145. This proxy statement-prospectus does
not cover any resales of IVI Checkmate common stock received by persons who may
be deemed to be affiliates of NTN or IVI Checkmate.
45
<PAGE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
IVI Checkmate resulted from the combination on June 25, 1998 of
International Verifact Inc. (now IVI Checkmate Ltd., a wholly owned Canadian
subsidiary of IVI Checkmate) and Checkmate Electronics, Inc. (now IVI Checkmate
Inc., a wholly owned U.S. subsidiary of IVI Checkmate). Prior to the
combination of International Verifact and Checkmate Electronics, the common
stocks of International Verifact and Checkmate Electronics were traded on the
Nasdaq National Market under the symbols "IVIAF" and "CMEL," respectively, and
the common stock of International Verifact 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. Additionally,
exchangeable shares of International Verifact that issued in the combination to
Canadian stockholders of International Verifact instead of shares of IVI
Checkmate common stock began trading on the Toronto Stock Exchange under the
symbol "IVI." The International Verifact exchangeable shares are convertible at
any time, on a one-for-one basis, into common stock of IVI Checkmate.
NTN common stock is listed on the pink sheets of the National Quotations
Bureau, Inc. under the symbol "NTRN" and included on the OTC Bulletin Board.
The table set forth below provides, on a per share basis for the periods
indicated:
. the high and low bid quotations prices of the common stock of
International Verifact, Checkmate Electronics and IVI Checkmate as
reported on the Nasdaq National Market;
. the high and low sales prices of the common stock of IVI Checkmate and
the exchangeable shares of International Verifact as reported on the
Toronto Stock Exchange; and
. the high and low inter-dealer quotations for the NTN common stock; such
quotations do not reflect any retail mark-up, mark-down or commissions
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
International Checkmate
Verifact Electronics
Common Shares Common Stock
------------------------ -------------
Nasdaq Toronto Nasdaq
National Stock National
Market Exchange Market NTN
----------- ------------ ------------- ---------
(US $) (Canadian $) (US $) (US $)
High Low High Low High Low High Low
----- ----- ------ ----- ------ ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
Quarter ended March 31,
1997........................ 5.375 4.391 7.150 6.000 13.875 11.500 .406 .250
Quarter ended June 30, 1997.. 6.000 4.250 8.300 6.000 13.500 8.000 .875 .250
Quarter ended September 30,
1997........................ 7.375 5.125 10.200 7.000 9.125 6.875 .922 .750
Quarter ended December 31,
1997........................ 9.815 6.500 13.500 9.250 9.000 6.250 .875 .563
1998
Quarter ended March 31,
1998........................ 8.375 6.625 11.950 9.400 9.500 6.844 .719 .469
Quarter ended June 30, 1998
(through June 25, 1998)..... 7.625 5.188 10.750 7.703 9.000 6.500 .875 .406
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
International
Verifact
IVI Checkmate Common Exchangeable
Stock Shares
------------------------- --------------
Nasdaq Toronto
National Stock Toronto Stock
Market Exchange Exchange NTN
------------ ------------ -------------- ---------
(US $) (Canadian $) (Canadian $) (US $)
High Low High Low High Low High Low
----- ------ ------ ----- ------- ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
Quarter ended June 30, 1998
(from June 26, 1998)...... 7.125 6.250 10.094 9.406 9.000 8.000 .563 .406
Quarter ended September 30,
1998...................... 7.000 3.719 10.000 5.750 9.000 5.750 .563 .281
Quarter ended December 31,
1998...................... 6.250 2.500 9.500 5.094 9.500 5.000 .500 .280
1999
Quarter ended March 31,
1999...................... 7.375 2.938 11.500 4.400 11.150 4.600 .380 .280
Quarter ended June 30,
1999...................... 3.750 2.750 5.700 4.050 5.500 4.000 .320 .280
Quarter ended September 30,
1999 ..................... 2.875 2.813 4.850 4.200 5.100 4.150 .310 .260
Quarter ended December 31,
1999...................... 4.250 2.250 6.000 3.453 5.797 4.094 .875 .266
2000
Quarter ended March 31,
2000...................... 6.813 3.063 9.594 4.344 10.000 4.406 .453 .219
Quarter ended June 30, 2000
(through May 1, 2000)..... 4.125 2.4375 6.594 3.75 7.500 4.797 .250 .188
</TABLE>
On May 1, 2000, the latest practicable date before the mailing of this proxy
statement-prospectus, the last sale price of IVI Checkmate common stock as
reported on the Nasdaq National Market was $2.9688 per share. On July 20, 1999,
the last business day prior to public announcement of the merger, the last sale
price of IVI Checkmate common stock as reported on the Nasdaq National Market
was $3.4375 per share.
On May 1, 2000, the latest practicable date before the mailing of this proxy
statement-prospectus, the last sale price of NTN common stock based on inter-
dealer prices, without retail mark-up, mark-down or commissions, was $0.195 per
share. On July 20, 1999, the last business day prior to public announcement of
the merger, the last sale price of NTN common stock based on inter-dealer
prices, without retail mark-up, mark-down or commissions, was $0.2656 per
share.
Neither IVI Checkmate nor NTN declared or paid any dividends during the
periods indicated in the stock price table above. The holders of IVI Checkmate
common stock and the holders of NTN common stock each are entitled to receive
dividends when and if declared by the respective board of directors out of
funds legally available therefor. IVI Checkmate currently intends to retain its
future earnings, if any, to fund the development and growth of its business and
therefore does not anticipate paying any cash dividends in the foreseeable
future.
47
<PAGE>
BUSINESS OF IVI CHECKMATE
IVI Checkmate is the third largest electronic transaction solutions provider
in North America. IVI Checkmate was incorporated in 1998 under the laws of the
state of Delaware and became active on June 25, 1998 as a result of the
combination of International Verifact, a Canadian corporation, and Checkmate
Electronics, a Georgia corporation. IVI Checkmate owns all of the capital stock
of these two companies, which are now named IVI Checkmate Ltd. and IVI
Checkmate Inc., respectively, and operates through these two companies and
their subsidiaries.
Through its subsidiaries, IVI Checkmate designs, develops and markets
innovative payment and value-added solutions that optimize transaction
management at the point-of-service in the retail, financial, hospitality,
healthcare and transportation industries. IVI Checkmate's software, hardware
and professional services minimize transaction costs, reduce operational
complexity and improve profitability for IVI Checkmate's customers in the U.S.,
Canada and Latin America.
IVI Checkmate distributes its products through direct sales and various
third party distribution arrangements. IVI Checkmate's customers include banks,
payment processors, retail merchants, petroleum service stations, convenience-
store operators, supermarkets and other mass merchandisers, and government
benefits disbursers.
With over 15 years of manufacturing and technology expertise through its
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. IVI Checkmate provides 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.
IVI Checkmate's primary customers are major retailers and financial
institutions, but its customers also include distributors, independent sales
organizations, value-added resellers and original equipment manufacturers. IVI
Checkmate's customers generally seek electronic payment products and services
to help manage processing transactions. Its products assist customers in
meeting their internal goals of maintaining operational flexibility and
responding to market changes, while minimizing cost, waste and disruption.
The principal executive offices of IVI Checkmate are located at 1003 Mansell
Road, Roswell, Georgia 30076, and its telephone number at that address is (770)
594-6000. Additional information with respect to IVI Checkmate and its
subsidiaries is included in documents incorporated by reference in this proxy
statement-prospectus. See "Where You Can Find More Information" beginning on
page 82.
48
<PAGE>
IVI CHECKMATE SELECTED FINANCIAL DATA
The following table sets forth selected consolidated statement of operations
and balance sheet data of IVI Checkmate for the years ended December 31, 1999,
1998, 1997, 1996 and 1995. The selected financial data for the years ended
December 31, 1999, 1998, 1997 and 1996 and as of December 31, 1999, 1998, 1997
and 1996 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 year ended December 31, 1995 and as of
December 31, 1995 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 results of operations and financial position as
of such date. The selected financial data, which have been restated for all
periods to reflect the combination of International Verifact and Checkmate
Electronics in 1998 and the subsequent mergers with Plourde Computer Services,
Inc. and Debitek Holdings, Ltd., should be read in conjunction with "IVI
Checkmate's Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 50 and the financial statements of IVI
Checkmate included in this proxy statement-prospectus as Appendix D.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- -------- -------
(In thousands of dollars, except per share
amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Net revenue by segment:
Domestic...................... $ 73,197 $ 79,473 $62,647 $ 55,113 $48,822
International................. 24,737 27,649 30,018 22,272 30,864
-------- -------- ------- -------- -------
97,934 107,122 92,665 77,385 79,686
Cost of sales(1)............... 73,450 68,442 58,015 48,280 50,568
Amortization of software
development costs(2).......... 3,168 2,075 1,041 780 574
-------- -------- ------- -------- -------
Gross profit................... 21,316 36,605 33,609 28,325 28,544
-------- -------- ------- -------- -------
Operating expenses:
Selling, general and
administrative............... 32,076 25,118 24,769 20,327 16,216
Research and development...... 4,625 4,963 5,603 4,459 4,264
Depreciation and
amortization................. 2,402 2,078 1,782 1,418 2,243
Unusual charges(3)............ -- 10,010 -- 7,121 --
-------- -------- ------- -------- -------
39,103 42,169 32,154 33,325 22,723
-------- -------- ------- -------- -------
Operating income (loss)........ (17,787) (5,564) 1,455 (5,000) 5,821
Other income (expense)......... (270) 13 926 385 346
-------- -------- ------- -------- -------
Income (loss) before income
taxes......................... (18,057) (5,551) 2,381 (4,615) 6,167
Income tax benefit (expense)... (1,877) 580 855 (5,684) (2,687)
-------- -------- ------- -------- -------
Net income (loss) ............. $(19,934) $ (4,971) $ 3,236 $(10,299) $ 3,480
======== ======== ======= ======== =======
Net income (loss) per common
share (basic and diluted)..... $ (1.13) $ (0.28) $ 0.19 $ (0.69) $ 0.24
======== ======== ======= ======== =======
<CAPTION>
As of December 31,
---------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Total assets................... $73,525 $82,829 $76,584 $69,787 $66,357
Long-term liabilities.......... 1,504 787 2,085 1,124 1,598
Stockholders' equity........... 45,130 55,017 57,412 53,029 51,130
</TABLE>
- --------
(1) Excludes amortization of deferred software capitalization costs.
(2) Amounts were previously included as part of "Depreciation and Amortization."
(3) Unusual charges consist principally of merger costs in 1998 and writedown
of assets in each of 1998 and 1996. For further information on unusual
charges for 1998, see also Note 11 of the Notes to IVI Checkmate's
Consolidated Financial Statements.
49
<PAGE>
IVI CHECKMATE 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 Latin America. IVI Checkmate provides 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 International
Verifact Inc. and Checkmate Electronics, Inc., 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
International Verifact and Checkmate Electronics 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 IVI Checkmate's consolidated
financial condition and results of operations for the years ended December 31,
1999, 1998 and 1997 should be read in conjunction with the IVI Checkmate
consolidated financial statements and accompanying notes. The financial
statements have been prepared based on accounting principles generally accepted
in the United States.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues. Net revenues declined to $97.9 million in fiscal 1999 compared to
$107.1 million in fiscal 1998. The change in net revenues was primarily
attributable to a product shift from traditional terminal units to our new eN-
Touch payment terminal. Furthermore, as a result of product issues discovered
in our eN-Touch terminal early in fiscal 1999, significant delays in
anticipated sales of the product resulted as the terminal had to be redesigned
and tested. The Company believes revenues declined because customers withheld
purchase orders pending the introduction of the new eN-Touch terminals.
Cost of Sales. Cost of sales increased 7% to $73.5 million in fiscal 1999
from $68.4 million in fiscal 1998. Included in cost of sales for fiscal 1999
and 1998 are significant inventory write-offs of $8.6 million and $2.6 million,
respectively. Additional information on these write-offs is provided in Note 11
to the IVI Checkmate Consolidated Financial Statements. Excluding these
inventory write-offs, cost of sales in fiscal 1999 declined 2% from fiscal 1998
despite a 9% decline in net revenues over the same period. IVI Checkmate did
not experience an equivalent percentage reduction in cost of sales in fiscal
1999 due to the increasing proportion of its net revenues being derived from
the resale of Ingenico products. In fiscal 1999, lower margined Ingenico
products accounted for 14% of net revenues compared to 9% in fiscal 1998.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $32.1 million or 32.8% of revenues in fiscal 1999 from
$25.1 million or 23.4% of revenues in fiscal 1998. The increase in expenses was
the result of the inclusion in fiscal 1999 of the operating expenses of our
Financial Systems division, which was acquired in April 1999, and unusual
charges of $2.8 million primarily incurred to streamline our U.S. operations.
Additional information on these unusual charges is provided in Note 11 to the
IVI Checkmate Consolidated Financial Statements.
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 1999, research and development costs were
incurred for the development of the Mainsail software and for development of
new products that incorporate new technology such as wireless connectivity and
touch screen applications. We anticipate that these new products will be
marketable in 2000. In fiscal 1998,
50
<PAGE>
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 as part of a write-
down of long-lived assets in our statements of operations. 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,
-----------------------
1999 1998 1997
------- ------ ------
(In thousands of
dollars)
<S> <C> <C> <C>
Gross product development expenditures................ $10,134 $9,076 $9,789
Less: capitalized software development costs.......... 5,509 4,113 4,186
------- ------ ------
Net research and development expense.................. $ 4,625 $4,963 $5,603
======= ====== ======
Product development as a percentage of net revenues:
Gross expenditures................................... 10.3% 8.5% 10.6%
Net expense.......................................... 4.7% 8.5% 6.0%
</TABLE>
Amortization of Software Development Costs. Amortization of software
development costs increased to $3.2 million in fiscal 1999 from $2.1 million in
fiscal 1998, as IVI Checkmate began to amortize previously capitalized software
development project costs that have reached commercial production stage in
1999.
Income Tax Benefit (Expense). IVI Checkmate's federal statutory tax rate in
the U.S. is 34%. However, IVI Checkmate's income taxes were affected in fiscal
1999 and 1998 by utilization of 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 1999 and 1998 do not
directly correlate to the level of pre-tax earnings or losses in those years.
IVI Checkmate recorded an income tax expense in fiscal 1999 of $1.9 million
and an income tax benefit in fiscal 1998 of $580,000. At December 31, 1999, IVI
Checkmate had approximately $37 million of net operating loss carryforwards
available to offset future U.S. taxable income. 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.
However, due to recent losses in the current and prior years, IVI Checkmate
increased its valuation allowance to entirely offset the income tax benefit
that would otherwise be recognized on its U.S. loss carryforwards.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The following comparison of financial results between fiscal 1998 and fiscal
1997 reflects a prospective change in IVI Checkmate's investment in IVI
Ingenico Inc., a joint venture between IVI Checkmate and Ingenico S.A. to
pursue market opportunities in Latin America. For fiscal 1997, IVI Checkmate
consolidated the operations of IVI Ingenico into its financial results due to
IVI Checkmate's 51% ownership and IVI Checkmate's effective control of the
operations. Effective January 1, 1998, IVI Checkmate's ownership in IVI
Ingenico was reduced to 50% and effective control passed to Ingenico.
Consequently, IVI Checkmate prospectively accounted for its investment on an
equity basis. As IVI Ingenico did not constitute a significant part of its
operations, the change in accounting did not have a significant impact on the
change in revenues and operating expenses in fiscal 1998 compared to fiscal
1997.
Revenues. Net revenues increased 16% to $107.1 million in fiscal 1998 from
$92.7 million in fiscal 1997. The increase in net 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 IVI
Checkmate's eN-Scribe point-of-sale printer;
51
<PAGE>
. a 31% increase in check reader sales as a result of increased demand
from financial institutions and the success of IVI Checkmate's 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, IVI Checkmate's help desk facility.
Cost of Sales. Excluding $2.6 million in product redundancy costs related to
mergers in fiscal 1998, cost of sales increased 13% to $65.8 million in fiscal
1998 from $58.0 million in fiscal 1997 as a result of a 16% increase in net
revenues over the same period. As a percentage of net revenues, cost of sales
decreased to 61% in fiscal 1998 from 63% in fiscal 1997. The improvement is a
result of continued cost reduction programs and on-going business integration
and manufacturing efficiencies related to the combination of International
Verifact and Checkmate Electronics.
Amortization of Software Development Costs. Amortization of software
development costs increased to $2.1 million in fiscal 1998 from $1.0 million in
fiscal 1997, as IVI Checkmate began to amortize previously capitalized software
development project costs that have reached commercial production stage in
1998.
Selling, General and Administrative. Selling, general and administrative
expenses increased 1% to $25.1 million in fiscal 1998 from $24.8 million in
fiscal 1997. These expenses represented 23% and 27% of net revenues in fiscal
1998 and 1997, respectively. The decrease in selling, general and
administrative expenses as a percentage of revenues reflects synergies from the
combination of International Verifact and Checkmate Electronics and subsequent
mergers in fiscal 1998, IVI Checkmate's commitment to sell more effectively,
and IVI Checkmate's commitment to provide a wider range of end-to-end payment
solutions to its customers with limited increases in selling costs.
Research and Development. In fiscal 1998, IVI Checkmate 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
IVI Checkmate's 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.
Unusual Charges. In fiscal 1998, IVI Checkmate recorded charges to earnings
in the amount of $12.6 million to reflect costs associated with the combination
of International Verifact and Checkmate Electronics 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 Checkmate's U.S. operations in Boulder,
Colorado, and the transfer and integration of these operations into
operations in Atlanta, Georgia, which was completed in fiscal 1998,
including the termination of 35 employees;
. inventory obsolescence provision to reflect product redundancies, which
has been included as part of cost of sales;
. 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.
52
<PAGE>
Income Tax Benefit. As a result of adjustment to IVI Checkmate's valuation
allowance in fiscal 1998 and fiscal 1997, IVI Checkmate recorded income tax
benefits of $580,000 and $855,000 for fiscal 1998 and fiscal 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 IVI Checkmate's net deferred tax assets depends on IVI Checkmate 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. At December 31, 1998, IVI Checkmate
believes that future levels of taxable income will be sufficient to realize the
net deferred tax asset.
Liquidity and Capital Resources
IVI Checkmate finances its operations primarily through cash flows from
operations. Net cash provided by (used in) operating activities was $5.4
million in fiscal 1999, $3.5 million in fiscal 1998 and $(1.0) million in
fiscal 1997. The fluctuations in each year resulted from the timing and
magnitude of sales, which affected the levels of accounts receivable, inventory
and accounts payable balances.
Net cash used in investing activities was $8.6 million in fiscal 1999, $5.1
million in fiscal 1998 and $7.1 million in fiscal 1997. Purchases of property
and equipment, capitalized software development costs and other non-current
assets were $8.6 million, $8.8 million and $8.4 million in fiscal 1999, fiscal
1998 and fiscal 1997, 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.
Net cash provided by financing activities was $1.2 million in fiscal 1999,
$2.7 million in fiscal 1998 and $5.1 million in fiscal 1997, and was primarily
the result of the issuance of common stock upon stock option exercises.
As of December 31, 1999, we had working capital of $23.1 million, including
$8.3 million in cash and cash equivalents. Furthermore, lines of credit have
been established with maximum borrowings totaling, in aggregate, approximately
$11.0 million. While these lines of credit expire during 2000, IVI Checkmate is
currently in the process of renegotiating these lines. As of December 31, 1999,
no borrowings under these lines of credit were outstanding.
As of December 31, 1999, IVI Checkmate did not have any material commitments
for capital expenditures.
IVI Checkmate believes that cash and cash equivalents on hand as of December
31, 1999, together with cash flows from operations and available borrowings
under the lines of credit, will be sufficient to maintain its current level of
operations for at least the next 12 months.
Year 2000 Issue
In late 1999, IVI Checkmate completed all of the necessary Year 2000 testing
and remediation of its products and internal systems. As a result of those
efforts, IVI Checkmate did not experience any significant disruptions in its
information technology and non-information technology systems and believes its
systems successfully responded to the Year 2000 date change. Furthermore, IVI
Checkmate is not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or the products and
services of third parties. The total costs incurred by IVI Checkmate to prepare
for the Year 2000 date change were not significant to its financial results.
Although it remains possible that Year 2000 related problems could still arise,
IVI Checkmate does not feel it necessary to implement any additional procedures
throughout the year 2000 to monitor any latent Year 2000 problems that may
arise.
53
<PAGE>
Impact of Recent Accounting Standards
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements".
This bulletin summarizes certain views of the SEC's accounting staff on
applying generally accepted accounting principals to revenue recognition in
financial statements. The staff believes revenue is realized or realizable and
earned when all of the following criteria are met: persuasive evidence of an
arrangement exists; delivery has occurred or services have been rendered; the
seller's price to the buyer is fixed or determinable; and collectibility is
reasonably assured. IVI Checkmate believes its current revenue recognition
policy complies with the SEC staff's guidelines. This bulletin is effective for
the second quarter ending June 30, 2000.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 amends SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133") which was issued in June 1998. SFAS 137 defers the effective date of SFAS
133 to all fiscal years beginning after June 15, 2000. SFAS 133 requires that
all derivative instruments be recorded on the balance sheet at their 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. IVI Checkmate
has not used derivative instruments and does not expect the adoption of SFAS
133 to have a material impact on its financial position or results of
operations.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-9, "Modification of SOP No. 97-2, Software
Revenue Recognition, with Respect to Certain Transactions" ("SOP 98-9"). SOP
98-9 amends SOP 97-2, "Software Revenue Recognition, with Respect to Certain
Transactions" ("SOP 97-2") to require recognition of revenue using the
"residual method" in circumstances outlined in SOP 98-9. Under the residual
method, revenue is recognized as follows: (1) the total fair value of
undelivered elements, as indicated by vendor-specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections
of SOP 97-2 and (2) the difference between the total arrangement fee and the
amount deferred for the undelivered elements is recognized as revenue related
to the delivered elements. SOP 98-9 is effective for transactions entered into
in fiscal years beginning after March 15, 1999. IVI Checkmate does not expect
the adoption of SOP 98-9 in fiscal 2000 to have a significant impact on its
financial position or results of operations.
Inflation and Foreign Exchange Exposure
To date, IVI Checkmate believes inflation has not had a material impact on
its operations. IVI Checkmate is, however, exposed to certain foreign currency
exchange risks. Its exposure to foreign currency exchange risk at December 31,
1999 with regard to Canadian dollars was reflected in a cumulative currency
translation adjustment to stockholders' equity of approximately $956,000. In
fiscal 1999, the Canadian dollar strengthened relative to the U.S. dollar,
which affected, to a small degree, sales and expenses in fiscal 1999 that were
denominated in Canadian currency.
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
54
<PAGE>
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.
IVI Checkmate, in the normal course of business, is exposed to certain
foreign currency exchange risks. Its exposure to foreign currency exchange risk
at December 31, 1999 with regard to Canadian dollars was reflected in a
cumulative currency translation adjustment to stockholders' equity of
approximately $956,000. The weakened Canadian dollar further impacted, but to a
lesser degree, sales and expenses in 1999 that were denominated in Canadian
currency. Any strengthening or weakening of the U.S. dollar relative to the
Canadian dollar may have a material adverse effect on the earnings or cash
flows of IVI Checkmate.
55
<PAGE>
BUSINESS OF NTN
NTN designs, develops, integrates, markets and maintains host-based
electronic payment systems for use in retail applications. NTN software
products are used to perform some or all of the tasks involved in electronic
payment transactions, including the collection of payment-related data at the
point of sale, the secure transmission of this data to a processing computer,
the authorization of the transaction, the collection of the completed
transactions, and the processing of these transactions for accountability,
funds management, and reporting reasons. NTN also provides support services
relating to the deployment and on-going operation of these systems.
NTN designs host-based electronic payment systems together with the products
of IVI Checkmate as a part of an end-to-end solution for certain niches in the
retail industry. Components of an end-to-end electronic payment system may
include transaction terminals and peripherals, software at the point of sale
for originating transactions and communicating to other systems in the store,
such as electronic cash registers, communications methodologies for
transmitting the transactions to a processing computer, software for
authorizing, processing, or re-routing the transactions to a service provider,
and support services to ensure the smooth operation of these disparate parts.
The Mainsail Retail Host Switch accepts those transactions from the store
system and either authorizes them locally (in the case of checks and gift
certificates) or routes them to a third party processor, bank, or card
association for approval. IVI Checkmate provides the payment peripherals and
the in-store payment software.
NTN's Mainsail(TM) Software drives a retailer's corporate office-based, in-
house electronic payments processing system. An open system software
application, Mainsail receives all of a retailer's electronic payment
transactions routed to it from its store locations, distinguishes transaction
type, and wherever applicable, re-routes transactions to the appropriate
financial institution authorizer. Mainsail also maintains a relational data
base of customer transaction information against which it validates in-house
transactions relating to check authorization and other retailer-sponsored
programs. The product's capability in this area is used by retailers to reduce
fraudulent check activity and enable expanded customer loyalty, gift
certificate, and electronic marketing programs.
NTN PINnacle(TM) Payment Systems are a family of standardized DOS based
products which provide retailers with the ability to accept electronic payments
in a variety of operating environments. These payment systems must work in
conjunction with several characteristics of the retailer's store environment
including the type of store system (cash register) used, the routing of
transactions for processing and the communications methods employed for
transmitting financial transactions. In addition, the retailer may choose one
of several models of electronic payment terminals on the market and may choose
to control their payments in house using a retail host system. NTN had
developed a PINnacle(TM) NT product which was made redundant by IVI Checkmate's
purchase of Plourde.
NTN also assists its customers by offering a comprehensive set of
professional services necessary for the start-up and on-going support of
electronic payment systems. These services may include systems integration,
installation, training, and hardware and software maintenance, project
management, procurement and preparation of hardware components, custom software
design and development and new product evaluation for specific customers.
NTN's customer base consists of large retail companies, principally in the
supermarket industry, located throughout the United States. In 1999,
Albertsons, Inc., a large supermarket, accounted for 41% of NTN's total
revenue, being the sole customer accounting for more than 10% of NTN's
revenues.
The principal executive offices of NTN are located at 117 Flanders Road,
Westborough, Massachusetts 01581, and its telephone number at such address is
(508) 870-3200. See "Where You Can Find More Information" beginning on page 82.
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<PAGE>
NTN SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ 4,729,318 $ 5,051,077 $5,318,371 $5,013,023 $8,006,417
Cost of revenue......... 2,894,192 3,092,997 3,039,908 2,609,901 4,593,041
----------- ----------- ---------- ---------- ----------
Gross margin............ 1,835,126 1,958,080 2,278,464 2,403,122 3,413,376
Operating expenses...... 1,753,867 3,598,210 2,689,930 3,038,245 3,518,522
----------- ----------- ---------- ---------- ----------
Income (loss) from
operations............. 81,259 (1,640,130) (411,466) (635,123) (105,146)
Other income
(expenses)............. (252,404) (165,599) (37,297) 20,128 16,445
----------- ----------- ---------- ---------- ----------
Net loss................ $ (171,145) $(1,805,729) $ (448,763) $ (614,995) $ (88,701)
=========== =========== ========== ========== ==========
Loss per common share:
(basic and diluted).... $ (0.05) $ (0.55) $ (0.14) $ (0.19) $ (0.03)
=========== =========== ========== ========== ==========
Weighted average number
of common shares
outstanding
(basic and diluted).... 3,325,468 3,312,494 3,254,055 3,248,606 3,248,606
=========== =========== ========== ========== ==========
<CAPTION>
As of December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital
(deficit).............. $ (493,698) $ 110,401 $1,155,167 $ 427,353 $ 997,032
Total assets............ 2,133,893 2,017,859 2,638,768 2,161,092 2,344,698
Long-term liabilities... 2,268,525 2,256,257 1,548,592 12,053 0
Stockholders' equity
(deficit).............. (1,629,890) (1,588,745) 196,486 634,250 1,249,245
</TABLE>
57
<PAGE>
NTN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
NTN's business strategy focuses on the development and marketing of software
products and professional services designed to address the electronic payment
system needs of multi-lane retailers. Turnkey system solutions including
customer-activated payment terminals, in-store controllers, point of sale
system integration and transaction processing network interfaces are also
provided to customers. These solutions enable retailers to automate payment
transactions involving consumer debit (ATM) cards, bank and retailer issued
credit cards, paper check authorization, electronic government benefits and
electronic checks.
NTN is unable to generate sufficient revenue from operations to sustain
operations as a stand-alone entity, which results in significant risk and
uncertainty with respect to NTN's ability to continue as a going concern. NTN's
independent public accountants have included an explanatory paragraph in their
report covering NTN's financial statements for the fiscal year ended December
31, 1999, expressing substantial doubt about NTN's ability to continue as a
going concern.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenue. Total revenue for the year ended December 31, 1999 decreased 6% to
$4,729,318 from $5,051,077 for the year ended December 31, 1998. The decrease
in revenue was a combination of a 35% reduction in sales to NTN's major
customer, which was offset by an increase in service contract orders for Year
2000 related projects.
Gross Margin. Gross margin as a percent of revenue was 39% for the year
ended December 31, 1999, which was consistent with the prior year's gross
margin.
Selling, General and Administrative. Selling, general and administrative
expenses decreased by 55% to $827,024 from $1,840,484 in 1998. The decrease was
primarily the result of cost savings incurred in sales expenses as NTN has
shifted towards joint sales efforts with IVI Checkmate.
Research and Development Expenses. Research and development expenses
decreased by 15% to $928,311 from $1,087,807 in 1998. Research and development
expenses were higher in 1998 as NTN was incurring costs in the development of
its PINnacle NT product, which was subsequently terminated in September 1998.
Other Expenses. Other expenses in 1999 and 1998 of $252,404 and $165,599,
respectively, consisted primarily of net interest expense on the note payable
and convertible subordinated notes payable to IVI Checkmate.
No tax benefits were recorded in 1999 or 1998 due to the uncertainty of
generating taxable income in the foreseeable future.
Year Ended December 31, 1998 Compared To Year Ended December 31, 1997
Revenue. Total revenue for the year ended December 31, 1998 decreased by 5%
to $5,051,077 compared to $5,318,371 for the year ended December 31, 1997. The
decrease in revenue was primarily due to a significant customer's decision to
use another vendor's software while continuing to purchase hardware from NTN in
1998. The revenue derived from this customer accounted for approximately 59% of
total revenue for the year ended December 31, 1998 compared to approximately
57% of total revenue for the year ended December 31, 1997. This decrease in
revenue was partially offset by the maintenance revenue derived from the
acquisition of the Mainsail software product.
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<PAGE>
Gross Margin. Gross margin as a percent of revenue was 39% for the year
ended December 31, 1998 compared to 43% for the year ended December 31, 1997.
The decrease in gross margin percentage was primarily due to a shift in mix
between hardware, software, and professional services revenue. Higher margin
software and professional services revenue accounted for approximately 45% of
total revenue for the year ended December 31, 1998 compared to approximately
47% for the year ended December 31, 1997.
Selling, General and Administrative. Selling, general and administrative
expenses increased by 4% to $1,840,484 in 1998 compared to $1,767,813 in 1997.
The increase was primarily the result of increased costs of $56,475 resulting
from the addition of staff positions necessitated by the acquisition of the
Mainsail product from BancTec and increased sales travel costs of $24,029.
Research and Development Expenses. Research and development expenses
increased by 18% to $1,087,807 for the year ended December 31, 1998 compared to
$922,117 for the year ended December 31, 1997. The increase resulted from costs
incurred in the amount of $197,780 for the use of an outside contractor needed
to support the Mainsail switch product development and additional salary and
benefit expenses in the amount of $22,280 for development and quality assurance
engineers added in the fourth quarter of 1998. These increases, which were
partially capitalized as mentioned above, were partially offset by lower
recruiting expenses than in the year ended December 31, 1997.
Impairment of Capitalized Software Assets. Due to IVI Checkmate's
acquisition of Plourde Computer Services, Inc. in September 1998, management
abandoned its PINnacle NT development project as Plourde had a competing
product which was chosen by IVI Checkmate as the NT software product that it
would sell in the future. As a result, the costs capitalized for the PINnacle
NT project, totaling $669,919, were determined by management to not be
recoverable. Accordingly these costs were written off in 1998.
Other Expenses. Other expenses in 1998 and 1997 of $165,599 and $37,297,
respectively, consisted primarily of interest expense on convertible
subordinated notes payable to IVI Checkmate.
No tax benefits were recorded in 1998 or 1997 due to the uncertainty of
generating taxable income in the foreseeable future.
Liquidity and Capital Resources
NTN is unable to generate sufficient revenue from operations to sustain
operations as a stand-alone entity and, due in part to an inability to borrow
on its own account, is critically short of cash to fund its operations. NTN has
a working capital deficit of $493,698. The ability of NTN to operate as a going
concern in the near future depends upon the consummation of its acquisition by
IVI Checkmate. There can be no assurance that this transaction will be
ultimately completed. If this transaction is unable to be completed for
whatever reason, NTN may not be able to continue operations beyond the current
year. No assurance can be provided as to when or if the acquisition of NTN by
IVI Checkmate will be completed. Pursuant to the terms of the merger agreement,
because the acquisition of NTN by IVI Checkmate was not completed before
September 30, 1999, the merger agreement may be terminated by NTN or IVI
Checkmate.
Should NTN determine that it is no longer in the best interest of its
stockholders to continue operations, the ability of NTN to fund an orderly
disposition of assets, pay off its then outstanding liabilities and return any
remaining cash to its stockholders will be limited by the amount of working
capital then on hand, if any.
Net cash provided by (used for) operating activities for the years ended
December 31, 1999, 1998 and 1997 was $(192,934), $11,481 and $(855,717),
respectively. The fluctuations in each year were the result of the timing and
magnitude of sales, which affected the levels of accounts receivable, inventory
and accounts payable balances.
59
<PAGE>
Net cash used in investing activities totaled $816,997, $900,229 and
$428,177 for the years ended December 31, 1999, 1998 and 1997, respectively.
Capital equipment expenditures, principally for computer, test and sales
demonstration equipment, accounted for $42,496, $81,164 and $141,949, of these
amounts in 1999, 1998 and 1997, respectively. Software development costs
accounted for the balance of net cash used in investing activities in 1999,
1998 and 1997.
Net cash provided by financing activities totaled $848,818, $655,540, and
$1,475,703 in 1999, 1998 and 1997, respectively, primarily from cash advances
from IVI Checkmate in 1999 and from the issuance of convertible subordinated
notes payable in 1998 and 1997 to IVI Checkmate.
On August 18, 1997, NTN entered into a Convertible Subordinated Note
Purchase Agreement with IVI Checkmate whereby NTN may, from time to time, issue
and sell to IVI Checkmate, and IVI Checkmate agrees to purchase, NTN's
Convertible Subordinated Notes, up to an aggregate principal amount of
$1,000,000. On October 31, 1997 and December 31, 1998, the aggregate principal
amount of notes which can be issued by NTN under the note agreement was
increased to $2,000,000 and $2,500,000, respectively, in order to cover
additional anticipated working capital needs of NTN. The notes have a five-year
term, bear interest at a rate per annum equal to the prime rate plus 2%, are
secured by NTN's assets, and are subordinate to NTN's working capital line of
credit. The notes are convertible into NTN's common stock, $.15 par value, at
any time in accordance with the terms of the note agreement, however the
conversion price per share shall be equal to no less than the fair market value
as determined in the note agreement. Additionally, the notes are subject to
certain registration rights in the event that NTN determines to register
additional shares of common stock, $.15 par value, under the Securities Act.
Interest payments on the notes are deferred until maturity.
In 1997, NTN issued notes to IVI Checkmate in the aggregate principal amount
of $1,500,000 and in 1998 issued an additional note to IVI Checkmate Ltd. in
the principal amount of $650,000. All notes mature in 2002. IVI Checkmate Ltd.
did not advance any funding to NTN under the note agreement in 1999. Interest
payable on the notes totaled $118,525 at December 31, 1999.
In 1999, NTN was unable to secure a working capital line of credit with its
bank. IVI Checkmate, however, provided NTN with cash advances totaling $850,000
to fund NTN's working capital requirements. The interest rate payable on these
cash advances is prime rate plus 2% per year, and the advances are repayable on
demand. At December 31, 1999, the full $850,000 of cash advances plus minimal
interest remained outstanding. NTN will require additional funding in 2000 in
order to continue operations. While NTN has been dependent on IVI Checkmate for
its funding requirements, there is no assurance that such funding from IVI
Checkmate may be available.
Year 2000
In late 1999, NTN completed all of the necessary Year 2000 testing and
remediation of its products and internal systems. As a result of those efforts,
NTN did not experience any significant disruptions in its information
technology and non-information technology systems and believes that its systems
successfully responded to the Year 2000 date change. Furthermore, NTN is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The total costs incurred by NTN to prepare for the Year 2000 date change were
not significant to its financial results. Although it remains possible that
Year 2000 related problems could still arise, NTN does not feel it necessary to
implement any additional procedures throughout the year 2000 to monitor any
latent Year 2000 problems that may arise.
Recently Issued Accounting Standards
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements".
This bulletin summarizes certain views of the SEC's accounting staff on
applying generally accepted accounting principals to revenue recognition in
financial statements. The staff believes revenue is realized or realizable and
earned when all of the following criteria are
60
<PAGE>
met: persuasive evidence of an arrangement exists; delivery has occurred or
services have been rendered; the seller's price to the buyer is fixed or
determinable; and collectibility is reasonably assured. NTN believes its
current revenue recognition policy complies with the Commission's guidelines.
This bulletin is effective beginning the second quarter ending June 30, 2000.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 amends SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133") which was issued in June 1998. SFAS 137 defers the effective date of SFAS
133 to all fiscal years beginning after June 15, 2000. SFAS 133 requires that
all derivative instruments be recorded on the balance sheet at their 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. NTN has not
used derivative instruments and does not expect the adoption of SFAS 133 to
have a material impact on its financial position or results of operations.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-9, "Modification of SOP No. 97-2, Software
Revenue Recognition, with Respect to Certain Transactions" ("SOP 98-9"). SOP
98-9 amends SOP 97-2, "Software Revenue Recognition, with Respect to Certain
Transactions" ("SOP 97-2") to require recognition of revenue using the
"residual method" in circumstances outlined in SOP 98-9. Under the residual
method, revenue is recognized as follows: (1) the total fair value of
undelivered elements, as indicated by vendor-specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections
of SOP 97-2 and (2) the difference between the total arrangement fee and the
amount deferred for the undelivered elements is recognized as revenue related
to the delivered elements. SOP 98-9 is effective for transactions entered into
in fiscal years beginning after March 15, 1999. NTN does not expect the
adoption of SOP 98-9 to have a significant impact on its financial position or
results of operations.
Quantitative and Qualitative Disclosures about Market Risk
NTN, in the normal course of business, is subject to the risks associated
with fluctuations in interest rates. When possible, NTN invests cash balances
in excess of operating requirements in short term securities with maturities of
less than 90 days. In addition, NTN's Convertible Subordinated Note Agreement
provides for borrowings which bear interest at variable rates based on the
prime rate. NTN had $2,150,000 of borrowing outstanding pursuant to the Note
Agreement as of December 31, 1999 in addition to cash advances of $850,000. NTN
believes that the effect, if any, of reasonably possible near-term changes in
interest rates on NTN's financial position, results of operations and cash
flows should not be material.
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<PAGE>
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERSOF IVI CHECKMATE CORP.
Listed below are the names of each member of the board of directors of IVI
Checkmate. Also listed is each director's business experience, his age as of
December 31, 1999, 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.
Messrs. Compain and Owen were elected to the board in June 1998 as the
designees of IVI Checkmate's largest stockholder, Ingenico, in accordance with
an investment agreement entered into between Ingenico and IVI Checkmate Ltd. in
1992. See "--No Litigation and Certain Transactions--Ingenico Alliance"
beginning on page 71. IVI Checkmate has assumed the rights and obligations of
IVI Checkmate Ltd. under that agreement. Ingenico currently has the right to
have only one designee on the board of directors of IVI Checkmate. That
designee is Mr. Compain, although Mr. Owen continues to serve as a director.
<TABLE>
<CAPTION>
Principal Occupation or Employment Director
Name and Other Business Affiliations Age Since
---- -------------------------------------- --- --------
<C> <S> <C> <C>
Gerard Compain.......... Mr. Compain has been Managing Director 47 1998
of Ingenico since 1995. Ingenico is in
the same business as IVI Checkmate,
with operations throughout the world
and a particular strength in smart
cards. From 1985 to 1995, Mr. Compain
served in various executive and
operational positions with BULL PCC,
which is the Payment Systems Division
of Groupe Bull. Mr. Compain joined
International Verifact Inc.'s board of
directors in 1997 as a designee of
Ingenico.
Gregory A. Lewis........ Mr. Lewis has been a director of IVI 54 1998
Checkmate since June 1998. Mr. Lewis
joined IVI Checkmate Inc. as President
and Chief Operating Officer in August
1997, and he was named a director in
October 1997. Mr. Lewis served as the
President and Chief Executive Officer
of IVI Checkmate's U.S. operations
from June 1998 until February 2000.
From 1984 until joining IVI Checkmate
Inc., 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 52 1998
Noblett and Associates, Inc., a
business development, data processing
and communications consulting firm,
since 1992. Mr. Noblett is also
President and a Director of
Diversified Merchant Resources, Inc.,
a computer consulting company. Mr.
Noblett has spent over 25 years in the
payments industry, including executive
management positions with NaBANCO,
MasterCard and what is today MBNA.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation or Employment Director
Name and Other Business Affiliations Age Since
---- -------------------------------------- --- --------
<C> <S> <C> <C>
Bertil D. Nordin........ Mr. Nordin is an investor in, and 65 1998
director or advisor to, 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 Five
accounting firm. Mr. Nordin is also a
director of Centennial Healthcare
Corp.
Gareth Owen............. Mr. Owen has been Managing Director of 47 1998
Ingenico International (Pacific) Pty
Limited since 1986. Ingenico
International is the largest
electronic funds transfer/point of
sale supplier in Australia and New
Zealand and the third largest supplier
in the Asia Pacific region. Prior to
Ingenico, Mr. Owen held various
marketing positions with companies
involved in the development of payment
terminal products. Mr. Owen joined IVI
Checkmate Ltd.'s board in 1997.
Peter E. Roode.......... Mr. Roode has been President of 62 1998
Triarch Corporation since 1987 and was
a Vice President of Triarch from 1976
until 1987. 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 Checkmate Ltd.
since 1992.
J. Stanford Spence...... Mr. Spence has been IVI Checkmate's 69 1998
Chairman of the Board since June 1998.
Mr. Spence was the founder of IVI
Checkmate Inc., was Chief Executive
Officer from July 1997 until June 1998
and, except for two brief periods, has
been Chairman of the Board of IVI
Checkmate Inc. and its predecessors
since its founding in 1973. He also
served as interim Chief Executive
Officer of IVI Checkmate Inc. 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 IVI 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 since
1985, and since the beginning of this
year, is also working with PayMate.net
Corporation, a computer hardware and
software company, both of which are
located in Austin, Texas. Mr. Spence
has previously owned companies in the
mortgage banking, real estate,
insurance and software industries.
L. Barry Thomson........ Mr. Thomson has been IVI Checkmate's 58 1998
President, Chief Executive Officer and
a director since June 1998. Mr.
Thomson joined IVI Checkmate Ltd. in
April 1994 as President and Chief
Operating Officer. He was named a
director of IVI Checkmate Ltd. in May
1995 and was promoted to Chief
Executive Officer in May 1996. Mr.
Thomson also is President, Chief
Executive Officer and a director of
IVI Checkmate, Inc. and Chief
Executive Officer and a director of
NTN. Formerly President
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation or Employment Director
Name and Other Business Affiliations Age Since
---- -------------------------------------- --- --------
<C> <S> <C> <C>
and Chief Executive Officer of Aluma
Systems Corporation, a construction
technology company in Toronto, Mr.
Thomson brought to IVI Checkmate
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).
George Whitton.......... Mr. Whitton has been IVI Checkmate's 64 1998
Vice Chairman of the Board since June
1998. Mr. Whitton has been Chairman of
the Board of IVI Checkmate Ltd. since
1986 and was its Chief Executive
Officer from 1986 to 1996. Mr. Whitton
also is a director of NTN. 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.
John J. Neubert......... Mr. Neubert has been the Executive 61
Vice President--Finance
and Administration, Chief Financial
Officer, Secretary and
Treasurer of IVI Checkmate since June
1998. Mr. Neubert has been the Chief
Financial Officer of IVI Checkmate
Inc. since 1990, a director since May
1994 and Executive Vice-President
since May 1998. Mr Neubert was the
Senior Vice President--Finance and
Administration of IVI Checkmate Inc.
from 1990 until May 1998. Mr. Neubert
also was the Chief Operating
Officer of IVI Checkmate Inc. from May
1994 until September 1997. Prior to
joining IVI Checkmate, Mr. Neubert was
Executive Vice President and Chief
Financial Officer of Technology
Research Group, Inc., a software
development and systems integrator
company, from 1987 until 1990. He was
Vice President of RIM Incorporated, a
manufacturer and distributor
of leisure furniture, from 1985 to
1987. Prior to that time he
was employed by Uniroyal Incorporated
in various financial and operation
positions for approximately 15 years.
</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 Checkmate Inc. and IVI
64
<PAGE>
Checkmate Ltd., the board was expanded from four to nine 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 1999, the board of directors met five times and acted by unanimous
consent without a meeting on six other occasions. Each director attended at
least 75% of the aggregate of all meetings of the board and any committee on
which he served during 1999.
The Audit Committee oversees IVI Checkmate's budget and financial
operations; oversees management's performance with regard to its financial
responsibilities and disclosure obligations; makes recommendations as to the
engagement or termination of IVI Checkmate's 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 five times in
1999.
The Compensation Committee reviews, evaluates and approves the compensation
arrangements of senior management; administers IVI Checkmate's 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 IVI
Checkmate's officers and employees. The Compensation Committee consists of
Messrs. Nordin (Chairman) and Roode. This committee met five times in 1999.
The Executive Committee acts on behalf of the full board, to the extent
permitted by law, between meetings of the full board. This committee consists
of Messrs. Spence (Chairman), Compain and Whitton. The Executive Committee met
once in 1999.
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 did not meet in 1999. 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 IVI Checkmate's Corporate Secretary.
Director Compensation
IVI Checkmate pays each of IVI Checkmate's non-employee directors an annual
retainer of $6,000, a fee of $1,250 for each board meeting attended in person,
and a fee of $250 for each board meeting in which the director participates by
telephone. IVI Checkmate also pays each non-employee director an additional
retainer of $2,000 for serving on a Board committee.
IVI Checkmate also grants each non-employee director options each year for
the purchase of 10,000 shares of IVI Checkmate common stock. These options vest
on the first anniversary of the grant date. Options granted for service in 1999
have an exercise price of $3.19 per share, which was the market price of IVI
Checkmate common stock on the grant date.
IVI Checkmate does not provide retirement benefits, medical benefits or
other benefit programs to IVI Checkmate's non-employee directors.
Executive Compensation
The following table summarizes the compensation paid or accrued by IVI
Checkmate in each of the fiscal years ended December 31, 1999, 1998 and 1997
with regard to L. Barry Thomson, IVI Checkmate's Chief Executive Officer, and
all other executive officers whose annual compensation and bonus was $100,000
or more for 1999. IVI Checkmate refers to these executives as the Named
Executive Officers. The compensation shown in the table includes amounts paid
not only by IVI Checkmate but also by IVI Checkmate Inc. and IVI
65
<PAGE>
Checkmate Ltd. and their subsidiaries during each of the three years, including
for the periods before the combination of IVI Checkmate Inc. and IVI Checkmate
Ltd. All securities described in the table below represent shares underlying
options to purchase common stock. IVI Checkmate has not granted any stock
appreciation rights. The other compensation described in the table consists of
matching contributions that IVI Checkmate made to IVI Checkmate's 401(k) plan
based on a percentage of the Named Executive Officer's contribution to the
401(k) plan and amounts that IVI Checkmate paid on behalf of the Named
Executive Officers for term life insurance for the benefit of the Named
Executive Officers. The information presented for Mr. Lewis represents
compensation since August 1997, when Mr. Lewis first joined IVI Checkmate. For
more information on the officers of IVI Checkmate, see "Information Concerning
Directors and Executive Officers of IVI Checkmate Corp." beginning on page 62.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------- ------------
Securities
Name and Principal Fiscal Underlying All Other
Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
- ------------------ ------ ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
L. Barry Thomson 1999 $350,000 -- 150,000 --
President and 1998 $280,000 -- 233,250 --
Chief Executive Officer 1997 $180,530 $36,100 150,000 --
Gregory A. Lewis 1999 $345,000 -- -- $11,000
Former President and
Chief Executive 1998 $321,000 -- -- $10,421
Officer of U.S. 1997 $ 70,432 $15,000 383,250 $ 8,870
Operations
John J. Neubert 1999 $243,000 -- 15,000 $12,000
Executive Vice
President-- 1998 $228,000 -- -- $11,834
Finance and
Administration, 1997 $129,600 -- -- $11,525
Chief Financial
Officer,
Secretary and Treasurer
</TABLE>
66
<PAGE>
Option Grants
The following table provides information regarding stock options granted to
the Named Executive Officers during 1999, all of which were fully vested on the
date of grant. The options granted to Mr. Thomson were issued pursuant to his
original employment agreement and replace options for shares of International
Verifact Inc. which were to expire in January 1999. IVI Checkmate has not
granted any stock appreciation rights. Amounts reported in the columns
reflecting Potential Realizable Value at Assumed Annual Rates of Stock Price
Appreciation represent hypothetical amounts that may be realized upon exercise
of options immediately prior to the expiration of their term, assuming the
specified compounded rates of appreciation of the common stock over the term of
the options. These numbers are calculated based on rules promulgated by the
Securities and Exchange Commission and do not reflect IVI Checkmate's estimate
of future stock price growth. Actual gains, if any, on stock option exercises
and common stock holdings are dependent on the timing of the exercises and the
future performance of the common stock. IVI Checkmate provides no guarantee
that the rates of appreciation assumed in this table can be achieved or that
the amounts reflected will be received by the individuals. This table does not
take into account any appreciation of the price of the common stock from the
date of grant to the current date.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
------------------------------------------------------- ------------------------------
Number of
Securities Percent of Total
Underlying Options Granted Exercise or
Options Granted to Employees in Base Price Expiration
Name (#) Fiscal Year ($/sh) Date 5%($) 10%($)
- ---- --------------- ---------------- ----------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
L. Barry Thomson........ 150,000 13% $5.50 1/14/07 $394,000 $ 943,000
Gregory A. Lewis........ -- -- -- -- -- --
John J. Neubert......... 15,000 1% $6.81 1/14/04 $ 28,000 $ 62,000
</TABLE>
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, 1999
and the aggregate dollar value of those unexercised options as of December 31,
1999. The Value of the Unexercised In-The-Money Options in the chart below is
equal to the difference between the option exercise price and the closing sale
price of IVI Checkmate's common stock on the Nasdaq National Market on December
31, 1999, multiplied by the number of shares underlying the option. Mr. Thomson
was the only Named Executive Officer who exercised stock options in 1999. Mr.
Thomson exercised 99,900 options in January 1999 as these options were expiring
in that month.
Aggregated Option Exercises in Last Fiscal Year And Fiscal Year--End Option
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at December 31, In-The-Money Options at
Shares 1999 (#) December 31, 1999 ($)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
L. Barry Thomson........ 99,000 $104,895 383,250/0 0/0
Gregory A. Lewis........ -- -- 383,250/0 0/0
John J. Neubert......... -- -- 319,373/15,000 0/0
</TABLE>
Employment Agreements
On June 25, 1998, IVI Checkmate entered into an employment agreement with L.
Barry Thomson with regard to Mr. Thomson's services as IVI Checkmate's
President and Chief Executive Officer and as President and Chief Executive
Officer of IVI Checkmate Ltd. 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
67
<PAGE>
certain performance goals are satisfied. The agreement also provided for the
grant to Mr. Thomson of options under IVI Checkmate's 1998 Long-Term Incentive
Plan for the purchase of 233,250 shares of IVI Checkmate 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 IVI Checkmate common stock, which were granted to
replace options to purchase 150,000 shares of International Verifact Inc.
common stock that expired in January 1999. The exercise price of the options
for 150,000 shares is $5.50 per share. All of the options vest upon grant and
expire nine years from the date of grant.
The agreement provides that if Mr. Thomson's employment is terminated for
cause or as a result of Mr. Thomson's disability or death or if terminated by
Mr. Thomson, he 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, IVI Checkmate and Gregory A. Lewis entered into a three-
year employment agreement providing for his employment as President of IVI
Checkmate's U.S. operations and Chief Operating Officer of IVI Checkmate at a
salary of $321,000 in 1998, $345,000 in 1999 and $371,000 in 2000. The
employment agreement provides 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. Effective February 24, 2000, Mr. Lewis resigned from his position as
President and Chief Executive Officer of IVI Checkmate's U.S. operations
without "good reason" (as this term is defined in his employment agreement).
Consequently, he is entitled to receive his earned but unpaid base salary up to
the date of his resignation and a pro rata portion of his target annual bonus
for the year. Mr. Lewis disputes the circumstances that led to his resignation.
In September 1999, IVI Checkmate and John J. Neubert entered into an amended
and restated three-year employment agreement, which provides for his employment
as IVI Checkmate's Executive Vice President and Chief Financial Officer at a
salary of $220,000 in 1998, $235,000 in 1999 and $255,000 in 2000. Mr.
Neubert's employment agreement provides that commencing on January 1, 1999, and
at the end of each subsequent year, the employment period will automatically be
extended so as to terminate three years from such renewal date, unless
previously terminated. Both Mr. Lewis' and Mr. Neubert's employment agreements
provide the opportunity for annual bonuses if certain performance goals are
satisfied.
Mr. Neubert's employment agreement provides further that if the employment
of Mr. Neubert is terminated by Mr. Neubert for good reason, by IVI Checkmate
Inc. other than for cause, death or disability, or because the term expires,
Mr. Neubert will receive a lump sum payment equal to (1) his unpaid base salary
up to the date of termination, (2) the product of his target annual bonus for
the year in which his employment is terminated 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 for three years. Additionally, for three years after
Mr. Neubert's employment is terminated (or longer if required by the
appropriate welfare plan), IVI Checkmate will provide benefits to Mr. Neubert
and his family at least equal to the benefits he received prior to his
departure, and if Mr. Neubert's employment is terminated within two years of a
change of control, 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. Neubert's death, Mr. Neubert'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. Neubert's disability, retirement or voluntary
termination without good reason or by IVI Checkmate for cause, Mr. Neubert 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.
68
<PAGE>
Report of the Compensation Committee of the Board of Directors of IVI Checkmate
Introduction
The compensation committee is responsible for developing IVI Checkmate's
executive compensation policies and advising the board of directors with
respect to these policies. This report by the compensation committee reviews
IVI Checkmate's policies generally with respect to the compensation of all
executive officers as a group for 1999 and specifically reviews the
compensation established for IVI Checkmate's Chief Executive Officer for 1999.
The members of the committee are Bertil D. Nordin (Chairman) and Peter E.
Roode. None of the committee members is or has been an officer or employee of
IVI Checkmate or any of its subsidiaries or has engaged in any business
transaction or has any business relationship that is required to be disclosed
in this proxy statement-prospectus.
Compensation Policy for Executive Officers
IVI Checkmate's executive compensation program for fiscal 1999 was designed
to attract and retain a highly qualified and motivated management team, reward
individual performance and link the interests of the senior executives directly
with those of the shareholders. IVI Checkmate's 1999 compensation program is
comprised of base salary, annual bonuses and long-term incentive pay in the
form of stock options. This program applies to all of IVI Checkmate's key
management personnel, including its Chief Executive Officer. All of IVI
Checkmate's executives also are eligible for other employee benefits, including
life, health, disability and dental insurance and our savings plan and employee
stock purchase plan.
Base Salary. The compensation committee set the base salaries of top
management for 1999 after reviewing salary levels for comparable executive
positions in the industry. The compensation committee set salaries at levels
competitive with the base salaries of similarly situated executives at
companies of similar size and revenue levels in our industry.
Annual Bonuses. The compensation committee based annual cash bonuses for
executive officers in 1999 on IVI Checkmate's financial performance. During
1999, cash incentive awards were payable only if earnings before tax achieved
budgeted targets. No cash incentive awards were paid to any executive officer
in 1999 as these performance targets were not achieved.
Long-Term Incentive Pay. IVI Checkmate's long-term incentive compensation
plan for its executive officers is based on IVI Checkmate's 1998 Long-Term
Incentive Plan. This plan promotes ownership of IVI Checkmate 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 IVI Checkmate's performance, as reflected by
increases in the price of its common stock and the contribution of the
executive officer to the increase in value. Under the plan, options 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 the stated period
following termination of employment.
In granting options, the board reviews the amount of options granted to
executives at other comparable companies in the industry, the awards granted to
other employees within the company, the individual's position at the company
and his role in helping the company achieve its goals. During 1999, options for
the purchase of a total of 165,000 shares of common stock, equal to 14% of all
options granted to IVI Checkmate's employees during 1999, were granted to the
Named Executive Officers. Mr. Thomson received options for 150,000 shares,
which were granted to replace options to purchase 150,000 shares of
International Verifact Inc. common stock that expired in January 1999, and Mr.
Neubert received options for 15,000 shares. Mr. Lewis was not granted any
options in 1999.
69
<PAGE>
Chief Executive Officer's Compensation
Mr. Thomson served as IVI Checkmate's President and Chief Executive Officer
during 1999. Mr. Thomson's 1999 base salary was $350,000 as specified in his
employment agreement. Based on IVI Checkmate's financial performance in 1999,
Mr. Thomson did not receive an annual incentive bonus. The compensation
committee did grant Mr. Thomson options for the purchase of 150,000 shares of
common stock under the 1998 Long-Term Incentive Plan, which were granted to
replace options to purchase 150,000 shares of International Verifact Inc.
common stock that expired in January 1999. The compensation committee set the
number of options granted to Mr. Thomson based upon comparative information
regarding stock options granted to chief executive officers at companies of
similar size and revenue levels in the industry. Mr. Thomson's total
compensation for 1999 is provided in detail in the Summary Compensation Table
set forth above.
Policy With Respect to Deductibility of Compensation Expense
Section 162(m) of the Internal Revenue Code limits the tax deduction that
IVI Checkmate may take with respect to the compensation of certain executive
officers, unless the compensation is "performance based" as defined in the
Code. The 1998 Long-Term Incentive Plan is designed to comply with Internal
Revenue Service requirements for deductibility of performance-based
compensation.
Conclusion
IVI Checkmate's executive compensation program is designed to closely link
pay with performance and the creation of stockholder value. If IVI Checkmate
achieves average financial performance levels, its executives will be
compensated at "median levels" for comparable companies. If IVI Checkmate's
performance is exceptionally higher at the targeted levels, executive
compensation will exceed such "median levels." The compensation committee
believes that the program has been and will continue to be successful in
supporting IVI Checkmate's financial growth and other business objectives.
COMMITTEE MEMBERS:
Bertil D. Nordin
Peter E. Roode
Compensation Committee Interlocks and Insider Participation
During 1999, 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 IVI Checkmate's
board concerning executive officer compensation for 1999. Messrs. Thomson,
Lewis, Neubert and Whitton also served during 1999 on the board of directors of
NTN, which board establishes the compensation of the executive officers of NTN.
Messrs. Thomson, Lewis and Neubert are executive officers of NTN. They received
no cash compensation for their services as directors or executive officers of
NTN in 1999.
No Litigation and Certain Transactions
No Litigation
There is currently no litigation to which any of the following is a party
adverse to IVI Checkmate or any of its subsidiaries or has a material interest
adverse to IVI Checkmate or any of its subsidiaries:
. directors of IVI Checkmate;
. officers of IVI Checkmate;
. affiliates of IVI Checkmate;
. owners of record or beneficially of more than five percent of any class
of voting securities of IVI Checkmate; and
. any associate of any such director, officer or affiliate of IVI
Checkmate or security holder.
70
<PAGE>
Ingenico Alliance
On December 17, 1996, IVI Checkmate Ltd. entered into a strategic alliance
with Ingenico. Ingenico owned approximately 7.8% of the outstanding IVI
Checkmate common stock and exchangeable shares of IVI Checkmate Ltd. 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 IVI Checkmate's board of directors, is the
Managing Director of Ingenico, and Gareth Owen, also a member of IVI
Checkmate's board, is an officer of a subsidiary of Ingenico.
The alliance enabled IVI Checkmate Ltd. 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 Checkmate Ltd. 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 Checkmate Ltd. 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 Checkmate Ltd.'s common
stock in December 1996, equal at the time to approximately 16.7% of IVI
Checkmate Ltd.'s outstanding common stock, for approximately $7,240,000.
Additionally, IVI Checkmate Ltd. granted to Ingenico a future participation
right enabling Ingenico to preserve its percentage ownership of IVI Checkmate
Ltd.'s common stock on a non-diluted basis by subscribing to purchase
additional shares of IVI Checkmate Ltd.'s common stock if IVI Checkmate Ltd.
issues additional shares of IVI Checkmate Ltd.'s common stock. The price
payable by Ingenico for additional IVI Checkmate Ltd. 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 Checkmate Ltd. of additional shares of IVI
Checkmate Ltd.'s common stock.
Under the investment agreement, IVI Checkmate Ltd. also agreed to take the
steps necessary to reconstitute the board of directors of IVI Checkmate Ltd. so
that it would be comprised of eight members, two of whom initially would be
nominees of Ingenico. The board of directors of IVI Checkmate Ltd. 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 Checkmate Ltd. 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
Checkmate Ltd. decreased below 5%, it would no longer have the right to
nominate a director of IVI. Ingenico's current ownership of IVI Checkmate's
stock has decreased to approximately 8.5%. As a result, Ingenico is permitted
only one representative on IVI Checkmate's board, which is Mr. Compain. Mr.
Owen, an employee of one of Ingenico's subsidiaries, also served on IVI
Checkmate's board.
At the time of the combination of IVI Checkmate Ltd. and IVI Checkmate Inc.
on June 25, 1998, IVI Checkmate, IVI Checkmate Ltd. and Ingenico entered into
an assignment, assumption and consent agreement under which the agreements with
Ingenico were assigned by IVI Checkmate Ltd. to IVI Checkmate and were assumed
by IVI Checkmate. The result is that IVI Checkmate now has all of the right,
title, interest, liabilities and obligations that IVI Checkmate Ltd. had under
the agreements with Ingenico.
71
<PAGE>
Pursuant to the marketing and distribution agreement, IVI Checkmate
purchased products from Ingenico in 1998 and 1999 for a total of $6.8 million
and $11.4 million, respectively.
Noblett Transactions
Paul W. Noblett, who is one of IVI Checkmate's directors, is President and a
director of Diversified Merchant Resources, Inc. In exchange for consulting
services provided to IVI Checkmate and its subsidiaries in 1999, IVI Checkmate
paid $34,925 to DMRI. IVI Checkmate does not expect to do any significant
amount of business with DMRI in 2000.
Spence Transactions
J. Stanford Spence, the Chairman of the Board of IVI Checkmate, is a
director and significant stockholder of PayMate.net Corporation. As
contemplated by IVI Checkmate's agreement with PayMate, IVI Checkmate expects
to receive payments of approximately $140,000 in 2000 for products and services
sold to PayMate, and depending on the timing of PayMate's ordering of services
and the amount of product that they purchase, the payments could exceed
$500,000. IVI Checkmate received no payments from PayMate in 1999.
72
<PAGE>
Stock Performance Graph
Prior to the combination of International Verifact, Inc. and Checkmate
Electronics, Inc. on June 25, 1998, the common stocks of International Verifact
and Checkmate Electronics were traded on the Nasdaq National Market under the
symbols "IVIAF" and "CMEL," respectively, and International Verifact'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 International Verifact's exchangeable shares began
trading on The Toronto Stock Exchange under the symbol "IVI." The International
Verifact 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 International Verifact common stock and the
Checkmate Electronics common stock from December 31, 1994 to June 25, 1998 and
on the IVI Checkmate common stock from June 26, 1998 to December 31, 1999 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, 1994 proportionally by market
capitalization in the common stock of International Verifact and the
common stock of Checkmate Electronics 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.
IVI Checkmate
Stock Performance Graph
December 31, 1999
[STOCK PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
12/31 12/31 12/31 12/31 06/25 12/31 12/31
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
NASDAQ US Index............ 100.00 141.41 173.95 213.55 256.66 299.68 556.16
NASDAQ Computer
Manufacturing Companies
Index..................... 100.00 157.52 211.52 255.87 372.79 555.66 1,139.25
Toronto Stock Exchange
Index..................... 100.00 111.86 140.65 158.98 174.82 153.91 199.66
IVI Checkmate Corp......... 0.00 0.00 0.00 0.00 100.00 67.74 39.52
Checkmate Electronics,
Inc....................... 100.00 203.43 179.30 94.82 106.89 0.00 0.00
International Verifact
Inc....................... 100.00 133.86 88.39 130.97 118.07 0.00 0.00
</TABLE>
73
<PAGE>
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
OF IVI CHECKMATE INC. AND NTN MERGER CORP.
Information Concerning Directors and Executive Officers of IVI Checkmate Inc.
The current directors of IVI Checkmate Inc. are L. Barry Thomson, Chairman;
John J. Neubert; James W. Crowley, Frank C. Peters and Howard W. Yenke. The
current executive officers of IVI Checkmate Inc. are L. Barry Thomson,
President and Chief Executive Officer and John J. Neubert, Executive Vice
President and Chief Financial Officer. The following table sets forth the
following information with respect to each of James W. Crowley, Frank C. Peters
and Howard W. Yenke: a description of his position and offices with
IVI Checkmate Inc., if any; a brief description of his principal occupation and
business experience during at least the last five years; certain directorships
presently held by him in companies other than IVI Checkmate Inc.; and certain
other information including his age. Unless otherwise indicated, the business
address of each director and executive officer of IVI Checkmate Inc. is that of
IVI Checkmate at 1003 Mansell Road, Roswell, Georgia 30076. Each of the
remaining directors and/or executive officers is currently a director or
executive officer of IVI Checkmate and certain biographical information
concerning them is set forth in "Information Concerning Directors and Executive
Officers of IVI Checkmate Corp." beginning on page 62.
<TABLE>
<CAPTION>
Name Information
---- -----------
<C> <S>
James W. Crowley........ Mr. Crowley has served as a director of IVI Checkmate
Inc. since June 1998. Mr. Crowley served as a
director of Checkmate Electronics, Inc. at various
times since 1976 and was most recently elected a
director in 1992. He has been retired for more than
seven years. Prior to his retirement, he was Chairman
of the Board of A.M.I., Inc., a technical school in
Daytona Beach, Florida. He also was a founder of
Repadco, Inc., an outdoor advertising company in
Daytona Beach, Florida. He is 79.
Frank C. Peters......... Mr. Peters has served as a director of IVI Checkmate
Inc. since June 1998. Mr. Peters served as a director
of Checkmate Electronics, Inc. from 1993 until June
1998. Mr. Peters has been a Senior Vice President and
Chief Financial Officer of TelephoNet Corp., an
internet and telephone provider, since April 1997.
From August 1995 until April 1997, Mr. Peters was the
President and Chief Executive Officer of MICR-Net
International, Inc., an authenticity verification
systems company. Mr. Peters served as Vice President
and Controller of Merry-Go-Round Enterprises, Inc., a
publicly-traded specialty retailer of men's and
women's apparel from 1974 until his retirement in
1995. In that capacity, Mr. Peters has served as a
principal accounting officer. He is 52.
Howard W. Yenke......... Mr. Yenke has served as a director of IVI Checkmate
Inc. since June 1998 and a director of Checkmate
Electronics, Inc. since 1993. From June 1998 to April
1999, Mr. Yenke was President and Chief Executive
Officer of Casino Data Systems, Inc., a private
company that manufactures slot machines and auditing
systems for the casino business. From December 1997
to June 1998, Mr. Yenke was the President and Chief
Executive Officer of Silent Systems, Inc., a private
company providing thermal and acoustical products to
the PC industry. From July 1996 to November 1997, Mr.
Yenke was the President and Chief Executive Officer
of LANart Corp., a private local area network
company. From November 1995 to June 1996, Mr. Yenke
was President of The Yenke Group, a business
consulting firm. From November 1994 to October 1995,
Mr. Yenke was the President and Chief Executive
Officer of Enterprise Development Corporation of Palm
Beach County, an economic development consulting
firm. From June 1994 to October 1994, Mr. Yenke was
the President and Chief Executive Officer
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
Name Information
---- -----------
<C> <S>
of Enterprise Development Corporation of Palm Beach
County, an economic development consulting firm. From
June 1994 to October 1994, Mr. Yenke was President
and Chief Executive Officer of Arco Computer
Products. From May 1989 to March 1994, Mr. Yenke was
employed by Boca Research, Inc. in several
capacities, including its President and Chief
Executive Officer from September 1991 through March
1994. Prior to that, Mr. Yenke was employed by IBM
Corporation in various executive management
positions. Mr. Yenke is a director of Communications
Systems International, Inc., Access Solutions
International, Inc., and several private companies.
He is 63.
</TABLE>
Information Concerning Directors and Executive Officers of NTN Merger Corp.
The current directors of NTN Merger Corp. are L. Barry Thomson, Chairman;
George Whitton and John J. Neubert. The current executive officers of NTN
Merger Corp. are L. Barry Thomson, President and Chief Executive Officer, and
John J. Neubert, Vice President and Secretary. Each of such directors and/or
officers is currently a director or executive officer of IVI Checkmate or IVI
Checkmate Inc. Certain biographical information regarding Messrs. Thomson,
Whitton and Neubert is set forth in "Information Concerning Directors and
Executive Officers of IVI Checkmate Corp." beginning on page 62.
75
<PAGE>
SHARES BENEFICIALLY OWNED
The following table sets forth, to the knowledge of IVI Checkmate, IVI
Checkmate Inc., NTN or NTN Merger Corp., certain information regarding the
beneficial ownership of NTN common stock as of March 31, 2000, by: (a) each
person who is known by IVI Checkmate, IVI Checkmate Inc., NTN or NTN Merger
Corp. to be the beneficial owner of more than five percent of the 3,325,468
shares of NTN common stock outstanding at such date; (b) each director of IVI
Checkmate, IVI Checkmate Inc., NTN or NTN Merger Corp., (c) each executive
officer of IVI Checkmate, IVI Checkmate Inc., NTN or NTN Merger Corp.; and
(d) all persons listed under clause (b) and (c) above as a group. Except as
otherwise noted below, IVI Checkmate, IVI Checkmate Inc., NTN or NTN Merger
Corp. believes that each beneficial owner has sole voting and investment power
with respect to the number of shares of NTN common stock shown as beneficially
owned by such beneficial owner. Information with respect to beneficial stock
ownership is based upon information furnished by such beneficial owner.
Pursuant to the rules of the Securities and Exchange Commission, shares of
NTN common stock which an individual or group has a right to acquire within 60
days of March 31, 2000, pursuant to the exercise of presently exercisable or
outstanding options are deemed to be outstanding for the purpose of computing
the percentage ownership of such individual or group but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any other
person or group shown in the table.
<TABLE>
<CAPTION>
Beneficial Amount and Nature of
Owner Beneficial Ownership Percent of Class
---------- -------------------- ----------------
<S> <C> <C>
IVI Checkmate Inc........................ 2,726,440 82.0%
IVI Checkmate Corp.(1)
1003 Mansell Road
Roswell, GA 30076
Christopher F. Schellhorn................ 15,000(2) *
Gregory A. Lewis(1)...................... 0 0
L. Barry Thomson(1)...................... 0 0
George C. Whitton(1)..................... 0 0
All directors and executive officers as a
group (5 persons)....................... 15,000(2) *
</TABLE>
- --------
* Less than 1%
(1) IVI Checkmate Inc., which is the record owner of the shares shown, is a
wholly-owned subsidiary of IVI Checkmate. Consequently, IVI Checkmate is
considered to beneficially own the shares held by IVI Checkmate Inc.
Messrs. Lewis, Thomson and Whitton are directors and/or executive officers
of IVI Checkmate and/or IVI Checkmate Inc.
(2) Represents shares subject to currently exercisable options.
76
<PAGE>
EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS
Both NTN and IVI Checkmate are incorporated under the laws of the State of
Delaware, which, accordingly, govern the rights of both the NTN stockholders
and the IVI Checkmate stockholders. Additionally, the rights of NTN
stockholders are currently governed by the NTN certificate of incorporation and
bylaws. The rights of IVI Checkmate stockholders are currently, and after the
merger the rights of NTN stockholders will be, governed by the IVI Checkmate
certificate of incorporation and bylaws.
Because both NTN and IVI Checkmate stockholders are governed by Delaware law
and substantially similar certificates of incorporation and bylaws, many of the
stockholder rights do not differ. Set forth below is a summary of the material
differences between the rights of NTN stockholders and IVI Checkmate
stockholders. The description below is only a summary and is qualified by
reference to Delaware law, the IVI Checkmate certificate of incorporation and
bylaws, and the NTN certificate of incorporation and bylaws. Copies of the IVI
Checkmate certificate of incorporation and the IVI Checkmate bylaws are
incorporated by reference into this proxy statement-prospectus and will be sent
to NTN stockholders upon request. See "Where You Can Find More Information"
beginning on page 82.
<TABLE>
<CAPTION>
NTN Stockholder Rights IVI Checkmate Stockholder Rights
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Corporate The rights of NTN stockholders are The rights of IVI Checkmate
Governance governed by Delaware law and NTN's stockholders are currently
certificate of organization and governed by Delaware law and the
bylaws. Upon completion of the IVI Checkmate certificate of
merger, the rights of NTN incorporation and bylaws. Upon
stockholders who become IVI completion of the merger, the
Checkmate stockholders in the rights of IVI Checkmate
merger will be governed by stockholders will continue to be
Delaware law and the IVI Checkmate governed by Delaware law and the
certificate of incorporation and IVI Checkmate certificate of
bylaws. incorporation and bylaws.
- -----------------------------------------------------------------------------------------
Authorized The authorized capital stock of The authorized capital of IVI
Capital Stock NTN consists of 20,000,000 shares Checkmate is set forth under
of common stock and 5,000,000 "Description of IVI Checkmate
shares of preferred stock. Capital Stock" on page 81.
- -----------------------------------------------------------------------------------------
Preferences Holders of NTN preferred stock, IVI Checkmate Series B Preferred
when and if issued, are entitled Stock represents the right to
to preferences over NTN common vote the outstanding shares of
stock, if any, as set forth in the IVI Checkmate Ltd. exchangeable
resolutions of the NTN board of shares in accordance with
directors authorizing the issuance instructions received by the
of one or more series of preferred holders of the exchangeable
stock and the related certificate shares and a $1.00 liquidation
of designations. As of the date preference. Series D Convertible
hereof, there are no shares of NTN Preferred Stock entitles its
preferred stock outstanding. holders to the following
preferences over the holders of
IVI Checkmate common stock:
. Preferential right to
distributions upon the
liquidation, dissolution or
winding up of IVI Checkmate.
. Preferential right to dividends
and other distributions.
. The right to veto any
amendments to the IVI Checkmate
certificate of incorporation or
bylaws which adversely affect
their rights, the authorization
of a senior series or
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
NTN Stockholder Rights IVI Checkmate Stockholder Rights
- ----------------------------------------------------------------------------------------
<S> <C> <C>
class of capital stock, the
disposal of IVI Checkmate's
assets or any transaction
resulting in a change of
control of IVI Checkmate.
. Right of first refusal to
purchase IVI Checkmate
securities issued in the
future.
. Anti-dilution rights with
respect to IVI Checkmate
securities issued in the
future.
- ----------------------------------------------------------------------------------------
Number of NTN's bylaws provide that the IVI Checkmate's bylaws provide
Directors number of directors will be as that the number of directors
determined by the NTN board or the will be as determined by the IVI
NTN stockholders but shall not be Checkmate board. The IVI
less than one. The NTN board Checkmate board currently
currently consists of three consists of nine directors. Each
directors. Each NTN director holds IVI Checkmate director holds
office for a term of one year. office for a term of one year.
- ----------------------------------------------------------------------------------------
Stockholder's The NTN board of directors has not IVI Checkmate's board of
Rights Plan adopted a Stockholder's Rights directors adopted a Stockholder
Plan. Protection Rights Agreement and,
in connection with the
agreement, designated 100,000
shares of Series C junior
participating preferred stock.
The Rights Agreement provides
that if a person or group
becomes a 15% or more beneficial
owner of IVI Checkmate, then IVI
Checkmate stockholders shall be
entitled to buy one-thousandth
of a share of 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 IVI
Checkmate common stock at a
substantial discount from the
market price. IVI Checkmate's
board of directors may redeem
the rights for $.01 per right
prior to the time they become
exercisable.
- ----------------------------------------------------------------------------------------
Special The NTN bylaws provide that the The IVI Checkmate bylaws provide
Meetings of chief executive officer of NTN, a that the chairman, vice
Stockholders majority of the NTN board or NTN chairman, president or
stockholders who hold at least 10% secretary, or a majority of the
of the shares of common stock total number of directors or IVI
entitled to vote at the meeting Checkmate stockholders who hold
may call a special meeting of the a majority of the outstanding
NTN stockholders. shares entitled to vote may call
a special meeting of the IVI
Checkmate stockholders.
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
NTN Stockholder Rights IVI Checkmate Stockholder Rights
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Indemnification Delaware law permits, and the NTN Delaware law permits, and the IVI
of Directors, certificate of incorporation and Checkmate bylaws provide for,
Officers and bylaws provide for, indemnification of directors,
Others indemnification of directors, officers, employees and certain
officers, employees and certain others for expenses incurred by
others for expenses incurred by reason of their position with the
reason of their position with the corporation, if he or she has
corporation, if he or she has acted in good faith with a
acted in good faith with a reasonable belief that his or her
reasonable belief that his or her conduct was in the best interest
conduct was in the best interest of the corporation. Such
of the corporation. determination must be made by:
Such determination must be made .at the request of the claimant,
by: independent legal counsel,
.a majority of disinterested .a majority of disinterested
directors, directors,
.a committee of disinterested .at the disinterested directors'
directors designated by the direction or if there are no
disinterested directors, disinterested directors,
.at the disinterested directors' independent legal counsel,
direction or if there are no or
disinterested directors, .at the disinterested directors'
independent legal counsel, or direction, the stockholders
.the stockholders holding a holding a majority of the shares
majority of the shares of stock of stock
entitled to vote at a meeting entitled to vote at a meeting
called for such purpose. called for such purpose.
However, indemnification is not However, indemnification is not
available in actions brought by or available in actions brought by or
in the right of the corporation, in the right of the corporation,
unless approved by the Delaware unless approved by the Delaware
Court of Chancery. Court of Chancery.
- -------------------------------------------------------------------------------------------
Certain Business Section 203 of the Delaware IVI Checkmate's certificate of
Combinations General Corporation Law provides incorporation includes an election
that, if a person acquires 15% or not to be governed by Section 203
more of the stock of a Delaware of the Delaware General
corporation without the prior Corporation Law.
approval of the board of directors
of that corporation, thereby
becoming an "interested
stockholder," that person may not
engage in certain transactions
with the corporation for a period
of three years, unless one of the
following three exceptions
applies:
. the board of directors approved
the acquisition of stock or the
transaction prior to the time
that person became an interested
stockholder,
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
NTN Stockholder Rights IVI Checkmate Stockholder Rights
- -----------------------------------------------------------------------------------------
<S> <C> <C>
. the person became an interested
stockholder and 85% owner of the
voting stock of the corporation
in the transaction, excluding
voting stock owned by directors
who are also officers and
certain employee stock plans, or
. the transaction is approved by
the board of directors and by
the affirmative vote of two-
thirds of the outstanding voting
stock which is not owned by the
interested stockholder.
A Delaware corporation may elect
not to be governed by Section 203.
NTN has not so elected.
</TABLE>
80
<PAGE>
DESCRIPTION OF IVI CHECKMATE CAPITAL STOCK
IVI Checkmate is authorized to issue 99,000,000 shares of IVI Checkmate
common stock, of which approximately 18,155,569 shares were issued and
outstanding as of March 31, 2000. IVI Checkmate is also authorized to issue
1,000,000 shares of IVI Checkmate preferred stock, par value $0.01 per share.
IVI Checkmate has one share of Series B Preferred Stock outstanding which was
issued in the combination of International Verifact and Checkmate Electronics
on June 25, 1998. IVI Checkmate has 894,663 shares of Series D convertible
preferred stock outstanding which was issued in the acquisition of the assets
of DataCard Financial Services on April 20, 1999.
The holders of IVI Checkmate common stock are entitled to one vote for each
share held on all matters submitted to a vote of common stockholders. IVI
Checkmate common stock does not have cumulative voting rights, preemptive
rights, conversion rights, redemption rights or sinking fund provisions. IVI
Checkmate common stock is not subject to redemption by IVI Checkmate. Subject
to the rights of the holders of any class of capital stock of IVI Checkmate
having any preference or priority over the IVI Checkmate common stock, the
holders of IVI Checkmate common stock are entitled to dividends in such amounts
as may be declared by the IVI Checkmate board of directors from time to time
out of funds legally available for that purpose and, in the event of a
liquidation, to share ratably in any assets of IVI Checkmate remaining after
payment in full of all creditors and appropriate provision for any liquidation
preferences on any outstanding preferred stock ranking prior to the IVI
Checkmate common stock.
For a further description of IVI Checkmate's capital stock, see "Effect of
the Merger on Rights of Stockholders" beginning on page 77.
OTHER MATTERS
As of the date of this proxy statement-prospectus, NTN's board of directors
knows of no matters that will be presented for consideration at the special
meeting other than as described in this proxy statement-prospectus. However, if
any other matters properly come before the special meeting or any adjournment
or postponement of the special meeting and are voted upon, the enclosed proxy
will be deemed to confer discretionary authority to the individuals named as
proxies to vote the shares represented by such proxy as to any such matters.
STOCKHOLDER PROPOSALS
If the merger is not completed for any reason, the NTN board of directors
will schedule the 2000 annual meeting of stockholders of NTN in accordance with
NTN's bylaws. NTN stockholders will be notified of the scheduled date of the
2000 annual meeting in accordance with the rules and regulations of the
Securities and Exchange Commission. At such time as stockholders are notified
of the scheduled date of the 2000 annual meeting, stockholders will be notified
of the deadline for submitting proposals for consideration at the 2000 annual
meeting, which, in accordance with the rules and regulations of the Securities
and Exchange Commission, shall be a deadline which is a reasonable time before
NTN begins to print and mail its proxy materials for the 2000 annual meeting.
EXPERTS
The consolidated financial statements of IVI Checkmate Corp. at December 31,
1999 and 1998 and for each of the three years in the period ended December 31,
1999 included and incorporated by reference in this proxy statement-prospectus
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon, which as to the year ended December 31, 1997, is based in
part on the report of Coopers & Lybrand, independent auditors. The consolidated
financial statements referred to above are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements and schedule of National Transaction Network, Inc.
at December 31, 1999 and 1998 and for the years then ended included and
incorporated by reference in this proxy statement-prospectus have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon (which
81
<PAGE>
contain an explanatory paragraph describing conditions that raise substantial
doubt about National Transaction Network, Inc.'s ability to continue as a going
concern as described in Note 1 to the financial statements) appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
The financial statements and the related financial statement schedule of
National Transaction Network, Inc. for the year ended December 31, 1997,
included and incorporated by reference in this proxy statement-prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are included and incorporated by reference herein, and have been
so included and incorporated in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
CHANGE IN NTN ACCOUNTANTS
In November 1998, NTN dismissed Deloitte & Touche LLP as its independent
accountants. NTN then engaged Ernst & Young LLP as its independent accountants
to audit its financial statements. Prior thereto, Deloitte & Touche had served
as NTN's independent accountants. At the time of the change, Ernst & Young was
and has continued to serve as the independent accountants for IVI Checkmate.
The decision by NTN to change accountants was not recommended or approved by
the board of directors of NTN or any committee thereof. During the fiscal year
ended December 31, 1997 and subsequent interim period preceding Deloitte &
Touche's dismissal, there were no disagreements with Deloitte & Touche on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedures, nor were there any reportable events of the
type described in subparagraphs (a)(1)(v)(A)-(D) of Item 304 of Regulation S-K
of the Securities and Exchange Commission. Deloitte & Touche's report on the
financial statements for the fiscal year ended December 31, 1997 contained no
adverse opinion or disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles.
During NTN's fiscal years ended December 31, 1997 and the subsequent interim
period prior to engaging Ernst & Young, neither NTN nor anyone on its behalf
consulted Ernst & Young regarding any of the matters described in subparagraphs
(a)(2)(i) or (ii) of Item 304 of Regulation S-K.
OPINIONS
Alston & Bird LLP, Atlanta, Georgia, counsel to IVI Checkmate, will opine as
to the legality of the shares of IVI Checkmate common stock to be issued in the
merger.
WHERE YOU CAN FIND MORE INFORMATION
IVI Checkmate and NTN each file reports, proxy statements and other
information with the SEC. You can obtain copies of those reports, proxy
statements and other information:
. at the Public Reference Room of the SEC, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549;
. from the Internet site that the SEC maintains at http://www.sec.gov,
which contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC; and
. with regard to IVI Checkmate but not NTN, at the offices of The Nasdaq
Stock Market, Inc., Reports Section, 1735 K Street, N.W., Washington,
D.C. 20006.
You may obtain information on the operation of the SEC's Public Reference
Room by calling the SEC at 1-800-SEC-0330.
This proxy statement-prospectus is part of a registration statement that IVI
Checkmate filed with the SEC relating to the IVI Checkmate common stock offered
to the NTN stockholders. The registration statement contains more information
than this proxy statement-prospectus regarding IVI Checkmate and IVI
Checkmate's common stock, including certain exhibits. You can get a copy of the
registration statement (Registration No. 333-83743) from the locations listed
above.
82
<PAGE>
The SEC allows IVI Checkmate and NTN to "incorporate by reference"
additional information into this proxy statement-prospectus. This means that
IVI Checkmate and NTN can disclose additional important information about
themselves to you by referring you to another document that they have filed
separately with the SEC. The information incorporated by reference is
considered to be a part of this proxy statement-prospectus, except for any
incorporated information that is superceded by information contained directly
in this proxy statement-prospectus.
IVI Checkmate incorporates by reference the documents listed below, as well
as any future documents filed with the SEC (File No. 000-29772) under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act after the date of this
proxy statement-prospectus and prior to final adjournment of the special
meeting:
. its annual report on Form 10-K for the fiscal year ended December 31,
1999, including those portions of its proxy statement for the 2000 annual
meeting of stockholders incorporated in the Form 10-K by reference;
. its current report on Form 8-K dated April 27, 2000; and
. the descriptions of IVI Checkmate's common stock and Series C junior
participating preferred stock purchase rights set forth in its
registration statements filed under Section 12 of the Securities Exchange
Act, and any amendment or report filed for the purpose of updating these
descriptions.
NTN incorporates by reference the documents listed below filed with the SEC
(File No. 000-10966) under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act:
. its annual report on Form 10-K for the fiscal year ended December 31,
1999, as amended by Form 10-K/A filed on April 28, 2000; and
. the descriptions of NTN's common stock set forth in its registration
statements filed under Section 12 of the Securities Exchange Act, and any
amendment or report filed for the purpose of updating these descriptions.
All information contained in this proxy statement-prospectus or incorporated
herein by reference with respect to IVI Checkmate was supplied by IVI
Checkmate, and all information contained in this proxy statement-prospectus
with respect to NTN was supplied by NTN.
PLEASE NOTE
We have not authorized anyone to provide you with any information other than
the information included in this proxy statement-prospectus and the documents
we refer you to. If someone provides you with other information, please do not
rely on it as being authorized by IVI Checkmate or NTN.
You can obtain free copies of this information by writing or calling.
Corporate Secretary
IVI Checkmate Corp.
1003 Mansell Road
Roswell, Georgia 30076
Telephone: (770) 594-6000
You may obtain copies of the information incorporated by reference in this
proxy statement-prospectus upon written or oral request. In order to obtain
timely delivery of the documents, you must request the information by June 6,
2000.
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APPENDIX A
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- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
NATIONAL TRANSACTION NETWORK, INC.,
IVI CHECKMATE CORP.,
IVI CHECKMATE INC.
AND
NTN MERGER CORP.
DATED AS OF
July 20, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
The Merger
<TABLE>
<C> <S> <C>
Section 1.1 Company Action............................................... 2
1.2 The Merger................................................... 2
1.3 Conversion of Shares......................................... 2
1.4 Exchange Procedures.......................................... 3
1.5 Dissenting Shares............................................ 4
1.6 Stock Options................................................ 4
ARTICLE II
The Surviving Corporation
Section 2.1 Certificate of Incorporation................................. 4
2.2 Bylaws....................................................... 4
2.3 Directors and Officers....................................... 4
ARTICLE III
Representations and Warranties of the Company
Section 3.1 Corporate Existence and Power................................ 5
3.2 Corporate Authorization...................................... 5
3.3 Governmental Authorization................................... 5
3.4 Non-Contravention............................................ 5
3.5 Capitalization............................................... 5
3.6 SEC Filings.................................................. 5
3.7 Financial Statements......................................... 6
3.8 Disclosure Documents......................................... 6
3.9 Finders' and Bankers' Fees................................... 6
3.10 Opinion of Financial Advisor................................. 6
ARTICLE IV
Representations and Warranties of IVI Corp
Section 4.1 Corporate Existence and Power................................ 6
4.2 Corporate Authorization...................................... 6
4.3 Governmental Authorization................................... 7
4.4 Capitalization............................................... 7
4.5 Non-Contravention............................................ 7
4.6 Disclosure Documents......................................... 7
4.7 Finders' and Bankers' Fees................................... 7
4.8 SEC Filings.................................................. 8
ARTICLE V
Representations and Warranties of IVI Inc. and Merger Subsidiary
Section 5.1 Corporate Existence and Power................................ 8
5.2 Corporate Authorization...................................... 8
5.3 Governmental Authorization................................... 8
5.4 Non-Contravention............................................ 8
5.5 Disclosure Documents......................................... 8
5.6 Finders' and Bankers' Fees................................... 9
</TABLE>
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ARTICLE VI
Covenants of the Company
<TABLE>
<C> <S> <C>
Section 6.1 Conduct of the Company.................................... 9
6.2 Stockholder Meeting; Proxy Statement Material............. 10
6.3 Access to Information..................................... 10
6.4 Other Potential Bidders................................... 10
6.5 Notices of Certain Events................................. 10
ARTICLE VII
Covenants of Buyer
Section 7.1 Voting of Shares.......................................... 10
7.2 Director and Officer Liability............................ 11
7.3 Notices of Certain Events................................. 11
ARTICLE VIII
Covenants of Buyer and the Company
Section 8.1 Reasonable Efforts........................................ 11
8.2 Certain Filings........................................... 11
8.3 Public Announcements...................................... 11
8.4 Further Assurances........................................ 11
8.5 Registration Statement; Company Proxy Statement........... 12
ARTICLE IX
Conditions to the Merger
Section 9.1 Conditions to the Obligations of Each Party............... 12
9.2 Additional Conditions to the Obligations of Buyer and
Merger Subsidiary........................................ 13
9.3 Additional Conditions to the Obligations of the Company... 13
ARTICLE X
Termination
Section 10.1 Termination............................................... 14
10.2 Effect of Termination..................................... 14
ARTICLE XI
Miscellaneous
Section 11.1 Definitions............................................... 15
11.2 Notices................................................... 17
11.3 No Survival of Representations and Warranties............. 17
11.4 Amendments; No Waivers.................................... 17
11.5 Fees and Expenses......................................... 18
11.6 Successors and Assigns.................................... 18
11.7 Governing Law............................................. 18
11.8 Severability.............................................. 18
11.9 Captions.................................................. 18
11.10 Interpretations........................................... 18
11.11 Counterparts; Effectiveness............................... 18
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of July 20, 1999, by and among
NATIONAL TRANSACTION NETWORK, INC., a Delaware corporation (the "Company"), IVI
CHECKMATE CORP., a Delaware corporation ("IVI Corp."), IVI CHECKMATE INC., a
Georgia corporation and wholly-owned subsidiary of IVI Corp. ("IVI Inc.") (IVI
Corp. and IVI Inc. are sometimes referred to collectively as "Buyer"), and NTN
MERGER CORP., a Delaware corporation and wholly-owned subsidiary of IVI Inc.
("Merger Subsidiary").
WHEREAS:
A. The authorized capital stock of the Company consists of (i) 20,000,000
shares of common stock, $.15 par value (the "Company Common Stock"), of which
3,325,468 shares were issued and outstanding as of the close of business on
July 23, 1999, and (ii) 5,000,000 shares of preferred stock, $.10 par value
(the "Company Preferred Stock"), none of which shares are issued and
outstanding as of the date hereof.
B. IVI Inc. currently owns, and immediately prior to the Effective Time (as
defined herein) will own, 2,726,440 shares of Company Common Stock representing
approximately 82.0% of the total issued and outstanding Company Common Stock.
C. A special negotiating committee of the Board of Directors of the Company,
appointed on January 8, 1999 and comprised of the sole director who is neither
a member of management of the Company nor affiliated with Buyer or any
Affiliate, as defined herein, of Buyer (other than the Company) (the "Special
Committee"), has determined that the Merger, as defined herein, is fair to and
in the best interests of the stockholders of the Company other than Buyer (the
"Public Stockholders") and has approved this Agreement and recommends its
approval and adoption by the Board of Directors of the Company.
D. The Board of Directors of the Company, based in part on the
recommendation of the Special Committee, has determined that the Merger is fair
and in the best interests of the Public Stockholders and has resolved to
approve and adopt this Agreement and the transactions contemplated hereby and,
subject to the terms and conditions set forth herein, to recommend the approval
and adoption of this Agreement and the Merger by the stockholders of the
Company.
E. The Board of Directors of the Company, IVI Corp., IVI Inc. and Merger
Subsidiary each have approved the merger of Merger Subsidiary with and into the
Company (the "Merger") in accordance with the Delaware General Corporation Law
(the "DGCL") with respect to the Company, IVI Corp. and Merger Subsidiary, and
the Georgia Business Corporation Code (the "GBCC") with respect to IVI Inc.,
and the terms and conditions provided below, pursuant to which each Share, as
defined herein (other than Shares held by the Company as treasury stock, Shares
owned by Buyer immediately prior to the Effective Time and Shares as to which
appraisal rights have been perfected), shall be converted into the right to
receive the Merger Consideration.
F. Certain capitalized terms used herein are defined in Section 10.1.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements herein contained, the parties hereto agree as
follows:
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ARTICLE I
The Merger
Section 1.1 Company Action. The Company represents that its Board of
Directors, at a meeting duly called and held and acting, in part, on the
unanimous recommendation of the Special Committee, has (i) unanimously
determined that this Agreement and the transactions contemplated hereby,
including the Merger, are fair to and in the best interests of the Public
Stockholders, (ii) unanimously approved this Agreement and the transactions
contemplated hereby, including the Merger, and (iii) unanimously resolved to
recommend approval of this Agreement and the transactions contemplated hereby;
including the Merger, by the Company's stockholders, provided, that such
recommendation may be withdrawn, modified or amended by the Board of Directors
of the Company if the Board deems such withdrawal, modification or amendment
necessary in light of its fiduciary obligations to the Company's stockholders
after consultation with counsel.
Section 1.2 The Merger.
(a) At the Effective Time, Merger Subsidiary shall be merged with and into
the Company in accordance with the DGCL, whereupon the separate existence of
Merger Subsidiary shall cease, and the Company shall be the Surviving
Corporation, as defined herein.
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, the Company and Merger
Subsidiary shall file a certificate of merger with the Secretary of State of
the State of Delaware and make all other filings or recordings required by the
DGCL in connection with the Merger. The Merger shall become effective at such
time as such certificate of merger is duly filed with the Secretary of State of
the State of Delaware or at such later time as is specified in such certificate
of merger (the "Effective Time").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, liabilities and duties of the Company and Merger
Subsidiary, all as provided under the DGCL.
Section 1.3 Conversion of Shares. Subject to the provisions of this
Agreement, at the Effective Time, automatically by virtue of the Merger and
without any action on the part of any party or stockholder:
(a) the shares (excluding shares held by the Company or by Buyer or any of
its subsidiaries, in each case other than in a fiduciary capacity ("Non-Public
Shares"), and excluding shares held by Public Stockholders who perfect their
statutory dissenters' rights as provided in Section 1.5) of Company Common
Stock (each a "Share" and collectively the "Shares") issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for the right to receive the number of shares of the common stock, $.01 par
value, of IVI Corp. ("IVI Common Stock") that would be equal to $.30 multiplied
by the number of Shares (excluding Non-Public Shares) issued and outstanding
immediately prior to the Effective Time, as provided in Section 1.4 (the
"Merger Consideration"). For purposes of this calculation, the number of shares
of IVI Common Stock to be issued in exchange for the Shares shall be calculated
pursuant to a valuation determined by a base period trading price (the "Base
Period Trading Price"), which shall mean the average of the daily closing price
for shares of IVI Common Stock for the twenty (20) consecutive full trading
days on which such shares are actually traded on the Nasdaq National Market
ending at the close of trading on the second trading day immediately preceding
the Effective Time;
(b) each Share of Company Common Stock held as Non-Public Shares immediately
prior to the Effective Time shall be canceled and retired at the Effective Time
and no consideration shall be issued in exchange therefor;
(c) each share of common stock of Merger Subsidiary issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding and shall
be converted into one share of the common stock of the Surviving Corporation;
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(d) holders of Shares shall cease to be, and shall have no rights as,
stockholders of the Company, other than to receive (i) any dividend or other
distribution with respect to such Company Common Stock with a record date
occurring prior to the date hereof and (ii) the Merger Consideration provided
under this Section 1.3. After the Effective Time, there shall be no transfers
on the share transfer books of the Company or the Surviving Corporation of
shares of Company Common Stock; and
(e) notwithstanding any other provision hereof, no fractional shares of IVI
Common Stock and no certificates or scrip therefor, or other evidence of
ownership thereof, will be issued in the Merger; instead, Buyer shall pay to
each holder of Company Common Stock who would otherwise be entitled to a
fractional share of IVI Common Stock an amount in cash (without interest)
determined by multiplying such fraction by the Base Period Trading Price.
Section 1.4 Exchange Procedures.
(a) At or prior to the Effective Time, the Company shall appoint First Union
National Bank as agent (the "Exchange Agent") for the purpose of exchanging
certificates representing Shares ("Old Certificates") for the Merger
Consideration. At or prior to the Effective Time, Buyer shall deposit, or shall
cause to be deposited, with the Exchange Agent, for the benefit of the holders
of Old Certificates, for exchange in accordance with this Section 1.4,
certificates representing the shares of IVI Common Stock ("New Certificates")
and an estimated amount of cash (such New Certificates and cash, together with
any dividends or distributions with respect thereto (without any interest
thereon), being hereinafter referred to as the "Exchange Fund") to be paid
pursuant to Section 1.3 in exchange for outstanding Shares.
(b) As promptly as practicable after the Effective Time, Buyer shall send or
cause to be sent to each former holder of record of Shares immediately prior to
the Effective Time transmittal materials for use in exchanging such holder's
Old Certificates for the Merger Consideration. Buyer shall cause the New
Certificates representing shares of IVI Common Stock into which a holder's
Shares are converted at the Effective Time, together with any check in respect
of any fractional share interests or dividends or distributions which such
stockholder shall be entitled to receive, to be delivered to such stockholder
upon delivery to the Exchange Agent of Old Certificates representing such
Shares (or an affidavit and indemnity in form reasonably satisfactory to Buyer
and the Exchange Agent if any of such certificates are lost, stolen or
destroyed) owned by such holder. No interest will be paid on any such cash to
be paid pursuant to this Section 1 upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor any party
hereto shall be liable to any former holder of Shares for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(d) No dividends or other distributions with respect to IVI Common Stock
with a record date occurring after the Effective Time shall be paid to the
holder of any unsurrendered Old Certificate representing shares of Company
Common Stock converted in the Merger into the right to receive shares of such
IVI Common Stock until the holder thereof shall surrender such Old Certificate
in accordance with this Section 1.4. After the surrender of an Old Certificate
in accordance with this Section 1.4, the record holder thereof shall be
entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares
of IVI Common Stock represented by such Old Certificate.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of the Company for twelve months after the Effective Time shall be
paid to Buyer. Any stockholders of the Company who have not theretofore
complied with this Section 1.4 shall thereafter look only to Buyer for payment
of the shares of IVI Common Stock, cash in lieu of any fractional shares and
unpaid dividends and distributions on the IVI Common Stock deliverable in
respect of each share of Company Common Stock such holder of Shares holds as
determined pursuant to this Agreement, in each case without any interest
thereon. Any amounts remaining unclaimed by holders of Shares two years after
the Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any governmental
entity) shall, to the extent permitted by applicable Law, become the property
of the Buyer free and clear of any claims or
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<PAGE>
interest of any Person previously entitled thereto; provided, however, that
nothing herein shall limit the obligations of the Buyer under Section 1.4(b).
Section 1.5 Dissenting Shares. Notwithstanding Section 1.3, Shares
outstanding immediately prior to the Effective Time and held by a holder who
has not voted in favor of the Merger or consented thereto in writing and who
has demanded appraisal for such Shares in accordance with Section 262 of the
DGCL shall not be converted into a right to receive the Merger Consideration
but shall be converted into the right to receive such consideration from the
Company as may be determined to be due in respect of such dissenting Shares
pursuant to Section 262 of the DGCL; provided, however, that if the holder of
such dissenting Shares shall have failed to perfect or shall have waived,
rescinded or otherwise lost (in each such instance, to the reasonable
satisfaction of the Surviving Corporation) its status as a "dissenting
shareholder" pursuant to Section 262 of the DGCL, then such holder of
dissenting Shares shall forfeit the right to dissent from the Merger and such
Shares shall thereupon be deemed to have been converted into the right to
receive, as of the Effective Time, the Merger Consideration. The Company shall
give Buyer prompt notice of any demands received by the Company for appraisal
of Shares, and Buyer shall have the right to participate in all negotiations
and proceedings with respect to such demands. The Company shall not, except
with the prior written consent of Buyer, make any payment with respect to, or
settle or offer to settle, any such demands.
Section 1.6 Stock Options. As of the Effective Time, each outstanding option
to purchase shares of Company Common Stock ("Company Options") pursuant to
stock options granted under the stock option plans of the Company, whether or
not exercisable, shall be converted into an option to purchase the number of
shares of IVI Common Stock that would equal $.30 divided by the Base Period
Trading Price (the "Option Exchange Ratio") multiplied by the number of shares
of Company Common Stock subject to such option at an exercise price per share
equal to (i) the exercise price in effect under such option immediately prior
to the Effective Time, divided by (ii) the Option Exchange Ratio, and otherwise
on substantially the same terms and conditions, including the terms under which
such option is exercisable, as in effect under such option immediately prior to
the Effective Time.
ARTICLE II
The Surviving Corporation
Section 2.1 Certificate of Incorporation. The certificate of incorporation
of the Company in effect at the Effective Time shall be the certificate of
incorporation of the Surviving Corporation until amended in accordance with
applicable Law.
Section 2.2 Bylaws. The bylaws of the Company in effect at the Effective
Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable Law.
Section 2.3 Directors and Officers. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable Law, (i) the directors of Merger Subsidiary at the Effective Time
shall be the directors of the Surviving Corporation, and (ii) the officers of
the Company at the Effective Time shall be the officers of the Surviving
Corporation.
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ARTICLE III
Representations and Warranties of The Company
The Company represents and warrants to Buyer that:
Section 3.1 Corporate Existence and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the Laws of the State
of Delaware and has all corporate powers and approvals required to carry on its
business as now conducted.
Section 3.2 Corporate Authorization. The execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby are within the Company's corporate powers, and
except for any required approval by the Company's stockholders in connection
with the consummation of the Merger, this Agreement will have been duly
authorized by all necessary corporate action. This Agreement constitutes a
valid and binding agreement of the Company.
Section 3.3 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby require no action by or in
respect of, or filing with, any Governmental Authority other than (i) the
filing of a certificate of merger in accordance with the DGCL, and (ii)
compliance with applicable requirements of the Securities Laws.
Section 3.4 Non-Contravention. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) contravene or conflict
with the certificate of incorporation or bylaws of the Company, (ii) assuming
compliance with the matters referred to in Section 3.3, contravene or conflict
with or constitute a violation of any provision of any Law or Order binding
upon or applicable to the Company or (iii) constitute or result in a default
under, or require any consent pursuant to, any material Contract of the
Company, except where such default or the absence of such consent is not likely
to result in a Material Adverse Effect to the Company .
Section 3.5 Capitalization. The authorized capital stock of the Company
consists of 20,000,000 authorized shares of Company Common Stock and 5,000,000
authorized shares of Company Preferred Stock. As of June 23, 1999, (a)
3,325,468 shares of Company Common Stock were issued and outstanding, (b) no
shares of Company Common Stock were held in the treasury of the Company, (c)
800,000 shares of Company Common Stock were reserved for future issuance
pursuant to employee stock options issued or issuable pursuant to the Company's
1988 Stock Plan, and (d) 300,000 shares of Company Common Stock were reserved
for future issuance pursuant to director stock options issued or issuable
pursuant to the Company's 1995 Director Stock Option Plan. As of June 23, 1999,
(a) no shares of Preferred Stock were issued and outstanding, and (b) no shares
of Preferred Stock were held in the treasury of the Company. All outstanding
shares of Company Common Stock have been duly authorized and validly issued and
are fully paid and nonassessable. Except as set forth in this Section and for
changes since June 23, 1999, resulting from the exercise of stock options
outstanding on such date, there are outstanding (i) no shares of capital stock
or other voting securities of the Company, (ii) no securities of the Company
convertible into or exchangeable for shares of capital stock or voting
securities of the Company, and (iii) no options or other rights to acquire from
the Company, and no obligation of the Company to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company (the items in clauses (i), (ii) and
(iii) being referred to collectively as the "Company Securities"). There are no
outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any Company Securities.
Section 3.6 SEC Filings. The Company has delivered to Buyer (i) its Annual
Report on Form 10-K, as amended, for its fiscal year ended December 31, 1998
(the "Company 10-K"), (ii) its proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of the
Company held since June 2, 1998, and (iii) all of its other reports,
statements, schedules and registration statements filed with the Securities and
Exchange Commission (the "SEC") since December 31, 1998. All reports filed by
the Company with the SEC (i) at the time filed, complied in all material
respects with the applicable requirements
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<PAGE>
of the Securities Laws and other applicable Law and (ii) did not, at the time
they were filed (or, if amended or superseded by a filing prior to the date of
this Agreement, then at the date of such filing), contain any untrue statement
of a material fact or omit to state a material fact required to be stated in
such report or necessary to make the statements in such report, in light of the
circumstances under which they were made, not misleading.
Section 3.7 Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the Company's 10-K and in the Company's Quarterly Reports
on Form 10-Q filed for quarterly periods of fiscal year 1998 (the "Company
10-Qs") fairly present, in conformity with GAAP (except as may be indicated in
the notes thereto), the consolidated financial position of the Company as of
the dates thereof and its consolidated statements of operations and of cash
flows for the periods then ended (subject to normal year-end adjustments in the
case of any unaudited interim financial statements).
Section 3.8 Disclosure Documents. The information with respect to the
Company and its Affiliates that the Company furnishes to the Buyer in writing
specifically for use in each document required to be filed with the SEC in
connection with the transactions contemplated by this Agreement (the
"Disclosure Documents") will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading (i) in the case of the Registration Statement, which
includes the proxy statement of the Company (the "Company Proxy Statement") and
the Prospectus of IVI Corp. (the "IVI Corp. Prospectus"), at the time the
Company Proxy Statement or the IVI Corp. Prospectus or any amendment or
supplement thereto is first mailed to stockholders of the Company, at the time
the stockholders of the Company vote on the adoption of this Agreement and at
the Effective Time, and (ii) in the case of any Disclosure Document other than
the Registration Statement, at the time of the filing thereof and at the time
of any distribution thereof.
Section 3.9 Finders' and Bankers' Fees. There is no investment banker,
broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of the Company or the Special Committee who might
be entitled to any fee or commission from Buyer or any of its Affiliates upon
consummation of the transactions contemplated by this Agreement.
Section 3.10 Opinion of Financial Advisor. The Company has received the
opinion of Southeastern Appraisal Resource Associates, Inc., dated July 20,
1999, to the effect that the Merger Consideration to be paid to the
stockholders of the Company upon the consummation of the Merger is fair, from a
financial point of view, to the Company.
ARTICLE IV
Representations and Warranties of IVI Corp.
IVI Corp. represents and warrants to the Company that:
Section 4.1 Corporate Existence and Power. IVI Corp. is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to consummate the
transactions contemplated by this Agreement.
Section 4.2 Corporate Authorization. The execution, delivery and performance
by IVI Corp. of this Agreement and the consummation by IVI Corp. of the
transactions contemplated hereby are within the corporate powers of IVI Corp.,
and upon approval and adoption of this Agreement by the Board of Directors of
IVI Corp., will have been duly authorized by all necessary corporate action.
This Agreement constitutes a valid and binding agreement of IVI Corp.
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Section 4.3 Governmental Authorization. The execution, delivery and
performance by IVI Corp. of this Agreement and the consummation by IVI Corp. of
the transactions contemplated by this Agreement require no action by or in
respect of, or filing with, any Governmental Authority other than (i) the
filing of a certificate of merger in accordance with the DGCL, and (ii)
compliance with any applicable requirements of the Securities Laws.
Section 4.4 Capitalization. The authorized capital stock of IVI Corp.
consists of 99,000,000 authorized shares of IVI Common Stock and 1,000,000
authorized shares of preferred stock, $.01 par value ("IVI Preferred Stock").
As of July 1, 1999, (a) 12,498,000 shares of IVI Common Stock were issued and
outstanding, (b) 5,616,000 exchangeable shares of IVI Checkmate Ltd., which are
exchangeable by the holders for shares of IVI Common Stock on a share-for-share
basis, were issued and outstanding, (c) 332,150 shares of IVI Common Stock were
held in the treasury of IVI Corp., (d) 2,500,000 shares of IVI Common Stock
were reserved for future issuance pursuant to stock options issued or issuable
pursuant to IVI Corp.'s 1998 Long-Term Incentive Plan, and (e) 250,000 shares
of IVI Common Stock were reserved for future issuance pursuant to stock options
issued or issuable pursuant to IVI Corp.'s 1998 Directors Stock Option Plan. As
of July 1, 1999, (a) one share of IVI Series B Preferred Stock was issued and
outstanding, (b) 894,663 shares of IVI Series D Preferred Stock were issued and
outstanding and (c) no shares of IVI Preferred Stock were held in the treasury
of IVI Corp. All outstanding shares of IVI Common Stock and IVI Preferred Stock
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in this Section and on Schedule 4.4 and
except for changes since July 1, 1999, resulting from the exercise of employee
stock options outstanding on such date, there are outstanding (i) no shares of
capital stock or other voting securities of IVI Corp. (ii) no securities of IVI
Corp. convertible into or exchangeable for shares of capital stock or voting
securities of IVI Corp., and (iii) no options or other rights to acquire from
IVI Corp., and no obligation of IVI Corp. to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of IVI Corp. (the items in clauses (i), (ii) and (iii) being
referred to collectively as the "IVI Corp. Securities"). Other than certain
rights of the holders of IVI Corp.'s Series D Preferred Stock to have IVI Corp.
repurchase such shares, there are no outstanding obligations of IVI Corp. or
any IVI Corp. subsidiary to repurchase, redeem or otherwise acquire any IVI
Corp. Securities.
Section 4.5 Non-Contravention. The execution, delivery and performance by
IVI Corp. of this Agreement and the consummation by IVI Corp. of the
transactions contemplated hereby do not and will not (i) contravene or conflict
with the certificate of incorporation or bylaws of IVI Corp., (ii) assuming
compliance with the matters referred to in Section 4.3, contravene or conflict
with any material provision of Law or Order binding upon or applicable to IVI
Corp or (iii) constitute or result in a default under, or require any consent
pursuant to, any material Contract of the Company, except where such default or
the absence of such consent is not likely to result in a Material Adverse
Effect to IVI Corp.
Section 4.6 Disclosure Documents. The information with respect to IVI Corp.
and its Affiliates that IVI Corp. furnishes to the Company in writing
specifically for use in any Disclosure Document will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading (i) in the case of the Registration
Statement, which includes the Company Proxy Statement and the IVI Corp.
Prospectus, at the time the Company Proxy Statement and the IVI Corp.
Prospectus or any amendment or supplement thereto is first mailed to
stockholders of the Company, at the time the stockholders vote on adoption of
this Agreement and at the Effective Time, and (ii) in the case of any
Disclosure Document other than the Registration Statement, at the time of the
filing thereof and at the time of any distribution thereof.
Section 4.7 Finders' and Bankers' Fees. There is no investment banker,
broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of IVI Corp. who might be entitled to any fee or
commission from the Company if the transactions contemplated by this Agreement
are not consummated.
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Section 4.8 SEC Filings. IVI Corp. has delivered to the Company (i) the
Annual Report on Form 10-K for its fiscal year ended December 31, 1998 (the
"IVI Corp. 10-K"), (ii) its proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of IVI
Corp. held since June 23, 1998, and (iii) all of its other reports, statements,
schedules and registration statements filed with the SEC since December 31,
1998. All reports filed by IVI Corp. with the SEC (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Laws and other applicable Law and (ii) did not, at the time they
were filed (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
report or necessary to make the statements in such report, in light of the
circumstances under which they were made, not misleading.
ARTICLE V
Representations and Warranties of IVI Inc. and Merger Subsidiary
Each of IVI Inc. and Merger Subsidiary represent and warrant to the Company
that:
Section 5.1 Corporate Existence and Power. Each of IVI Inc. and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Georgia and the State of Delaware,
respectively, and each has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to consummate the
transactions contemplated by this Agreement. Since the date of its
incorporation, Merger Subsidiary has not engaged in any material activities
other than in connection with or as contemplated by this Agreement.
Section 5.2 Corporate Authorization. The execution, delivery and performance
by IVI Inc. and Merger Subsidiary of this Agreement and the consummation by IVI
Inc. and Merger Subsidiary of the transactions contemplated hereby are within
the corporate powers of IVI Inc. and Merger Subsidiary, and upon approval and
adoption of this Agreement by the respective Board of Directors of each such
corporation and by IVI Inc. as the sole stockholder of Merger Subsidiary, will
have been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and binding agreement of IVI Inc. and Merger Subsidiary.
Section 5.3 Governmental Authorization. The execution, delivery and
performance by IVI Inc. and Merger Subsidiary of this Agreement and the
consummation by IVI Inc. and Merger Subsidiary of the transactions contemplated
by this Agreement require no action by or in respect of, or filing with, any
Governmental Authority other than (i) the filing of a certificate of merger in
accordance with the DGCL, and (ii) compliance with any applicable requirements
of the Securities Laws.
Section 5.4 Non-Contravention. The execution, delivery and performance by
IVI Inc. and Merger Subsidiary of this Agreement and the consummation by IVI
Inc. and Merger Subsidiary of the transactions contemplated hereby do not and
will not (i) contravene or conflict with the articles or certificate of
incorporation or bylaws of IVI Inc. or Merger Subsidiary, (ii) assuming
compliance with the matters referred to in Section 5.3, contravene or conflict
with any material provision of Law or Order binding upon or applicable to IVI
Inc. or Merger Subsidiary or (iii) constitute or result in a default under, or
require any consent pursuant to, any material Contract of the Company, except
where such default or the absence of such consent is not likely to result in a
Material Adverse Effect to either IVI Inc. or Merger Subsidiary.
Section 5.5 Disclosure Documents. The information with respect to IVI Inc.
and its Affiliates that IVI Inc. furnishes to the Company or IVI Corp. in
writing specifically for use in any Disclosure Document will not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading (i) in the case of the
Registration Statement, which includes the Company Proxy Statement and the IVI
Corp. Prospectus, at the time the Company Proxy Statement and the IVI Corp.
Prospectus or any amendment or supplement thereto is first mailed to
stockholders of the Company, at the time the stockholders vote on
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adoption of this Agreement and at the Effective Time, and (ii) in the case of
any Disclosure Document other than the Registration Statement, at the time of
the filing thereof and at the time of any distribution thereof.
Section 5.6 Finders' and Bankers' Fees. There is no investment banker,
broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of either IVI Inc. or Merger Subsidiary who might
be entitled to any fee or commission from the Company if the transactions
contemplated by this Agreement are not consummated.
ARTICLE VI
Covenants of the Company
The Company agrees that:
Section 6.1 Conduct of the Company. From the date hereof until the
Effective Time, the Company shall conduct its business in the ordinary course
consistent with past practice (except for acts in connection with the Merger)
and shall use reasonable efforts to preserve intact its business organizations
and relationships with third parties and to keep available the services of its
present officers and employees. Without limiting the generality of the
foregoing, from the date hereof until the Effective Time, without the consent
of Buyer:
(a) the Company will not adopt or propose any change in its certificate
of incorporation or bylaws;
(b) the Company will not acquire, whether by purchase of equity
securities, merger or consolidation, any other Person or acquire a material
amount of assets of any other Person except (i) pursuant to existing
Contracts or commitments or (ii) in the ordinary course consistent with
past practice;
(c) the Company will not sell, lease, license or otherwise dispose of
any material assets or property except (i) pursuant to existing Contracts
or commitments or (ii) in the ordinary course consistent with past
practice;
(d) except as otherwise contemplated herein, the Company will not agree
or commit to do any of the foregoing;
(e) the Company will not authorize for issuance, issue, sell, deliver or
agree or commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any stock of any class or any other securities or
equity equivalents (including, without limitation, any stock options or
stock appreciation rights), except as required by outstanding options or
stock appreciation rights under the stock option plans of the Company as in
effect as of the date hereof, or amend any of the terms of any such
securities, options or rights outstanding as of the date hereof, except as
specifically contemplated by this Agreement;
(f) the Company will not split, combine or reclassify shares of its
capital stock, declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of its capital stock, or redeem or otherwise acquire any of its securities;
and
(g) the Company will not, except as may be required by Law, enter into,
adopt or amend or terminate any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, stock equivalent, stock purchase agreement,
pension, retirement, deferred compensation, employment, severance or other
employee benefit agreement, trust, plan, fund or other arrangement for the
benefit or welfare of any director, officer or employee in any manner, or
(except for normal increases in the ordinary course of business consistent
with past practice that, in the aggregate, do not result in a material
increase in benefits or compensation expense to the Company, or as required
under existing agreements) increase in any manner the compensation or
fringe benefits of any director, officer or employee or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including, without limitation, the granting of stock appreciation rights
or performance units).
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Section 6.2 Stockholder Meeting; Proxy Statement Material. The Company shall
cause a meeting of its stockholders (the "Company Stockholder Meeting") to be
duly called and held as soon as reasonably practicable for the purpose of
voting on the approval and adoption of this Agreement the transactions
contemplated hereby, including the Merger. The directors of the Company, acting
in part on the recommendation of the Special Committee, shall, subject to their
fiduciary duties after consultation with counsel, recommend approval and
adoption of this Agreement and the transactions contemplated hereby, including
the Merger, by the Company's stockholders. In connection with such meeting, but
subject to the terms hereof, the Company (i) will promptly prepare and file
with the SEC, will use reasonable efforts to have cleared by the SEC and will
thereafter mail to its stockholders as promptly as practicable the Company
Proxy Statement as set forth in Section 8.5 and all other proxy materials for
such meeting, and will prepare and file the Schedule 13E-3 Transaction
Statement required pursuant to Section 13(e) of the Securities Exchange Act of
1934, as amended (the "Schedule 13E-3"), (ii) will use reasonable efforts to
obtain the necessary approvals by its stockholders of this Agreement and the
transactions contemplated hereby and (iii) will otherwise comply with all legal
requirements applicable to such meeting.
Section 6.3 Access to Information. From the date hereof until the Effective
Time, the Company will give Buyer and its counsel, financial advisors, auditors
and other authorized representatives full access to the offices, properties,
books and records of the Company, will furnish to Buyer and its counsel,
financial advisors, auditors and other authorized representatives such
financial and operating data and other information as such Persons may
reasonably request and will instruct the Company's employees, counsel,
financial advisors and auditors to cooperate with Buyer in its investigation of
the business of the Company; provided that no investigation pursuant to this
Section shall affect any representation or warranty given by the Company to
Buyer hereunder.
Section 6.4 Other Potential Bidders. The Company shall, directly or
indirectly, furnish information and access, in each case in response to
unsolicited requests therefor received prior to or after the date of this
Agreement, to the same extent permitted by Section 6.3 hereof, to any Person
pursuant to appropriate confidentiality agreements, and may participate in
discussions and negotiate with any such Person concerning any merger, sale of
assets, sale of shares of capital stock or similar transaction involving the
Company or any division of the Company (any such transaction being referred to
herein as a "Competing Transaction"), if the Special Committee determines that
such action is necessary in light of its fiduciary obligations to the Company's
stockholders after consultation with counsel. In addition, the Company shall
direct its officers and other appropriate personnel to cooperate with and be
reasonably available to consult with any such Person. Except as set forth
above, the Company shall not solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any Person (other than Buyer)
concerning any merger, sale of assets, sale of shares of capital stock or
similar transaction involving the Company or any division of the Company.
Section 6.5 Notices of Certain Events. The Company shall promptly notify
Buyer of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement; and
(ii) any notice or other communication from any Governmental Authority
in connection with the transactions contemplated by this Agreement.
ARTICLE VII
Covenants of Buyer
Buyer agrees that:
Section 7.1 Voting of Shares. In any vote of the Company's stockholders with
respect to this Agreement and the transactions contemplated hereby, IVI Inc.
shall, and IVI Corp. shall cause IVI Inc. to, vote
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or cause to be voted all of the Shares then outstanding and beneficially owned
by IVI Inc. in favor of the approval and adoption of this Agreement and the
transactions contemplated hereby.
Section 7.2 Director and Officer Liability. For six years from and after the
Effective Time, Buyer will or will cause the Surviving Corporation to indemnify
and hold harmless the present and former officers and directors of the Company
in respect of acts or omissions occurring at or prior to the Effective Time to
the extent provided under the Company's certificate of incorporation and bylaws
in effect on the date hereof; provided that such indemnification shall be
available to the extent permitted by applicable Law. For such six years after
the Effective Time, Buyer will or will cause the Surviving Corporation to
provide officers' and directors' liability insurance in respect of acts or
omissions occurring at or prior to the Effective Time covering each such Person
currently covered by the Company's officers' and directors' liability insurance
policy on terms with respect to coverage and amount no less favorable than
those of such policy in effect on the date hereof, provided that if such
coverage is not obtainable at a cost less than or equal to two times the amount
per annum the Company paid in its last full fiscal year, Buyer shall or shall
cause the Surviving Corporation to purchase such lesser amount of coverage, on
terms as similar in coverage as practicable to such coverage in effect on the
date hereof, as may be obtained having a per annum cost not to exceed two times
the amount per annum the Company paid in its last full fiscal year, which
amount has been disclosed to Buyer.
Section 7.3 Notices of Certain Events. Buyer shall promptly notify the
Company of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement; and
(ii) any notice or other communication from any Governmental Authority
in connection with the transactions contemplated by this Agreement.
ARTICLE VIII
Covenants of Buyer and The Company
The parties hereto agree that:
Section 8.1 Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each party will use reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done all things necessary, proper
or advisable under applicable Laws to consummate the transactions contemplated
by this Agreement.
Section 8.2 Certain Filings. The Company and Buyer shall cooperate with one
another (a) in connection with the preparation of the Disclosure Documents as
set forth in Sections 6.2 and 8.5, (b) in determining whether any action by or
in respect of, or filing with, any Governmental Authority is required, or any
actions, consents, approvals or waivers are required to be obtained from
parties to any material Contracts, in connection with the consummation of the
transactions contemplated by this Agreement, and (c) in seeking any such
actions, consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith or with the Disclosure Documents
and seeking timely to obtain any such actions, consents, approvals or waivers.
Section 8.3 Public Announcements. Buyer and the Company will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable Law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation.
Section 8.4 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or
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Merger Subsidiary, any deeds, bills of sale, assignments or assurances and to
take and do, in the name and on behalf of the Company or Merger Subsidiary, any
other actions and things they may deem desirable to vest, perfect or confirm of
record or otherwise in the Surviving Corporation any and all right, title and
interest in, to and under any of the rights, properties or assets of the
Company acquired or to be acquired by the Surviving Corporation as a result of,
or in connection with, the Merger.
Section 8.5 Registration Statement; Company Proxy Statement.
(a) As soon as possible after the execution of this Agreement, the Company
and IVI Corp. shall prepare and file with the SEC the Registration Statement,
including therein the Company Proxy Statement and IVI Corp. Prospectus to be
sent to the stockholders of the Company, in connection with the registration
under the Securities Laws of the shares of IVI Common Stock to be issued to the
holders of Company Common Stock pursuant to the Merger. The Company and IVI
Corp. each shall use all reasonable efforts to cause the Registration Statement
to become effective as promptly as practicable, and, prior to the effective
date of the Registration Statement, IVI Corp. shall take all or any action
required under any applicable Securities Laws in connection with the issuance
of shares of IVI Common Stock pursuant to the Merger. As promptly as
practicable after the Registration Statement shall have become effective, the
Company shall mail the Company Proxy Statement and IVI Corp. Prospectus to its
stockholders. The Company Proxy Statement and IVI Corp. Prospectus shall
include the recommendation of the Board of Directors of the Company and the
recommendation of each of the Board of Directors of IVI Inc. and IVI Corp. in
favor of the Merger.
No amendment to the Registration Statement or supplement to the Company
Proxy Statement or IVI Corp. Prospectus shall be made by IVI Corp. or the
Company without the approval of the other party, which shall not be
unreasonably withheld. The Company or IVI Corp. each will advise the other,
promptly after it receives notice thereof, of the time when the Registration
Statement has become effective or any supplement or amendment has been filed,
the issuance of any stop order, the suspension of the qualification of the IVI
Common Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Registration
Statement or the Company Proxy Statement or comments thereon and responses
thereto or requests by the SEC for additional information.
(b) The Company, IVI Inc., IVI Corp. and Merger Subsidiary each hereby (i)
consents to the use of its name and, on behalf of its subsidiaries and
affiliates, the names of such subsidiaries and affiliates, and to the inclusion
of financial statements and business information relating to such party and its
subsidiaries and affiliates (in each case, to the extent required by applicable
Securities Laws), in the Registration Statement and the Company Proxy
Statement, (ii) agrees to use all reasonable efforts to obtain the written
consent of any person or entity retained by it which may be required to be
named (as an expert or otherwise) in the Registration Statement or the Company
Proxy Statement, and (iii) agrees to cooperate fully, and agrees to use all
reasonable efforts to cause its subsidiaries and affiliates to cooperate fully,
with any legal counsel, investment banker, accountant or other agent or
representative retained by any of the parties specified in clause (i) above in
connection with the preparation of any and all information required, as
determined after consultation with each party's counsel, to be disclosed by
applicable Securities Laws in the Registration Statement or the Company Proxy
Statement.
ARTICLE IX
Conditions to The Merger
Section 9.1 Conditions to the Obligations of Each Party. The obligations of
the Company, Buyer and Merger Subsidiary to consummate the Merger are subject
to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in part, by each of
the parties intended to benefit therefrom, to the extent permitted by
applicable Law:
(a) this Agreement and the transactions contemplated hereby, including
the Merger, shall have been approved and adopted by the Board of Directors
of the Company;
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(b) this Agreement and the transactions contemplated hereby, including
the Merger, shall have been approved and adopted by a majority of all
shares of the Company Common Stock entitled to vote thereon, in accordance
with Section 251 of the DGCL;
(c) no Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any Law or Order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger;
(d) all actions by or in respect of or filings with any Governmental
Authority required to permit the consummation of the Merger shall have been
obtained, other than the filing of the requisite certificate of merger with
the Secretary of State of the State of Delaware;
(e) the Registration Statement shall be effective under the Securities
Act of 1933, as amended, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding
or investigation by the SEC to suspend the effectiveness thereof shall have
been initiated and be existing, and all necessary clearances under the
Securities Laws relating to the issuance or trading of the shares of IVI
Common Stock issuable pursuant to the Merger shall have been received; and
(f) there shall be no action, suit, investigation or proceeding pending
against, or to the knowledge of the Company or Buyer, threatened against or
affecting, the Company, Buyer or any of their respective officers or
directors, which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the Merger or any of the other transactions
contemplated hereby.
Section 9.2 Additional Conditions to the Obligations of Buyer and Merger
Subsidiary. The obligations of Buyer and Merger Subsidiary to consummate the
Merger are also subject to the satisfaction at or prior to the Effective Time
of the following further conditions, any or all of which may be waived, in
whole or in part, by each of the parties intended to benefit therefrom, to the
extent permitted by applicable Law:
(a) the Company shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, the representations and warranties of the Company contained
in this Agreement and in any certificate delivered by the Company pursuant
hereto shall be true and correct in all respects, except where the breach
or inaccuracy thereof would not, individually or in the aggregate, have a
Material Adverse Effect, at and as of the Effective Time as if made at and
as of such time, except that those representations and warranties which
address matters only as of a particular date shall remain true and correct
as of such date, and Buyer shall have received a certificate signed by the
principal financial officer of the Company to the foregoing effect;
(b) no Material Adverse Effect shall have occurred;
(c) Buyer shall have received or be satisfied that it will receive all
consents and approvals contemplated by Section 3.3 and any other consents
of third parties necessary in connection with the consummation of the
Merger if the failure to obtain any such consent would have a Material
Adverse Effect; and
(d) Buyer shall have received all documents it may reasonably request
relating to the existence of the Company and the authority of the Company
to enter into this Agreement, all in form and substance reasonably
satisfactory to Buyer.
Section 9.3 Additional Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are also subject to the
satisfaction at or prior to the Effective Time of the following further
conditions, any or all of which may be waived, in whole or in part, by the
Company to the extent permitted by applicable Law:
(a) Buyer and Merger Subsidiary shall have performed in all material
respects all of their respective obligations hereunder required to be
performed by them at or prior to the Effective Time, the representations
and warranties of Buyer contained in this Agreement and in any certificate
delivered by Buyer or Merger Subsidiary pursuant hereto shall be true and
correct in all material respects at and as of
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the Effective Time as if made at and as of such time, except that those
representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, and the
Company shall have received a certificate signed by the President or any
Vice President of each of Buyer and Merger Subsidiary to the foregoing
effect;
(b) the Company shall have received all documents it may reasonably
request relating to the existence of Buyer or Merger Subsidiary and the
authority of Buyer or Merger Subsidiary to enter into this Agreement, all
in form and substance reasonably satisfactory to the Company;
(c) Southeastern Appraisal Resource Associates, Inc. shall have
reaffirmed in writing the fairness opinion described in Section 3.10, as if
such opinion was issued at the Effective Time; and
(d) this Agreement and the Merger shall have been approved and adopted
by the Board of Directors of each of IVI Corp., IVI Inc. and Merger
Subsidiary and by IVI Inc. as the sole stockholder of Merger Subsidiary.
ARTICLE X
Termination
Section 10.1 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the stockholders of the Company):
(a) by mutual written consent of the Company and Buyer;
(b) by either the Company or Buyer, if the Merger has not been
consummated by September 30, 1999;
(c) by either the Company or Buyer, if there shall be any Law that makes
consummation of the Merger illegal or otherwise prohibited or if any Order
enjoining Buyer or the Company from consummating the Merger is entered and
such Order shall become final and nonappealable;
(d) by either the Company or Buyer if this Agreement and the Merger
shall fail to be approved and adopted by the stockholders of the Company at
the Company Stockholder Meeting called for such purpose, as set forth in
Section 9.1(b) above;
(e) by either the Company (such determination to be made on behalf of
the Company by the Special Committee in its sole discretion) or Buyer, if,
consistent with the terms of this Agreement, the Board of Directors of the
Company or the Special Committee withdraws, modifies or changes its
recommendation of this Agreement or the Merger in a manner adverse to Buyer
or Merger Subsidiary or shall have resolved to do any of the foregoing or
the Board of Directors of the Company or the Special Committee shall have
recommended to the stockholders of the Company any Competing Transaction or
resolved to do so.
Section 10.2 Effect of Termination. If this Agreement is terminated pursuant
to Section 10.1, this Agreement shall become void and of no effect with no
liability on the part of any party hereto, except that the agreements contained
in Section 11.5 shall survive the termination hereof; provided, however, that,
except as specifically provided herein, nothing herein shall relieve any party
hereto of liability for any breach of this Agreement.
ARTICLE XI
Miscellaneous
Section 11.1 Definitions. As used herein, the following terms have the
following respective meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
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"Affiliate" means, with respect to a Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such given Person.
"Agreement" means this Agreement and Plan of Merger, as the same may be
supplemented, modified or amended from time to time.
"Contract" means any written agreement, arrangement, authorization,
commitment, contract, indenture, instrument, lease, obligation, plan,
practice, restriction, understanding, or undertaking of any kind or character,
or other document to which any Person is a party or that is binding on any
Person or its capital stock, assets or business.
"Expenses" means all reasonable out-of-pocket expenses (including, without
limitation, all fees and expenses of counsel, accountants, investment bankers,
experts and consultants (which shall not include fees and expenses of officers
or directors of Buyer and/or Affiliates thereof) and commitment fees and other
financing fees and expenses) incurred by Buyer, Merger Subsidiary or the
Company or on behalf of any such party in connection with or related to the
authorization, preparation, negotiation, execution and performance of this
Agreement, the preparation, printing, filing and mailing of the Registration
Statement and the Company Proxy Statement and IVI Corp. Prospectus and the
Schedule 13E-3, the solicitation of the stockholder approvals and all other
matters related to the consummation of the transactions contemplated hereby.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"Governmental Authority" means any federal, state, county, local, foreign
or other governmental or public agency, instrumentality, commission,
authority, board or body, and any court, arbitrator, mediator or tribunal.
"Law" means any code, law, ordinance, regulation, rule or statute of any
Governmental Authority.
"Material Adverse Effect" means any matter that would reasonably be
expected to affect materially and adversely the business, condition (financial
or otherwise) or results of operations of the Company considered as a whole.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency or other Governmental Authority.
"Person" means an individual, a corporation, a partnership, an association,
a trust, a limited liability company or any other entity or organization,
including a government or political subdivision or any agency or
instrumentality thereof.
"Registration Statement" means the Registration Statement on Form S-4, or
other appropriate form, including any pre-effective or post-effective
amendments or supplements thereto, filed with the SEC by IVI Corp. under the
Securities Act of 1993, as amended, with respect to the shares of IVI Corp. to
be issued to the stockholders of the Company in connection with the
transactions contemplated by the Agreement.
"Securities Laws" means the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder, and all applicable state securities or "blue sky" laws
and regulations.
"Surviving Corporation" means the Company as the surviving corporation
resulting from the Merger.
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The following terms are defined in the following Sections of this Agreement:
<TABLE>
<CAPTION>
Term Section
---- -------
<C> <S>
"Base Period Trading Price" 1.3(a)
"Buyer" Opening Paragraph
"Company" Opening Paragraph
"Company Common Stock" Recital A
"Company Options" 1.6
"Company Preferred Stock" Recital A
"Company Proxy Statement" 3.8
"Company Securities" 3.5
"Company Stockholder Meeting" 6.2
"Company 10-K" 3.6
"Company 10-Qs" 3.7
"Competing Transaction" 6.4
"DGCL" Recital E
"Disclosure Documents" 3.8
"Effective Time" 1.2(b)
"Exchange Agent" 1.4(a)
"Exchange Fund" 1.4(a)
"GBCC" Recital E
"IVI Common Stock" 1.3(a)
"IVI Corp." Opening Paragraph
"IVI Corp. Prospectus" 3.8
"IVI Corp. Securities" 4.4
"IVI Corp. 10-K" 4.8
"IVI Inc." Opening Paragraph
"IVI Preferred Stock" 4.4
"Merger" Recital E
"Merger Consideration" 1.3(a)
"Merger Subsidiary" Opening Paragraph
"New Certificates" 1.4(a)
"Non-Public Shares" 1.3(a)
"Old Certificates" 1.4(a)
"Option Exchange Ratio" 1.6
"Public Stockholders" Recital C
"Schedule 13E-3" 6.2
"SEC" 3.6
"Share" 1.3(a)
"Shares" 1.3(a)
"Special Committee" Recital C
</TABLE>
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<PAGE>
Section 11.2 Notices. Unless otherwise specifically provided herein, any
notice, demand, request or other communication herein requested or permitted to
be given shall be in writing and may be personally served, sent by overnight
courier service, or sent by telecopy with a confirming copy sent by United
States first-class mail, each with any postage or delivery charge prepaid. For
the purposes hereof, the addresses of the parties hereto (until notice of a
change thereof is delivered as provided in this Section) shall be as follows:
If to the Company: National Transaction Network, Inc.
117 Flanders Road
Westborough, MA 01581
Attn: Christopher F. Schellhorn
Telephone: (508) 870-3200
Telecopy: (508) 870-3201
With a copy (which shall Nelson Mullins Riley & Scarborough, L.L.P.
not constitute notice) to:
First Union Plaza
999 Peachtree Street
Atlanta, GA 30309
Attn: Robert D. Pannell
Telephone: (404) 812-6177
Telecopy: (404) 817-6050
If to Buyer or Merger IVI Checkmate Corp.
Subsidiary: 1003 Mansell Road
Roswell, Georgia 30076
Attn: John J. Neubert
Telephone: (770) 594-6010
Telecopy: (770) 594-6041
With a copy (which shall Alston & Bird LLP
not constitute notice) to:
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attn: M. Hill Jeffries, Esq.
Telephone: 404-881-7823
Telecopy: 404-881-7777
Any notice provided hereunder shall be deemed to have been given on the date
delivered in person, or on the next business day after deposit with an
overnight courier service, or on the date received by telecopy transmission.
Section 11.3 No Survival of Representations and Warranties. The
representations and warranties contained herein and in any certificate
delivered pursuant hereto shall not survive the Effective Time or the
termination of this Agreement.
Section 11.4 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived prior to the
Effective Time if, and only if, such amendment or waiver is in writing and
signed by all parties hereto, or in the case of a waiver, by the party against
whom the waiver is to be effective; provided that any such amendment and any
such waiver by the Company shall have been approved by the Board of Directors
of the Company, acting on the recommendation of the Special Committee; and
provided, further, that after the adoption of this Agreement by the
stockholders of the Company, no such amendment or waiver shall, without the
further approval of such stockholders, alter or change (i) the amount or kind
of consideration to be received in exchange for any shares
A-17
<PAGE>
of capital stock of the Company or (ii) any of the terms or conditions of this
Agreement if such alteration or change would adversely affect the holders of
any shares of capital stock of the Company.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 11.5 Fees and Expenses. Except as otherwise provided in this
Section, all Expenses incurred in connection with this Agreement shall be paid
by the party incurring such Expense, including the cost of any fairness
opinion, which shall be borne by the Company; provided that, if the Merger is
not consummated, all printing expenses and filing fees associated with the
preparation and distribution of the Registration Statement and the Company
Proxy Statement and IVI Corp. Prospectus shall be paid by Buyer.
Section 11.6 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto, except that Buyer may transfer
or assign, in whole or from time to time in part, to one or more of its
Affiliates, its rights under this Agreement, but any such transfer or
assignment will not relieve Buyer of its obligations under this Agreement or
prejudice the rights of stockholders to receive the Merger Consideration for
Shares properly surrendered in accordance with Section 1.4. This Agreement
shall not be construed so as to confer any right or benefit upon any Person
other than the parties to this Agreement and their respective successors and
assigns.
Section 11.7 Governing Law. Regardless of the place or places where this
Agreement may be executed, delivered or consummated, this Agreement shall be
governed by and construed in accordance with the Laws of the State of Delaware,
without regard to any applicable conflicts of Laws.
Section 11.8 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
Section 11.9 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
Section 11.10 Interpretations. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether
under any rule of construction or otherwise. No party to this Agreement shall
be considered the draftsman. The parties acknowledge and agree that this
Agreement has been reviewed, negotiated and accepted by all parties and their
attorneys and shall be construed and interpreted according to the ordinary
meaning of the words used so as fairly to accomplish the purposes and
intentions of all parties hereto.
Section 11.11 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures were upon the same instrument. This Agreement shall
become effective when each party hereto shall have received counterparts hereof
signed by all of the other parties hereto.
[Signatures on the Following Page]
A-18
<PAGE>
In Witness Whereof, each of the parties has caused this Agreement to be
executed on its behalf as of the day and year first above written.
National Transaction Network, Inc.
Attest:
/s/ Gregory A. Lewis
By: _________________________________
/s/ L. Barry Thomson
_____________________________________
L. Barry Thomson, Secretary
Gregory A. Lewis
Name: _______________________________
President and Chief Executive
Officer
Title: ______________________________
IVI Checkmate Corp.
Attest:
/s/ L. Barry Thomson
By: _________________________________
/s/ John J. Neubert
_____________________________________
John J. Neubert, Secretary
L. Barry Thomson
Name: _______________________________
President and Chief Executive
Officer
Title: ______________________________
IVI Checkmate Corp.
Attest:
/s/ John J. Neubert
By: _________________________________
/s/ Margaret Burkett
_____________________________________
Margaret Burkett, Secretary
John J. Neubert
Name: _______________________________
Executive Vice President and
Title: ______________________________
Chief Financial Officer
_____________________________________
NTN Merger Corp.
Attest:
/s/ L. Barry Thomson
By: _________________________________
/s/ John J. Neubert
_____________________________________
John J. Neubert, Secretary
L. Barry Thomson
Name: _______________________________
President
Title: ______________________________
A-19
<PAGE>
APPENDIX B
Section 262 of the Delaware General Corporation Law
(S) 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of the stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
B-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall
B-2
<PAGE>
be such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
B-3
<PAGE>
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
B-4
<PAGE>
APPENDIX C
SOUTHEAST APPRAISAL
Resource Associates, Inc.
1100 Circle 75 Parkway, Suite 800
Atlanta, Georgia 30339
Tele: (770) 859-0338 / 800 899-0338
Fax: (770) 859-9597
January 14, 2000
Board of Directors
National Transaction Network, Inc.
117 Flanders Road
Westborough, Massachusetts 01581
RE: Fairness Opinion, National Transaction Network, Inc.
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common shares of National Transaction Network, Inc.
("NTN") of the consideration to be received by such holders pursuant to the
terms and subject to the conditions set forth in the Agreement and Plan of
Merger, dated as of July 20, 1999 (the "Agreement") among IVI Checkmate Corp.,
IVI Checkmate, Inc., NTN Merger Corp. and NTN which is attached as Exhibit A
hereto. As more fully described in the Agreement, with the proposed merger of
NTN Merger Corp., a wholly-owned subsidiary of IVI Checkmate, Inc., into NTN,
(the "Merger"), the shares (excluding shares held by NTN or by IVI Checkmate
Corp. or any of its subsidiaries) of NTN common stock, $0.15 par value ("NTN
Common Stock"), issued and outstanding immediately prior to the Merger becoming
effective (the "Effective Time") shall become and be converted into the right
to receive the number of shares of the common stock, $0.01 par value, of IVI
Checkmate Corp. ("IVI Common Stock") that would have a value equal to $0.30
multiplied by the number of shares of NTN Common Stock issued and outstanding
immediately prior to the Effective Time. For purposes of this calculation, the
number of shares of IVI Common Stock shall be calculated pursuant to a
valuation of the IVI Common Stock determined by a Base Period Trading Price,
which shall mean the average of the daily closing sale prices for the shares of
IVI Common Stock for the twenty (20) consecutive full trading days on which
such shares are actually traded on The NASDAQ National Market ending at the
close of trading on the second trading day immediately preceding the Effective
Time.
In arriving at our opinion, we reviewed the Agreement, and held discussions
with certain senior officers, directors and other representatives and advisors
of NTN and certain senior officers and other representatives and advisors of
IVI Checkmate, Inc. concerning the businesses, operations and prospects of NTN
and IVI. We examined certain publicly available business and financial
information relating to NTN and IVI as well as certain financial forecasts and
other information and data for NTN and IVI which were provided to or otherwise
discussed with us by the respective managements of NTN and IVI, including
information relating to certain strategic implications and operational benefits
anticipated to result from the Merger. We reviewed the financial terms of the
Agreement in relation to, among other things:
i. Current and historical market prices and trading volumes of the NTN
Common Stock and IVI Common Stock;
ii. The historical and projected earnings and other operating data of NTN
and IVI; and
iii. The capitalization and financial condition of NTN and IVI.
Business Enterprise and Intangible Asset Valuations; Real Property,
Machinery/Equipment and Inventory Appraisals; Feasibility Studies, Solvency
Opinions, Fairness Opinions; Reviews of Appraisals/Valuations of Others
C-1
<PAGE>
We considered, to the extent available, the financial terms of other
transactions recently effected which we considered relevant in evaluating the
Merger and analyzed certain financial, stock market and other publicly
available information relating to the businesses of other companies whose
operations we considered relevant in evaluating those of NTN and IVI. We also
evaluated the potential proforma financial impact of the Merger on IVI.
In addition to the foregoing, we conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as we deemed appropriate in arriving at our opinion. In rendering our opinion,
we have assumed and relied, without independent verification, upon the accuracy
and completeness of all financial and other information and data publicly
available or furnished to or otherwise reviewed by or discussed with us. With
respect to financial forecasts and other information and data provided to or
otherwise reviewed by or discussed with us, we have been advised by the
managements of NTN and IVI that such forecasts and other information and data
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of NTN and IVI as to the future
financial performance of NTN and IVI and the strategic implications and
operational benefits anticipated to result from the Merger. We have assumed,
with your consent, that the Merger will be treated as a taxable event for U.S.
federal income tax purposes and as a purchase transaction in accordance with
U.S. generally accepted accounting principles.
Our opinion, as set forth herein, relates to the relative values of NTN and
IVI. We are not expressing any opinion as to what the value of the IVI Common
Stock actually will be when issued to NTN shareholders pursuant to the Merger
or the price at which the IVI Common Stock will trade subsequent to the Merger.
We completed an independent appraisal of the Fair Market Value of the common
stock of NTN, on a minority interest basis, as of December 31, 1998 (the
"Appraisal"). In the Appraisal, we opined that the Fair Market Value of a share
of common stock of NTN was equitably represented in the amount of $0.26 per
share. In connection with our engagement, we were not requested to, and we did
not, solicit third party indications of interest in the possible acquisition of
NTN. We were not asked to consider, and our opinion does not address, the
relative merits of the Merger as compared to any alternative business
strategies that might exist for NTN or the effect of any other transaction in
which NTN might engage. Our opinion is necessarily based upon information
available to us and financial, stock market and other conditions and
circumstances existing and disclosed to us, as of the date hereof. Southeast
Appraisal Resource Associates, Inc. ("Southeast Appraisal") has not acted as
financial advisor (other than in the preparation of the Appraisal and in
rendering this Fairness Opinion) to NTN in connection with the proposed Merger,
and our fee for rendering this opinion is not contingent upon the consummation
of the Merger. Our opinion expressed herein is provided for the information of
the Board of Directors of NTN in its evaluation of the proposed Merger. Our
opinion is not intended to be and does not constitute a recommendation to any
shareholder of NTN as to how such shareholder should vote, or take any other
action, with respect to the Agreement or any matters relating to the Agreement.
Based on the foregoing and our general experience in the valuations for
corporate, estate and other purposes, we are of the opinion that on the date
hereof that the consideration to be received by the shareholders of NTN
(excluding shares held by NTN or by IVI Checkmate Corp. or any of its
subsidiaries) through the proposed Merger is fair to them from a financial
point of view.
This opinion is prepared for the information of the Board of Directors of
NTN in connection with the Merger and shall not be reproduced, summarized,
described or referred to, provided to any person or otherwise made public
without the prior written consent of Southeast Appraisal Resource Associates,
Inc., provided however, (i) that this letter may be included in communications
to the shareholders of NTN, (ii) this letter may be included in any required
filing with the Securities and Exchange Commission and (iii) that references to
this letter may be included in required communications and filings with
regulatory bodies and shareholders. We further consent to the use of summaries
or verbatim recitations of reports and disclosures made by Southeast Appraisal
to you and the Special Committee regarding our fairness opinion or appraisal
report.
Very truly yours,
/s/ Southeast Appraisal Resource Associates, Inc.
- -------------------------------------
Southeast Appraisal Resource Associates, Inc.
C-2
<PAGE>
INDEX TO IVI CHECKMATE CORP. CONSOLIDATED FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Reports of Independent Auditors......................................... D-2-3
Consolidated Balance Sheets as of December 31, 1999 and 1998............ D-4
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997.................................................... D-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997 D-6
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997.................................................... D-7
Notes to Consolidated Financial Statements.............................. D-8
Schedule II--Valuation and Qualifying Amounts........................... D-24
</TABLE>
D-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
IVI Checkmate Corp.
We have audited the accompanying consolidated balance sheets of IVI Checkmate
Corp. as of December 31, 1999 and 1998, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1999. Our audits also included the financial
statement schedule listed in the Index to IVI Checkmate Corp. Consolidated
Financial Statements. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits. We did
not audit the 1997 financial statements of International Verifact Inc. which
statements reflect net revenues constituting approximately 50% of the related
consolidated totals. 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 auditing standards generally
accepted in the United States. 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, for 1997, 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, 1999 and 1998, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
Also, in our opinion, based on our audits and the report of the other auditors,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Atlanta, Georgia
February 18, 2000, except for Note 14, as
to which the date is February 22, 2000
D-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Directors of
International Verifact Inc.
We have audited the consolidated statements of operations, stockholders'
equity, and cash flows of International Verifact Inc. for the year ended
December 31, 1997. 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 consolidated results of its
operations and cash flows for year ended December 31, 1997 in accordance with
generally accepted accounting principles in the United States.
COOPERS & LYBRAND
February 12, 1998
Toronto, Ontario
D-3
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except for Share Amounts)
<TABLE>
<CAPTION>
December 31
------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 8,279 $ 9,846
Accounts receivable, less allowance of $1,329 and $715
at December 31, 1999 and 1998, respectively.............. 20,050 31,820
Inventories............................................... 18,238 15,743
Deferred tax asset........................................ 848 4,060
Prepaid expenses and other assets......................... 2,542 1,581
-------- --------
Total current assets....................................... 49,957 63,050
Property and equipment, net................................ 9,654 8,224
Capitalized software development costs, net of accumulated
amortization
of $7,647 and $4,765 at December 31, 1999 and 1998,
respectively.............................................. 12,822 10,150
Intangible assets, net of accumulated amortization of
$1,620 and
$1,295 at December 31, 1999 and 1998, respectively........ 1,064 1,320
Other assets............................................... 28 85
-------- --------
$ 73,525 $ 82,829
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 12,255 $ 17,547
Accrued liabilities....................................... 11,273 6,622
Deferred revenue.......................................... 3,350 2,805
Other..................................................... 13 51
-------- --------
Total current liabilities.................................. 26,891 27,025
Deferred tax liability..................................... 1,500 769
Other long-term liabilities................................ 4 18
-------- --------
28,395 27,812
-------- --------
Stockholders' equity
Preferred stock, $0.01 par value
Authorized--1,000,000 shares
Issued and outstanding--803,353 and 0 at December 31,
1999 and 1998, respectively............................. 8 --
Common stock, $0.01 par value
Authorized--99,000,000 shares
Issued and outstanding--18,147,569 and 17,834,765 at
December 31, 1999 and 1998, respectively ............... 182 178
Additional paid-in capital................................ 88,962 80,109
Accumulated deficit....................................... (43,066) (23,132)
Accumulated comprehensive loss ........................... (956) (2,138)
-------- --------
Total stockholders' equity................................. 45,130 55,017
-------- --------
$ 73,525 $ 82,829
======== ========
</TABLE>
See accompanying notes.
D-4
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars, Except for Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Net revenues....................................... $ 97,934 $107,122 $92,665
Cost of sales ..................................... 73,450 68,442 58,015
Amortization of software development costs......... 3,168 2,075 1,041
-------- -------- -------
Gross profit....................................... 21,316 36,605 33,609
-------- -------- -------
Operating expenses:
Selling, general and administrative............... 32,076 25,118 24,769
Research and development.......................... 4,625 4,963 5,603
Depreciation and amortization..................... 2,402 2,078 1,782
Merger and related costs.......................... -- 8,710 --
Write-off of long-lived assets.................... -- 1,300 --
-------- -------- -------
39,103 42,169 32,154
-------- -------- -------
Operating income (loss)............................ (17,787) (5,564) 1,455
Other:
Interest income................................... 192 423 588
Interest expense.................................. (253) (121) (110)
Share of equity investee loss..................... (209) (342) --
Minority interest................................. -- 53 448
-------- -------- -------
Income (loss) before income taxes.................. (18,057) (5,551) 2,381
Income tax benefit (expense)....................... (1,877) 580 855
-------- -------- -------
Net income (loss).................................. $(19,934) $ (4,971) $ 3,236
======== ======== =======
Net income (loss) per share:
Basic............................................. $ (1.13) $ (0.28) $ 0.19
Diluted........................................... $ (1.13) $ (0.28) $ 0.19
Weighted average shares outstanding (000's):
Basic............................................. 18,115 17,528 16,817
Diluted........................................... 18,115 17,528 17,318
</TABLE>
See accompanying notes.
D-5
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Preferred
Stock Common Stock
$0.01 Par $0.01 Par
Value Value Additional Accumulated Total
------------- ------------- Paid-In Accumulated Comprehensive Treasury Stockholders'
Shares Amount Shares Amount Capital Deficit Income (Loss) Stock Equity
------ ------ ------ ------ ---------- ----------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... -- $-- 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
Comprehensive loss:
Net loss............... -- -- -- -- -- (19,934) -- -- (19,934)
Currency translation
adjustment............ -- -- -- -- -- -- 1,182 -- 1,182
--------
Comprehensive loss..... -- -- -- -- -- -- -- -- (18,752)
Exercise of stock
options............... -- -- 313 4 1,631 -- -- -- 1,635
Issuance of preferred
stock.................. 803 8 -- -- 7,222 -- -- -- 7,230
--- ---- ------ ---- ------- -------- ------- ------- --------
Balance at December 31,
1999................... 803 $ 8 18,148 $182 $88,962 $(43,066) $ (956) $ -- $ 45,130
=== ==== ====== ==== ======= ======== ======= ======= ========
</TABLE>
See accompanying notes.
D-6
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................... $(19,934) $ (4,971) $ 3,236
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................. 6,488 6,174 3,682
Share of equity investee loss................. 209 342 --
Deferred income taxes......................... 1,971 (1,398) (554)
Write-off of goodwill......................... -- 630 --
Minority interest............................. -- (54) (448)
Accretion of marketable securities discount... -- 9 30
Changes in operating assets and liabilities
(net of effect of purchase business
combination):
Accounts receivable.......................... 15,677 (11,284) (4,931)
Inventories.................................. 334 2,181 (2,541)
Refundable income taxes...................... -- 809 (469)
Prepaid expenses and other assets............ (949) (423) 258
Accounts payable and accrued liabilities..... 714 10,267 1,301
Deferred revenue............................. 514 1,202 (568)
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... 5,024 3,484 (1,004)
-------- -------- --------
INVESTING ACTIVITIES
Purchase of property and equipment.............. (3,182) (3,559) (4,156)
Capitalized software development costs.......... (5,509) (4,113) (4,186)
Purchase of intangible assets................... -- (514) --
Purchases of investments........................ -- (10,656) (11,673)
Proceeds from sale of investments............... -- 14,390 12,882
Other........................................... 42 (600) (8)
-------- -------- --------
Net cash used in investing activities........... (8,649) (5,052) (7,141)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock.......... 1,635 3,987 4,282
Repayments of debt.............................. (5,593) (1,260) (141)
Borrowings of debt.............................. 5,542 -- 500
Received from minority stockholders............. -- 20 411
-------- -------- --------
Net cash provided by financing activities....... 1,584 2,747 5,052
-------- -------- --------
Effect of exchange rate fluctuations on cash.... 474 (723) (472)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (1,567) 456 (3,565)
Cash and cash equivalents at beginning of year.. 9,846 9,390 12,955
-------- -------- --------
Cash and cash equivalents at end of year........ $ 8,279 $ 9,846 $ 9,390
-------- -------- --------
Supplemental Disclosure of Cash Flow Information
Cash paid for interest......................... $ 79 $ 121 $ 86
======== ======== ========
Cash paid for income taxes..................... $ 38 $ 439 $ 300
======== ======== ========
</TABLE>
See accompanying notes.
D-7
<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 and transaction 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, and serve 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
The consolidated financial statements include the accounts of IVI Checkmate
Corp. and its majority-owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
In December 1999, we completed the renegotiation of our investment in IVI
Ingenico Inc., a 50%-owned business venture to market in South America the
products of IVI Checkmate and Ingenico, the other 50% owner. The renegotiation,
which became effective July 1, 1999, provided for the inclusion in IVI Ingenico
the Latin American point-of-sale and smart card operations of Groupe Bull, S.A.
In return, we agreed to reduce our ownership interest in IVI Ingenico from 50%
to 24%. In fiscal 1999 and 1998, our investment in IVI Ingenico was accounted
for using the equity method. In fiscal 1997, our financial statements included
the consolidation of IVI Ingenico as we had at that time a 51% ownership and
effective control. The change in accounting for the investment in IVI Ingenico
from consolidation to the equity method in 1998 was accounted for
prospectively, and the effect of this change was not material to our
consolidated financial statements.
In April 1999, we acquired the assets of the Financial Systems division of
DataCard Corporation. See Note 10.
In 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 were restated to reflect the historical
results of both companies for all periods presented. Information concerning
common stock and per share data was 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"), which were accounted for
as pooling-of-interests, in which we issued 538,232 and 916,644 shares of our
common stock to the stockholders of Plourde and Debitek, respectively.
Accordingly, our consolidated financial statements were restated for all prior
periods to give effect for these mergers.
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. Significant estimates include amounts for allowance of
doubtful accounts, inventory obsolescence reserve and warranty reserve. Actual
results may differ from those estimates, and such differences could be material
to our consolidated financial statements.
D-8
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 consists 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.
Inventories
Inventories are valued at the lower of cost or market using the first-in,
first-out method.
Property and Equipment
Property and equipment is stated at cost. As assets are retired or sold, the
related cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the results of operations. 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. Depreciation expense
approximated $3.0 million, $3.8 million and $2.3 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
Capitalized Software Development Costs
Costs related to internally developed software for new products and
subsequent enhancements are capitalized only after the establishment of
technological feasibility. Technological feasibility is considered established
upon completion of planning, designing, coding and testing activities necessary
to ensure a successful product development in accordance with technical
performance requirements. 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).
Recoverability of capitalized costs is assessed at each balance sheet date by
comparing the unamortized capitalized costs to its net realizable value.
Intangible Assets
Intangible assets consists of costs related to copyrights, patents,
trademarks, technology property rights, licensing rights, and non-compete
agreements. Such assets are amortized on a straight-line basis from five to
eleven years, with amortization expense of approximately $308,000, $292,000 and
$216,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
D-9
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
IVI Checkmate generates revenue through sales of hardware terminals and
peripherals, and in providing professional services and licensing software.
Hardware revenue is normally recognized upon shipment when title and risk of
ownership have transferred. We provide a one-year warranty that our products
are free from defects. Estimated warranty costs are recorded when revenue is
recognized.
Professional services consists of software application projects requiring
significant customization, software licenses, maintenance contracts and other
services. Revenue from software application projects, which include software
licenses and professional services, is generally recognized using the
percentage-of-completion method over the implementation period. Percentage of
completion is determined using the number of hours incurred as compared to the
total estimated number of hours to complete the project. Maintenance revenue is
recognized ratably over the life of the maintenance contract. Other service
revenue is recognized as the related service is performed.
Deferred Income Taxes
Deferred income taxes reflects 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
We have elected to follow the 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 effect on the accompanying consolidated statements of operations of
reporting under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" is presented in Note 5.
Net Earnings Per Share of Common Stock
Basic earnings per share is computed by dividing net income (loss) available
to common stockholders by the weighted average number of common shares
outstanding during the period. Net income (loss) available to common
stockholders is calculated as the net income (loss) for the period less any
preferred dividends accrued in that period. Diluted earnings per share is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding and any dilutive effect of
stock options and convertible securities.
Impact of Recently Issued Accounting Standards
In December 1999, the staff of the Securities and Exchange Commission
released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements." This bulletin summarizes the staff's views on applying generally
accepted accounting principals to revenue recognition in financial statements.
The staff believes revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the seller's price to the
buyer is fixed or determinable; and collectibility is reasonably assured. We
believe our current revenue recognition policy complies with the SEC staff's
guidelines. This bulletin is effective beginning the second quarter ending June
30, 2000.
D-10
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 amends SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133") which was issued in June 1998. SFAS 137 defers the effective date of SFAS
133 to all fiscal years beginning after June 15, 2000. SFAS 133 requires that
all derivative instruments be recorded on the balance sheet at their 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 have not
used derivative instruments and we do not expect the adoption of SFAS 133 to
have a material impact on our financial position or results of operations.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-9, "Modification of SOP No. 97-2, Software
Revenue Recognition, with Respect to Certain Transactions" ("SOP 98-9"). SOP
98-9 amends SOP 97-2, "Software Revenue Recognition, with Respect to Certain
Transactions" ("SOP 97-2") to require recognition of revenue using the
"residual method" in circumstances outlined in SOP 98-9. Under the residual
method, revenue is recognized as follows: (1) the total fair value of
undelivered elements, as indicated by vendor-specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections
of SOP 97-2 and (2) the difference between the total arrangement fee and the
amount deferred for the undelivered elements is recognized as revenue related
to the delivered elements. SOP 98-9 is effective for transactions entered into
in fiscal years beginning after March 15, 1999. We do not expect the adoption
of SOP 98-9 in fiscal 2000 will have a significant impact on our financial
position or results of operations.
Reclassifications and Restatements
Certain previously reported amounts have been reclassified to conform to the
current presentation format with no impact on net income or loss. In fiscal
1998 and 1997, we have reclassified our amortization of software development
costs from "Depreciation and amortization" to a separate item in the
calculation of gross profit. We have also reclassified in fiscal 1998 $2.6
million in inventory write-off from unusual charges to cost of sales.
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 1999, 1998 and 1997, no one customer
accounted for more than 10% of total revenues.
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 in the past have been within our expectations.
Only one customer, a Canadian financial institution, accounted for more than
10% of total trade receivables at December 31, 1999, which was paid in January
2000.
The carrying amounts reported in the balance sheets for cash and cash
equivalents, investments, accounts receivable and accounts payable approximate
their estimated fair values based on discounted cash flow analyses using
current market rates.
D-11
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. LINES OF CREDIT
We have available with financial institutions lines of credit totaling $11
million. One of these lines expires on March 28, 2000, and we are currently in
the process of renegotiations. This same line has a commitment fee of 0.25% per
annum on that portion not borrowed. There were no borrowings outstanding under
any of our credit lines at December 31, 1999 and 1998.
4. BALANCE SHEET INFORMATION
Inventories
<TABLE>
<CAPTION>
December 31
------------------
1999 1998
-------- --------
(In thousands of
dollars)
<S> <C> <C>
Finished goods........................................... $ 12,578 $ 6,222
Work in process.......................................... 2,798 1,320
Raw materials and supplies............................... 9,873 11,944
-------- --------
25,249 19,486
Less: obsolescence reserve............................... (7,011) (3,743)
-------- --------
$ 18,238 $ 15,743
======== ========
Property and Equipment
<CAPTION>
December 31
------------------
1999 1998
-------- --------
(In thousands of
dollars)
<S> <C> <C>
Equipment................................................ $ 19,503 $ 17,444
Furniture and fixtures................................... 2,647 2,465
-------- --------
22,150 19,909
Less: accumulated depreciation........................... (12,496) (11,685)
-------- --------
$ 9,654 $ 8,224
======== ========
</TABLE>
5. EQUITY
Exchangeable Shares
In the pooling-of-interest in June 1998 between IVI and Checkmate, IVI
stockholders received, for each IVI common share, either one share of common
stock of IVI Checkmate or one IVI exchangeable share. Accordingly, 5,996,761
exchangeable shares were issued. Each exchangeable share has 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. The 5,355,532
exchangeable shares that remained outstanding at December 31, 1999 have been
included as part of the "Issued and outstanding' on the consolidated balance
sheets, and have been reflected in all per share calculations.
Preferred Stock
Our board of directors 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.
In April 1999, we issued 803,353 shares of Redeemable Convertible Series D
Preferred Stock to DataCard Corporation in consideration for the assets of its
Financial System division. Terms of the preferred stock include
D-12
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. EQUITY (continued)
dividends, which will accrue annually at a rate of nine percent (9%) per annum,
and a convertability clause that would provide for the conversion of preferred
stock into common stock on a one-for-one basis beginning on the third
anniversary of April 1, 1999 and continuing until the fifth anniversary of
April 1, 1999. If the holder of the Series D preferred stock does not elect to
convert to common stock by the fifth anniversary of April 1, 1999, then,
beginning on the first day after the fifth anniversary of April 1, 1999 and
continuing sixty days thereafter, we must, at our option, either: (a) convert
the Series D preferred stock to common stock, on the basis of one (1) share of
common stock for one (1) share of Series D preferred stock and one (1) share of
common stock for each nine dollars ($9.00) of dividends accrued and unpaid
through the date of conversion; or (b) redeem the principal amount of the
Series D preferred stock ($9.00 per share) and all dividends accrued and unpaid
through the date of payment, in cash. Terms of the preferred stock also give
the holder a graduated right to request an early redemption, prior to the third
anniversary of April 1, 1999, but at a discounted principal value. An early
redemption of preferred stock will be settled, at our option, in common stock
or cash. Therefore, since the redemption or conversion of preferred stock may
result in the issuance of common stock, we have appropriately included as part
of equity the value of preferred stock outstanding.
In September 1998, our board of directors designated 100,000 shares of
Series C Junior Participating Preferred Stock. See "Stockholders' Rights Plan"
below for a further description of these shares.
Warrants
We issued 200,000 warrants in April 1999 as part consideration for our
acquisition of the assets of Financial Systems division of DataCard
Corporation. The holder of these warrants will be able to purchase shares of
common stock at an exercise price of $6.00 per share beginning April 1, 2002
and ending June 30, 2002, at which time the warrants expire (See Note 10--
Business Combinations).
Stockholders' Rights Plan
On September 16, 1998, our 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 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, 1999, options totaling
approximately 1,869,000 were issued and outstanding under these Plans.
In addition, in connection with various poolings-of-interests in 1998,
options that were previously granted and outstanding under former option plans
of IVI, Checkmate and Plourde were assumed by us. At December 31, 1999, stock
option obligations totaling approximately 1,858,000 remained under these former
plans. These options will continue to be administered under their former plans,
and any portions that expire or become unexerciseable for any reason shall
cancel and be unavailable for future issuance.
D-13
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. EQUITY (continued)
The following table summarizes stock option plan activities.
<TABLE>
<CAPTION>
Weighted
Number Average
of Exercise
Options Price
------- --------
(000's)
<S> <C> <C>
Outstanding at January 1, 1997............................. 3,055 $6.58
Granted................................................... 1,875 $5.93
Exercised................................................. (739) $5.24
Forfeited or expired...................................... (1,504) $7.73
------
Outstanding at December 31, 1997........................... 2,687 $5.81
Granted................................................... 1,152 $6.80
Exercised................................................. (363) $4.00
Forfeited or expired...................................... (302) $6.69
------
Outstanding at December 31, 1998........................... 3,174 $6.29
Granted................................................... 1,120 $4.79
Exercised................................................. (313) $3.95
Forfeited or expired...................................... (254) $6.16
------
Outstanding at December 31, 1999........................... 3,727 $6.07
======
Options Exercisable:
At December 31, 1997...................................... 1,519 $5.60
At December 31, 1998...................................... 2,489 $6.16
At December 31, 1999...................................... 2,636 $6.40
</TABLE>
The following table summarizes information concerning options outstanding
and exercisable at December 31, 1999:
<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>
$1.35--$ 3.44 792 5.05 $3.05 272 $2.66
$5.05--$ 7.05 2,705 5.41 $6.62 2,134 $6.56
$8.03--$11.55 230 5.78 $9.33 230 $9.33
----- -----
3,727 2,636
===== =====
</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 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 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
D-14
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. EQUITY (continued)
weighted-average assumptions for 1999, 1998 and 1997: 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%-68%; and a weighted-average
expected life of the options of 1-7 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. The weighted average estimated fair
values of options granted in 1999, 1998 and 1997 were $2.40, $2.69 and $3.83,
respectively.
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
-------------------------
1999 1998 1997
-------- ------- ------
(In thousands of
dollars,
except per share
amounts)
<S> <C> <C> <C>
Pro forma net income (loss).................... $(21,759) $(6,104) $1,409
Pro forma net income (loss) per share
(basic and diluted)........................... $ (1.23) $ (0.35) $ 0.08
</TABLE>
6. OPERATING LEASES
We lease certain property and equipment under non-cancelable lease
agreements. Rental expense under operating leases was approximately $1.5
million, $1.4 million and $1.1 million for the years ended December 31, 1999,
1998 and 1997, respectively.
Future minimum payments under non-cancelable operating leases with terms of
one year or more consisted of the following at December 31, 1999:
<TABLE>
<S> <C>
2000.............................................................. $1,447
2001.............................................................. 1,219
2002.............................................................. 608
2003.............................................................. 354
2004.............................................................. 112
------
Total future minimum lease payments............................... $3,740
======
</TABLE>
D-15
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. INCOME TAXES
For U.S. federal income tax purposes, at December 31, 1999 we had
approximately $36.8 million of net operating loss carryforwards available to
offset future taxable income. These loss carryforwards began expiring in 1999,
and will continue to expire through 2019. Utilization of these net operating
loss carryforwards for income tax purposes is subject to certain limitations.
Also, 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, at December 31, 1999, we had approximately $2.6 million
of Federal Canadian undepreciated capital and scientific research and
development costs available for deduction in future years with no time limits,
and unutilized Canadian investment tax credit carryforwards of approximately
$538,000. The utilization of these Canadian tax credits are subject to a ten
year limitation from the date of original claim. Furthermore, we had a Canadian
capital loss carryforward of $354,000 at December 31, 1999 available to offset
Federal capital gains in future years with no time limits on its expiration. We
also had $538,000 and $404,000 of Canadian Federal and Provincial non-capital
loss carryforwards, respectively, available to offset future Canadian Federal
and Provincial taxable income. All Canadian amounts stated above have been
translated to reflect balances in U.S. dollars.
The valuation allowance relates primarily to 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. In fiscal 1999,
due to recent losses in the current and prior years, we have increased our
valuation allowance to entirely offset the income tax benefit that would
otherwise be recognized on our U.S. loss carryforwards, including tax benefits
recorded in the first nine months of 2000.
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1999 1998 1997
-------- ------- -------
(In thousands of
dollars)
<S> <C> <C> <C>
Income (loss) before taxes:
Domestic........................................ $(20,357) $(6,772) $(2,144)
International................................... 2,300 1,221 4,525
-------- ------- -------
Total income (loss) before taxes................. $(18,057) $(5,551) $ 2,381
-------- ------- -------
Current income tax benefit (expense):
Federal......................................... $ 2,067 $ (703) $ 256
State........................................... 230 (115) 45
Foreign......................................... (231) 0 0
-------- ------- -------
Total current income tax benefit (expense)....... 2,066 (818) 301
-------- ------- -------
Deferred income tax benefit (expense):
Federal......................................... (2,613) 863 (243)
State........................................... (290) 140 (43)
Foreign......................................... (1,040) 395 840
-------- ------- -------
Total deferred income tax benefit (expense)...... (3,943) 1,398 554
-------- ------- -------
Provision for income tax benefit (expense)....... $ (1,877) $ 580 $ 855
======== ======= =======
</TABLE>
D-16
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. INCOME TAXES (continued)
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
------------------------
1999 1998 1997
------- ------ -------
(In thousands of
dollars)
<S> <C> <C> <C>
Tax benefit (expense) at statutory rate.......... $ 6,139 $1,887 $ (810)
State taxes, net of Federal tax benefit
(expense)....................................... 722 237 (95)
Research and development tax credits ............ 150 -- --
Foreign tax rate differential.................... (152) -- --
Change in valuation allowance.................... (9,882) -- 2,898
Tax carryforward items........................... -- -- (1,139)
Permanent differences:
Adjusting Canadian deduction pool............... 1,233 -- --
Merger costs.................................... -- (950) --
Goodwill write-off.............................. -- (239) --
Other........................................... (87) (355) 1
------- ------ -------
Provision for income tax benefit (expense)....... $(1,877) $ 580 $ 855
======= ====== =======
</TABLE>
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
---------------------------
1999 1998
------------- ------------
(In thousands of dollars)
<S> <C> <C>
Deferred tax assets:
Asset valuation reserves....................... $ 2,584 $ 1,396
Deferred revenue............................... 584 780
Accrued liabilities............................ 2,531 94
Net operating loss carryforwards............... 12,542 7,678
Other.......................................... 382 590
------------- ------------
18,623 10,538
Deferred tax liabilities:
Depreciation................................... (1,035) (537)
Amortization................................... (168) (388)
------------- ------------
17,420 9,613
Valuation allowances............................ (18,072) (6,322)
------------- ------------
Net deferred tax assets (liabilities)........... $ (652) $ 3,291
============= ============
</TABLE>
D-17
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. 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 $335,000, $214,000 and $177,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
9. NET INCOME (LOSS) PER SHARE
Net income (loss) per share on a basic and diluted basis as required by
SFAS 128 is calculated as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1999 1998 1997
-------- ------- ------
(In thousands of
dollars)
<S> <C> <C> <C>
Net income (loss)................................ $(19,934) $(4,971) $3,236
Less: Preferred dividends........................ (489) -- --
-------- ------- ------
Net income (loss) available to common
stockholders.................................... $(20,423) $(4,971) $3,236
======== ======= ======
Calculation of weighted average shares
outstanding plus assumed conversions:
Weighted average basic shares outstanding...... 18,115 17,528 16,817
Effect of dilutive securities.................. -- -- 501
-------- ------- ------
Weighted average diluted shares outstanding.... 18,115 17,528 17,318
======== ======= ======
Basic net income (loss) per share................ $ (1.13) $ (0.28) $ 0.19
======== ======= ======
Diluted net income (loss) per share.............. $ (1.13) $ (0.28) $ 0.19
======== ======= ======
</TABLE>
The effect of dilutive securities excludes those stock options and
convertible preferred shares for which the impact would have been anti-
dilutive. All of the options outstanding were anti-dilutive at December 31,
1999 and 1998, and approximately 288,000 options at December 31, 1997 were
anti-dilutive. All of the preferred shares outstanding at December 31, 1999
were anti-dilutive.
10. BUSINESS COMBINATIONS
Year Ended December 31, 1999
In April 1999, we acquired the net assets of the Financial Systems point-
of-sale business of DataCard Corporation in a non-cash transaction. We
acquired assets valued at approximately $7.2 million, consisting of $3.5
million in trade receivables, $2.6 million in inventory and $1.1 million in
property and equipment. The purchase price was satisfied through the issuance
of (i) 803,353 shares of Series D Preferred Stock of IVI Checkmate Corp., par
value $0.01 per share with 9% cumulative dividends, and (ii) a warrant to
purchase 200,000 shares of Common Stock of IVI Checkmate Corp. at $6.00 per
share on the third anniversary date of the acquisition. The value of the
Series D Preferred Stock and warrant issued as consideration was based on a
combination of management's estimate of the fair value of the assets acquired
and the entity instruments issued.
D-18
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. BUSINESS COMBINATIONS (continued)
Year Ended December 31, 1998
During 1998, IVI, Checkmate, Plourde and Debitek were merged together in
separate transactions that were accounted for as poolings-of-interest. 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 year ended
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
March 31, 1998 December 31, 1997
-------------- -----------------
(Unaudited)
<S> <C> <C>
Revenues:
IVI........................................ $13,238 $51,419
Checkmate.................................. 9,641 33,526
Debitek.................................... 1,399 5,040
Plourde.................................... 711 2,680
------- -------
$24,989 $92,665
======= =======
Net income (loss)
IVI........................................ $ 584 $ 3,507
Checkmate.................................. 416 (129)
Debitek.................................... 159 (202)
Plourde.................................... (115) 60
------- -------
$ 1,044 $ 3,236
======= =======
</TABLE>
There were no significant intercompany transactions between the four
companies and no significant conforming accounting adjustments.
11. UNUSUAL CHARGES
Year Ended December 31, 1999
In 1999, we incurred costs approximately $11.4 million related to
initiatives that we began to implement during the year. These initiatives
primarily consisted of completing the redesign and alteration of the
manufacturing process for one of our products and the streamlining of other
operations. Approximately $8.6 million was charged to cost of sales and $2.8
million to selling, general and administrative expenses related to these
initiatives. Following are descriptions of major initiatives that were
undertaken in the year:
Terminal redesign and manufacturing process. As a result of product flaws
discovered early in the year for our eN-Touch terminal, costs of approximately
$7.3 million were incurred through an ongoing process to modify, redesign and
re-work the terminal, including the alteration of the manufacturing process and
the write-off of inventory used for the original version.
Streamline operations. We continue to streamline our operations in the U.S.,
a process which started in 1998. In 1999, we began the implementation of two
major initiatives, which were to outsource our internal manufacturing
operations and to combine the operations of our NTN and Plourde subsidiaries.
Costs incurred were to write-off inventory raw materials of $1.7 million that
were not usable by our outsource manufacturer, severances of $1.0 million
related to termination notification in 1999, and $625,000 for other additional
costs incurred in 1999.
D-19
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. UNUSUAL CHARGES (continued)
Year Ended December 31, 1998
In 1998, we incurred costs aggregating approximately $12.6 million that
pertained to the combination of IVI and Checkmate and the subsequent mergers of
Plourde and Debitek. Of this amount, $10.0 million was charged to selling,
general and administrative expenses and $2.6 million to cost of sales. The
description of and the amount of the costs incurred in each of these
transactions were as follows:
<TABLE>
<CAPTION>
Combination
of IVI and Plourde Debitek
Checkmate Merger Merger Total
----------- ------- ------- -------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Merger and related costs:
Professional fees..................... $4,007 $ 380 $381 $ 4,768
Closure of facilities in Boulder,
Colorado............................. 1,565 -- -- 1,565
Other expenses........................ 1,699 274 404 2,377
------ ------ ---- -------
7,271 654 785 8,710
Write-down of long-lived assets........ -- 1,300 -- 1,300
------ ------ ---- -------
7,271 1,954 785 10,010
Inventory reserve for product
redundancy............................ 2,624 -- -- 2,624
------ ------ ---- -------
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 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. We did not incur any
additional closure costs in 1999 and the accrued liability that existed at
December 31, 1998 was used up in its entirety.
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.
Write-down of Long-Lived Assets. National Transaction Network, Inc. ("NTN")
was in development of a Windows/NT software platform in an attempt 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 the remaining
unamortized goodwill of $630,000 related to the acquisition of NTN in 1996.
D-20
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. UNUSUAL CHARGES (continued)
Inventory Reserve for Product Redundancy. While IVI and Checkmate sold
different payment solutions, in certain areas there was 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.
12. DEPENDENCE ON OUTSIDE SUPPLIERS AND CONTRACT ASSEMBLY MANUFACTURERS
In a marketing and distribution agreement we entered into in December 1996
with Groupe Ingenico S.A. of Paris, France, who holds two seats on our board of
directors, we became the exclusive distributor of their products in the
Americas. Consequently, during 1999, 1998 and 1997, we purchased products from
Ingenico totaling $11.4 million, $6.8 million and $1.7 million, respectively,
to satisfy customer demands. At December 31, 1999 and 1998, approximately $1.7
million and $2.1 million, respectively, of these purchases were still payable.
We currently rely primarily on three contract manufacturers to assemble our
hardware products. Although a number of such contract manufacturers exist, the
interruption or termination of our current manufacturing relationships could
have a short-term adverse effect on our business.
13. SEGMENT DISCLOSURES
IVI Checkmate's principal business is to design, develop and market point-
of-sale terminals and peripherals, which represent in excess of 90% of our
revenues. Our business is conducted through two separately managed business
units, which are divided on a geographic basis between domestic and
international. The domestic segment principally markets point-of-sale terminals
and peripherals to financial institutions and retail establishments to enable
automated payment transactions. The domestic segment consists of one dominant
entity and its three smaller subsidiaries, offering similar products and
services within the same business and operating environment. In accordance with
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," these entities have been aggregated into one reportable segment.
The products sold by the international segment is similar to the domestic
segment, but is considered by management a separate reporting unit due to the
different business environment and marketing strategies employed by the Company
in Canada, the principal market for the international segment.
D-21
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. SEGMENT DISCLOSURES (continued)
The table below presents information about segment revenues, operating
profit and assets. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. IVI
Checkmate's Chief Executive Officer and his staff evaluate performance based on
profit or loss from operations, including charges that are one-time in nature.
Non-segment items include goodwill charges, interest, minority interest and
provisions for income taxes, and are not allocated to the business units. The
segment assets are comprised of the working assets of the segments and
investments accounted for under the equity method, excluding intercompany
balances and corporate tax adjustments.
<TABLE>
<CAPTION>
Operating Depreciation/
Revenues Income (loss) Amortization Assets
-------- ------------- ------------- -------
<S> <C> <C> <C> <C>
Fiscal 1999
-----------
Domestic..................... $ 73,987 $(19,807) $4,580 $50,238
International................ 24,737 2,020 1,908 24,306
-------- -------- ------ -------
Segment total............... 98,724 (17,787) 6,488 74,544
Intersegment sales........... (790) -- -- --
Tax adjustment and other..... -- -- -- (1,019)
-------- -------- ------ -------
Consolidated total........... $ 97,934 $(17,787) $6,488 $73,525
======== ======== ====== =======
Fiscal 1998
-----------
Domestic..................... $ 79,473 $ (5,638) $4,565 $57,089
International................ 27,649 743 1,570 22,488
-------- -------- ------ -------
Segment total............... 107,122 (4,895) 6,135 79,577
Goodwill..................... -- (669) 39 --
Tax adjustment and other..... -- -- -- 3,252
-------- -------- ------ -------
Consolidated total........... $107,122 $ (5,564) $6,174 $82,829
======== ======== ====== =======
Fiscal 1997
-----------
Domestic..................... $ 62,435 $ (2,002) $2,576 $51,885
International................ 30,230 3,533 1,030 23,526
-------- -------- ------ -------
Segment total............... 92,665 1,531 3,606 75,411
Goodwill..................... -- (76) 76 642
Tax adjustment and other..... -- -- -- 531
-------- -------- ------ -------
Consolidated total........... $ 92,665 $ 1,455 $3,682 $76,584
======== ======== ====== =======
</TABLE>
14. LITIGATION
On April 30, 1999, we filed an action in the State Court of Fulton County,
Georgia against Samsung Display Devices, Inc. and Samsung Display Devices, Ltd.
alleging certain contract, warranty and tort claims for Samsung's alleged
failure to deliver in a timely manner working component parts for our eN-Touch
1000 product. That action seeks damages in excess of $5,000,000. Samsung moved
the case to the United States District Court for the Northern District of
Georgia on June 7, 1999. On August 6, 1999, Samsung answered the complaint and
counterclaimed against us for alleged failure to pay on account and for
reimbursement of certain moneys. Samsung seeks approximately $500,000 on its
counterclaim. On February 22, 2000, based on information brought to light as a
result of discovery and as a result of our continuing investigation, we filed
with the court a Motion for Leave to amend our Complaint against Samsung to
state a claim for fraud. The court has yet not ruled on the motion. We dispute
these claims and intend to pursue our claims and defend Samsung's counterclaims
vigorously.
D-22
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Our quarterly consolidated financial data have fluctuated significantly in
fiscal 1999 and fiscal 1998 due in part to the timing of unusual charges of
$11.4 million and $12.6 million, respectively, recorded in each of these years.
These charges, which affected gross profit and net earnings, have been
described previously in Note 11. The quarterly financial results were also
affected: (1) in the fourth quarter of fiscal 1999 by an increase in our
valuation allowance to entirely offset the income tax benefit that would
otherwise be recognized on our U.S. loss carryforwards, including the tax
benefits recorded in the first nine months of 2000; and (ii) in the second
quarter of fiscal 1998 by a $2.0 million reclassification of inventory write-
off from operating expenses to cost of sales.
The summarized quarterly consolidated financial data for 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
Quarter
----------------------------------
First Second Third Fourth
------- ------- ------- --------
(In thousands of dollars, except
per share amounts)
<S> <C> <C> <C> <C>
1999:
Net revenues.......................... $15,110 $28,633 $32,543 $ 21,648
Gross profit.......................... 5,091 5,650 9,880 695
Net income (loss)..................... (2,296) (3,242) 619 (15,015)
Basic and diluted net income (loss)
per share............................ $ (0.13) $ (0.19) $ 0.03 $ (0.84)
1998:
Net revenues.......................... $24,989 $25,748 $29,928 $ 26,457
Gross profit.......................... 9,127 7,024 11,008 9,446
Net income (loss)..................... 1,044 (7,209) 465 729
Basic and diluted net income (loss)
per share............................ $ 0.06 $ (0.41) $ 0.03 $ 0.04
</TABLE>
D-23
<PAGE>
IVI CHECKMATE CORP.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Additions End of
of Year (Note 1) Deductions Year
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 1997........ $ 575 $ 178 $ (306) $ 447
Year ended December 31, 1998........ $ 447 $ 226 $ 42 $ 715
Year ended December 31, 1999........ $ 715 $ 800 $ (186) $1,329
INVENTORY OBSOLESCENCE RESERVES:
Year ended December 31, 1997........ $3,019 $ 393 $(1,449) $1,963
Year ended December 31, 1998........ $1,963 $2,800 $(1,020) $3,743
Year ended December 31, 1999........ $3,743 $5,628 $(2,360) $7,011
</TABLE>
Note 1: Addition to obsolescence reserve in 1999 includes an increase of $2.4
million related to the acquired assets of the Financial Systems division
of DataCard Corporation.
D-24
<PAGE>
INDEX TO FINANCIAL STATEMENTS
NATIONAL TRANSACTION NETWORK, INC.
<TABLE>
<CAPTION>
Page
------
<S> <C>
Report of Independent Auditors--Ernst & Young LLP...................... E-2
Independent Auditors' Report--Deloitte & Touche LLP.................... E-3
Balance Sheets as of December 31, 1999 and 1998........................ E-4
Statements of Operations for the Years Ended December 31, 1999, 1998,
and 1997.............................................................. E-5
Statements of Stockholders' Equity (Deficit) for the Years Ended
December 31, 1999, 1998 and 1997...................................... E-6
Statements of Cash Flows for the Years Ended December 31, 1999, 1998
and 1997.............................................................. E-7
Notes to Financial Statements.......................................... E-8-15
Schedule II--Valuation and Qualifying Accounts......................... E-16
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
National Transaction Network, Inc.
We have audited the accompanying balance sheets of National Transaction
Network, Inc. as of December 31, 1999 and 1998, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the two
years in the period ended December 31, 1999. Our audits also included the 1998
and 1999 data in the financial statement schedule listed in the Index to
Financial Statements for National Transaction Network, Inc. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Transaction
Network, Inc. at December 31, 1999 and 1998, and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
1999 in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the 1999 and 1998 basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
The accompanying financial statements and schedule have been prepared
assuming that National Transaction Network, Inc. will continue as a going
concern. As more fully described in Note 1, the Company is dependent on IVI
Checkmate Corp. to provide financial support. IVI Checkmate Corp. is not
obligated to provide this support through 2000. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements and schedule do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
ERNST & YOUNG LLP
Atlanta, Georgia
February 15, 2000
E-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of National Transaction Network, Inc.
We have audited the accompanying statements of operations, stockholders'
equity (deficit), and cash flows of National Transaction Network, Inc. (the
"Company") for the year ended December 31, 1997. Our audit also included the
financial statement schedule listed in the Index to Financial Statements for
National Transaction Network, Inc. as it relates to the year ended December 31,
1997. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility to express an
opinion on these financial statements and financial statement schedule based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of the Company for year
ended December 31, 1997 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule as it relates to the year ended December 31, 1997, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 17, 1998
E-3
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......................... $ 63,533 $ 224,646
Accounts receivable, less allowance of $40,000 at
December 31, 1999 and 1998....................... 627,433 1,028,009
Accounts receivable from stockholder.............. 262,116 --
Inventories....................................... -- 159,116
Prepaid expenses.................................. 48,478 48,977
------------ ------------
Total current assets............................... 1,001,560 1,460,748
Property and equipment:
Furniture and fixtures............................ 116,139 144,377
Machinery and equipment........................... 158,666 801,816
------------ ------------
274,805 946,193
Less: accumulated depreciation.................... (159,450) (791,915)
------------ ------------
Net property and equipment........................ 115,355 154,278
Capitalized software development costs, net of
accumulated amortization of $97,936 and $0 at
December 31, 1999 and 1998, respectively.......... 810,282 133,717
Purchased technology, net of accumulated
amortization of $120,702 and $57,702 at December
31, 1999 and 1998, respectively................... 192,853 255,853
Deposits and other................................. 13,843 13,263
------------ ------------
Total assets....................................... $ 2,133,893 $ 2,017,859
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities Accounts payable............... $ 25,967 $ 322,269
Accounts payable to stockholder................... 221,637 66,503
Accrued liabilities............................... 234,273 434,758
Deferred revenue.................................. 163,381 525,635
Notes payable to stockholder...................... 850,000 --
Current portion of capital lease obligations...... -- 1,182
------------ ------------
Total current liabilities.......................... 1,495,258 1,350,347
Convertible subordinated notes payable to
stockholder....................................... 2,268,525 2,256,257
------------ ------------
3,763,783 3,606,604
------------ ------------
Stockholders' deficit
Preferred stock, $0.10 par value
Authorized--5,000,000 shares; none issued
Common stock, $0.15 par value
Authorized--20,000,000 shares
Issued and outstanding--3,325,468 at December 31,
1999 and 1998.................................... 498,827 498,827
Additional paid-in capital........................ 12,739,216 12,609,216
Accumulated deficit............................... (14,867,933) (14,696,788)
------------ ------------
Total stockholders' deficit........................ (1,629,890) (1,588,745)
------------ ------------
$ 2,133,893 $ 2,017,859
------------ ------------
</TABLE>
See notes to financial statements
E-4
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Revenue:
Systems and equipment.................... $2,307,754 $ 2,793,917 $2,828,153
Software and services.................... 2,421,564 2,257,160 2,490,218
---------- ----------- ----------
Total revenue........................... 4,729,318 5,051,077 5,318,371
Costs of revenue:
Systems and equipment.................... 1,650,605 2,363,572 2,501,912
Software and services.................... 1,243,587 729,425 537,995
---------- ----------- ----------
Gross margin.............................. 1,835,126 1,958,080 2,278,464
Expenses:
Selling, general and administration...... 825,556 1,840,484 1,767,813
Research and development................. 928,311 1,087,807 922,117
Impairment of capitalized software
assets.................................. -- 669,919 --
---------- ----------- ----------
Total expenses.......................... 1,753,867 3,598,210 2,689,930
---------- ----------- ----------
Income (loss) from operations............. 81,259 (1,640,130) (411,466)
---------- ----------- ----------
Other income (expense):
Interest expense......................... (252,530) (165,734) (39,143)
Interest income.......................... 126 135 1,846
---------- ----------- ----------
Total other income (expense)............ (252,404) (165,599) (37,297)
---------- ----------- ----------
Net loss.................................. $ (171,145) $(1,805,729) $ (448,763)
---------- ----------- ----------
Basic and diluted loss per common share... $ (0.05) $ (0.55) $ (0.14)
---------- ----------- ----------
Weighted average number of common shares
outstanding
(basic and diluted):..................... 3,325,468 3,312,494 3,254,055
---------- ----------- ----------
</TABLE>
See notes to financial statements.
E-5
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Additional Total
Shares Paid-in Accumulated Stockholders'
Issued Amount Capital Deficit Equity (Deficit)
--------- -------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 3,248,606 $487,291 $12,589,255 $(12,442,296) $ 634,250
Net loss............... -- -- -- (448,763) (448,763)
Exercise of stock
options............... 24,556 3,683 7,318 -- 11,001
--------- -------- ----------- ------------ -----------
Balance at December 31,
1997................... 3,273,162 490,974 12,596,573 (12,891,059) 196,488
Net loss............... -- -- -- (1,805,729) (1,805,729)
Exercise of stock
options............... 52,306 7,853 12,643 -- 20,496
--------- -------- ----------- ------------ -----------
Balance at December 31,
1998................... 3,325,468 498,827 12,609,216 (14,696,788) (1,588,745)
Net loss............... -- -- -- (171,145) (171,145)
Accrued interest
forgiven.............. -- -- 130,000 -- 130,000
--------- -------- ----------- ------------ -----------
Balance at December 31,
1999................... 3,325,468 $498,827 $12,739,216 $(14,867,933) $(1,629,890)
--------- -------- ----------- ------------ -----------
</TABLE>
See notes to the financial statements.
E-6
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1999 1998 1997
--------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................. $(171,145) $(1,805,729) $ (448,763)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 242,355 160,465 134,949
Interest on convertible subordinated
notes payable to stockholder........... 130,000 82,049 24,208
Loss on sale of property and equipment.. -- 13,905 --
Write-off of capitalized software
development costs...................... -- 669,919 --
Increase (decrease) in cash from:
Accounts receivable................... 400,577 (242,412) 620,516
Accounts receivable from stockholder.. (262,116) -- --
Inventories........................... 159,116 595,803 (521,329)
Prepaid expenses...................... (81) 2,905 (16,820)
Accounts payable and accrued
liabilities.......................... (445,014) 310,363 (357,193)
Accounts payable to stockholder....... 155,134 (252,355) 223,571
Deferred revenue...................... (401,760) 476,568 (514,856)
--------- ----------- ----------
Net cash provided by (used in) operating
activities............................... (192,934) 11,481 (855,717)
--------- ----------- ----------
INVESTING ACTIVITIES
Purchase of property and equipment........ (42,496) (81,164) (141,949)
Capitalization of software development
costs.................................... (774,501) (517,408) (286,228)
Proceeds from sale of property and
equipment................................ -- 11,898 --
Acquisition of purchased technology....... -- (313,555) --
--------- ----------- ----------
Net cash used in investing activities..... (816,997) (900,229) (428,177)
--------- ----------- ----------
FINANCING ACTIVITIES
Proceeds from notes payable to
stockholder.............................. 850,000 -- --
Repayment of capital lease obligation..... (1,182) (14,956) (35,298)
Proceeds from exercises of stock options.. -- 20,496 11,001
Proceeds from convertible subordinated
notes payable to stockholder............. -- 650,000 1,500,000
Proceeds from bank line of credit......... -- 100,000 700,000
Repayment of bank line of credit.......... -- (100,000) (700,000)
--------- ----------- ----------
Net cash provided by financing
activities............................... 848,818 655,540 1,475,703
--------- ----------- ----------
Net increase (decrease) in cash and cash
equivalents.............................. (161,113) (233,208) 191,809
Cash and cash equivalents at beginning of
year..................................... 224,646 457,854 266,045
--------- ----------- ----------
Cash and cash equivalents at end of year.. $ 63,533 $ 224,646 $ 457,854
--------- ----------- ----------
Supplemental Disclosure of Cash Flow
Information Cash paid for interest....... $ 22,704 $ 2,249 $ 14,740
--------- ----------- ----------
</TABLE>
See notes to financial statements.
E-7
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business--National Transaction Network, Inc. (the "Company")
designs, integrates and markets point-of-sale electronic payment systems and
software, principally to the retail industry.
In September 1996, International Verifact, Inc. ("IVI") acquired beneficial
ownership of approximately 84% of the outstanding common stock of the Company.
In June 1998, International Verifact Inc. and Checkmate Electronics, Inc.
merged to form IVI Checkmate Corp. ("IVI Checkmate"), one of the largest
electronic payment solutions providers in North America. In recent years, the
Company had relied on IVI Checkmate to finance its operations.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. However, because of the Company's
recurring losses and declining revenues, such realization of assets and
liquidation of liabilities is subject to significant uncertainty. The Company's
ability to continue as a going concern is dependent upon its ability to
generate revenue and cash flows from operations, and/or obtain financing or
additional capital.
As shown in the financial statements, the Company incurred net losses of
$171,145, $1,805,729 and $448,763 for the years ended December 31, 1999, 1998
and 1997, respectively, and has an accumulated deficit of $14,867,933 at
December 31, 1999. Furthermore, the Company used cash flows of approximately
$193,000 for operating activities and must continually borrow funds in order to
finance its operations. In 1999, borrowings totaling $850,000 from IVI
Checkmate have enabled the Company to meet its obligations during 1999. The
Company will not be able to depend solely on its remaining cash balance at
December 31, 1999 of $63,533 to meet its obligations during 2000, which raises
substantial doubt about the Company's ability to continue as a going concern.
The Company may seek additional financing from its significant stockholder or a
third party. It is not possible to predict the outcome of the Company's efforts
and there is no assurance that the Company will be successful in increasing
revenues, obtaining financing and continuing operations.
On September 29, 1998, IVI Checkmate acquired Plourde Computing Services.
Inc. ("Plourde"). This independent software company has a Windows NT-based
payments application which made the Company's development of its PINnacle NT
platform product redundant, as the potential market for the Company's Windows
NT platform would have been usurped by Plourde during that period of time the
Company still required to complete development of its Windows NT product.
In January 1998, the Company purchased the rights to certain software
products from BancTec USA, Inc. ("BancTec"). Also included in the purchase were
certain customer software maintenance contracts and tangible assets to support
such contracts. The Mainsail software product, acquired from BancTec, allows
the retailer to control their electronic payments through owning a local host
payment switch thereby reducing their costs of accepting electronic payments.
The Mainsail product, in conjunction with its relationship with IVI Checkmate,
allows the Company to offer to retailers complete end-to-end payment solutions.
Use of Estimates in the Preparation of Financial Statements--The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Financial Instruments--The carrying values of cash and equivalents, accounts
receivable, and accounts payable approximate fair value due to the short-term
nature of these instruments. The carrying value of the Convertible Notes
Payable to Stockholder approximates fair value because the notes carry interest
rates that are variable and reflect current market trends.
E-8
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
1. Nature of Business and Summary of Significant Accounting Policies
(continued)
Revenue Recognition--The Company generates revenue from reselling hardware
terminals and peripherals, and in providing software and services.
Hardware revenues are recognized normally upon shipment when title and risk
of ownership has transferred. The Company does provide a ninety-day warranty
that hardware products are free from defects. Estimated warranty costs are
recorded when revenue is recognized.
Software and services consist of software application projects, software
licenses, maintenance contracts and other services. Revenues from software
application projects are generally under fixed-price contracts recognized using
the percentage-of-completion method over the implementation method. Percentage
of completion is determined using the number of hours incurred as compared to
the total estimated number of hours to complete the project. Software license
fees under agreements which do not require significant customization or
modification are recognized upon delivery and acceptance when there is
persuasive evidence of an arrangement and the fee is fixed and determinable and
considered collectible. Maintenance revenue is recognized ratably over the life
of the maintenance contract. Other service revenue is recognized as the related
service is performed.
Cash and Cash Equivalents--The Company considers all highly liquid
investments purchased with a remaining maturity of three months or less to be
cash equivalents.
Property and Equipment--Property and equipment are recorded at cost. As
assets are retired or sold, the related cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in the
results of operations. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the assets which range
from three to five years. Depreciation expense was $81,418, $106,428 and
$135,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Capitalized Software Costs--Costs incurred to establish the technological
feasibility of software products are research and development expense and are
charged to expense as incurred. The Company capitalizes costs incurred between
the point of establishing technological feasibility and general release when
such costs are material. For the years ended December 31, 1999, 1998 and 1997,
the Company capitalized software costs of $774,501, $517,408 and $286,228,
respectively.
Long-Lived Assets--The Company reviews its long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company believes that no material impairment existed at
December 31, 1999.
Stock-Based Compensation--The Company has elected to follow 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 effect on the accompanying statements of
operations for reporting under FASB Statement No. 123 is presented in Note 4.
Loss Per Common Share--Basic net loss per common share is computed using the
weighted-average number of shares of common stock outstanding. Diluted loss per
common share is equal to basic net loss per common share as the assumed
exercise of options or conversion of the convertible subordinated notes payable
to stockholder were considered anti-dilutive for the years ended December 31,
1999, 1998 and 1997.
Income Taxes--The Company follows the liability method of accounting for
income taxes, under which deferred income taxes are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled. The effect on deferred
taxes of a change in tax rate is recognized in income in the period that
includes the enactment date.
E-9
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
1. Nature of Business and Summary of Significant Accounting Policies
(continued)
Recently Issued Accounting Standards--In December 1999, the Securities and
Exchange Commission released Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." This bulletin summarizes certain views of
the staff on applying generally accepted accounting principals to revenue
recognition in financial statements. The staff believes that revenue is
realized or realizable and earned when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has occurred or services
have been rendered; the seller's price to the buyer is fixed or determinable;
and collectibility is reasonably assured. We believe that our current revenue
recognition policy complies with the Commission's guidelines. This bulletin is
effective beginning the second quarter ending June 30, 2000.
In June 1999, the Financial Accounting Standards Board issues SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133." SFAS NO. 137 amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which was issued
in June 1998. SFAS No. 137 defers the effective date of SFAS No. 133 to all
fiscal years beginning after June 15, 2000. SFAS No. 133 requires that all
derivative instruments be recorded on the balance sheet at their 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 have not used
derivative instruments and we do not expect the adoption of SFAS No. 133 to
have a material impact on our financial position or results of operations.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-9, "Modification of SOP No. 97-2, Software
Revenue Recognition, with Respect to Certain Transactions" ("SOP 98-9"). SOP
98-9 amends SOP 97-2 to require recognition of revenue using the "residual
method" in circumstances outlined in SOP 98-9. Under the residual method,
revenue is recognized as follows: (1) the total fair value of undelivered
elements, as indicated by vendor-specific objective evidence, is deferred and
subsequently recognized in accordance with the relevant sections of SOP 97-2
and (2) the difference between the total arrangement fee and the amount
deferred for the undelivered elements is recognized as revenue related to the
delivered elements. SOP 98-9 is effective for transactions entered into in
fiscal years beginning after March 15, 1999. We do not expect the adoption of
SOP 98-9 to have a significant impact on our financial position or results of
operations.
2. Note Payable to Stockholder
In 1999, the Company was unable to obtain a working capital line of credit
with its bank. To fund its operating cash requirements for 1999, it was
necessary for the Company to borrow funds from its significant stockholder, IVI
Checkmate, that totaled $850,000 which remained outstanding as at December 31,
1999. The note bears interest at a rate per annum equal to prime rate plus 2%
with interest payable monthly and the principal repayable on demand.
3. Convertible Subordinated Notes Payable to Stockholder
On August 18, 1997, the Company entered into a Convertible Subordinated Note
Purchase Agreement (the "Note Agreement") with IVI Checkmate. Under this Note
Agreement, the Company may, from time to time, issue and sell to IVI Checkmate
Convertible Subordinated Notes (the "Notes") up to an aggregate amount of
$2,000,000. The Notes outstanding have a five-year term, bear interest at a
rate per annum equal to the prime rate plus 2% (9.75% at December 31, 1999),
are secured by the Company's assets. Interest payments on the Notes are
deferred until maturity.
The Notes are convertible into the Company's common stock at any time, at
the option of the holder, in accordance with the terms of the Note Agreement.
The conversion price shall be equal to no less than the fair market value. The
Notes are also subject to certain registration rights in the event that the
Company determines to register additional shares of common stock.
E-10
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
3. Convertible Subordinated Notes Payable to Stockholder (continued)
Notes issued in each of the years ended December 31, 1999, 1998 and 1997
were $0, $650,000 and $1,500,000, respectively. Interest expense of
approximately $220,000 and $165,000 was recorded under these Notes in 1999 and
1998, respectively,and the accrued interest payable was $118,525 and $106,248
at December 31, 1999 and 1998, respectively. Interest of $130,000 accrued in
1999 was forgiven by the parent company and has been recorded as a contribution
to capital.
4. Stock Options
Stock Option Plan--The Company's 1988 Stock Option Plan (the "Plan")
provides for the granting of incentive stock options to employees at exercise
prices not less than fair market value at the date of grant. Options granted
become exercisable in varying annual installments, and the period within which
any option may be exercised cannot exceed ten years from the date of the grant.
At December 31, 1999, 246,694 options to purchase shares of the Company's
common stock were outstanding. No further options were available for future
grant under this Plan effective March 25, 1998, the tenth anniversary of the
inception of the Plan.
Director Stock Option Plans--Under the Company's 1995 and 1993 Directors
Stock Option Plans (the "Director Plans"), non-qualified options to purchase up
to a maximum of 320,000 shares of common stock may be granted to members of the
Board of Directors (the "Board"). The exercise price of the options may not be
less than fair market value on the date of grant. Options under the Director
Plans become exercisable upon grant and continue for the period determined by
the Board but may not exceed ten years. As of December 31, 1999, 88,332 options
to purchase shares of the Company's common stock were outstanding, with an
additional 226,666 shares were available for grant under the Director Plans.
The following table summarizes option activity for 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Number Weighted
of Average
Options Exercisable Exercise
Granted Options Price
-------- ----------- --------
<S> <C> <C> <C>
Outstanding at January 1, 1997................... 622,380 270,601 $0.50
Granted.......................................... 63,000 $0.64
Exercised........................................ (24,556) $0.45
Forfeited........................................ (13,195) $0.55
--------
Outstanding at December 31, 1997................. 647,629 393,258 $0.51
Granted.......................................... 108,000 $0.49
Exercised........................................ (52,306) $0.40
Forfeited........................................ (193,491) $0.42
--------
Outstanding at December 31, 1998................. 509,832 336,430 $0.53
Granted.......................................... 15,000 $0.28
Forfeited........................................ (189,806) $0.49
--------
Outstanding at December 31, 1999................. 335,026 293,025 $0.54
--------
</TABLE>
E-11
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
4. Stock Options (continued)
The following table summarizes options at December 31, 1999:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
---------------------------- ----------------
Weighted
Weighted Average Weighted
Range of Number Average Contractual Number Average
Exercise of Exercise Life of Exercise
Price Options Price (Years) Options Price
- -------- ------- -------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.22--$0.44 254,694 $0.39 5.76 242,693 $0.39
$0.56--$0.83 67,000 $0.63 7.75 37,000 $0.64
$3.00 13,332 $3.00 2.67 13,332 $3.00
</TABLE>
The Company follows the requirements of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" to account for its stock
option plans and, accordingly, compensation cost is recognized in the
statements of operations for the stock plan to the extent the options are
granted at prices below fair market value. The Company adopted SFAS 123, which
requires certain disclosures about stock-based employee compensation
arrangements. SFAS 123 requires pro forma disclosure of the impact on net
income and earnings per share if the fair market value method defined in SFAS
123 had been used. The fair value for options granted in 1999, 1998 and 1997
was estimated at the date of grant using a Black-Scholes option pricing
valuation model for options granted with the following weighted-average
assumptions: a weighted average risk-free interest rate of 5.75%; a dividend
yield of 0%; a volatility factor of the expected market price of the common
stock of 0.25, 0.63 and 1.20 for options granted during 1999, 1998 and 1997,
respectively, and a weighted average expected life of 7.67 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restriction and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because change in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
The weighted average estimated fair value of options granted in 1999, 1998
and 1997 was $0.13, $0.30 and $0.62 per share, respectively.
For purposes of pro-forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
Company's pro forma information, assuming SFAS 123 has been adopted, is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ----------- ---------
<S> <C> <C> <C>
Pro forma net loss......................... $(173,095) $(1,826,746) $(501,220)
Pro forma basic and diluted loss per
share..................................... $ (0.05) $ (0.56) $ (0.15)
</TABLE>
E-12
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
5. Income Taxes
Significant components of the Company's deferred tax assets and liabilities
as of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable.................................. $ 16,000 $ 32,000
Inventory reserve.................................... -- 23,498
Accrued liabilities.................................. 47,747 51,296
Commissions.......................................... 29,918 11,206
Deferred revenue..................................... 55,132 194,254
Subordinated debt.................................... 47,410 42,503
Net operating loss carryforwards..................... 1,631,005 950,200
----------- -----------
1,827,212 1,304,957
Deferred tax liabilities:
Depreciation......................................... 18,126 (1,511)
----------- -----------
1,845,338 1,303,442
Valuation allowance................................... (1,845,338) (1,303,442)
----------- -----------
Deferred taxes, net................................... $ -- $ --
=========== ===========
</TABLE>
For the years ended December 31, 1999 and 1998, the net changes in the
valuation allowance are primarily related to the change in net deferred tax
assets as such assets are fully reserved in each year.
A reconciliation between the U.S. statutory tax rate and the effective tax
rate for the years ended December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate......................................... (34)% (34)% (34)%
State rate, net of federal benefit......................... (6) (6) (6)
Non-deductible expenses.................................... 10 4 2
Change in valuation allowance due to:
Operating loss carryforwards.............................. 30 36 38
--- --- ---
Effective tax rate......................................... --% --% --%
=== === ===
</TABLE>
At December 31, 1999, the Company has remaining net operating loss
carryforwards for tax purposes not limited by certain changes in ownership of
approximately $4.1 million which expire in varying amounts through 2019. Due to
changes in ownership in 1989, 1996 and 1998 as defined by the Internal Revenue
Code, the Company's ability to utilize these carryforwards on an annual basis
is likely to be limited.
6. Capitalized Software
The Company accounts for certain software development costs in accordance
with Statement of Financial Accounting Standards (SFAS) No. 86 , "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed."
It is the Company's policy to capitalize costs relating to the development of
its products once technological feasibility has been achieved until the
products are available for general release to customers, provided that the
recoverability of such costs is reasonably assured through expected sales
revenue less related selling expenses. Upon availability of products for
general release to customers, all related capitalized development costs are
amortized over a suitable period based on the products' estimated economic
E-13
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
6. Capitalized Software (continued)
life. Due to IVI Checkmate's acquisition of Plourde in September 1998,
management abandoned the PINnacle NT development project as Plourde had a
competing product which IVI Checkmate chose as the NT software product to sell
in the future. As a result, the costs capitalized for the PINnacle NT product,
totaling $669,919, were determined by management not to be recoverable.
Accordingly, these costs were written off in 1998. The Company is continuing to
capitalize costs for its Mainsail product, which totaled $774,501 and $133,717
for the years ended December 31, 1999 and 1998, respectively.
7. Commitments
The Company leases certain property and equipment under non-cancelable lease
agreements. Rental expense under operating leases was approximately $242,000,
$197,000 and $119,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Future minimum payments under non-cancelable operating leases with terms of
one year or more consisted of the following at December 31, 1999:
<TABLE>
<S> <C>
2000............................................................. $256,660
2001............................................................. 252,605
2002............................................................. 214,213
2003............................................................. 6,376
2004............................................................. 5,845
--------
Total future minimum lease payments............................ $735,699
========
</TABLE>
9. Financial Instruments and Concentrations Of Customers
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents
and trade accounts receivable.
The Company performs ongoing credit approvals of its customers. Trade
receivables are unsecured, and the Company is at risk to the extent such
amounts become uncollectible. However, losses on receivables have in the past
been within expectations.
The Company's customer base consists of large retail companies, principally
in the supermarket industry, located throughout the United States.
The Company had only one major customer that represented in excess of 10% of
the Company's revenues:
<TABLE>
<CAPTION>
Percentage of
Revenue
----------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Albertson's................................................ 41% 59% 57%
</TABLE>
10. Related Party Transactions
The Company purchases point-of-sale hardware products from IVI Checkmate,
its significant stockholder, which it resells to its own customers as a vehicle
for sales of its own software and services. Total purchases from IVI Checkmate
approximated $894,000, $1,050,000 and $1,870,000 for the years ended December
31, 1999, 1998 and 1997, respectively. Sales of software products to IVI
Checkmate were approximately $0,
E-14
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
10. Related Party Transactions (continued)
$65,000 and $168,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. At December 31, 1999 and 1998, accounts payable to IVI Checkmate
were $221,637 and $66,503, respectively.
At December 31, 1999, the Company sold all of its inventory products to IVI
Checkmate at cost in order to focus its resources on software development and
sale of software and services. The aggregate value of the transaction was
approximately $250,000.
11. 401(K) Retirement Savings Plan
The Company has a 401(K) Retirement Saving Plan (the "401(K) plan") covering
substantially all employees. Under the 401(K) plan, participants are allowed to
contribute an amount not to exceed 20% of compensation, subject to certain
limitations. While the Company may make matching contributions at its
discretion, no contributions were made during 1999, 1998 or 1997.
E-15
<PAGE>
NATIONAL TRANSACTION NETWORK,INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance
at Additions Balance at
Beginning Charged to End of
of Period Expenses Deductions Period
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 1997..... $100,000 $-- $60,000(a) $40,000
Year ended December 31, 1998..... $ 40,000 $-- $ -- $40,000
Year ended December 31, 1999..... $ 40,000 $-- $ -- $40,000
</TABLE>
- --------
(a) Writeoff of uncollectible accounts ($15,000); Reduction of allowance for
doubtful accounts balance ($45,000) based on review of accounts receivable
totals.
E-16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
The registrant's bylaws provide for indemnification of directors and
officers of the registrant to the full extent permitted by Delaware law.
Section 145 of the General Corporation Law of the State of Delaware provides
generally that a corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director,
officer, employee or agent of the corporation, or is or was serving at its
request in such capacity in another corporation or business association,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In addition, pursuant to the authority of Delaware law, the certificate of
incorporation of the registrant also eliminates the monetary liability of
directors to the fullest extent permitted by Delaware law.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits required by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Exhibit
No. Description SEC Document Reference
- ------- ----------- ----------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger among Included as Appendix A to the proxy
National Transaction Network, Inc., statement-prospectus contained in
IVI Checkmate Corp., IVI Checkmate this registration statement.
Inc., and NTN Merger Corp.
3.1 Certificate of Incorporation of the Previously filed.
Company, as amended
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 Previously filed.
Agreement, dated as of September 16,
1998, between IVI 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.), as amended on April 6, 1999
5.1 Opinion of Alston & Bird LLP as to Previously filed.
the validity of the securities being
registered, including consent
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description SEC Document Reference
------- ----------- ----------------------
<S> <C> <C>
9.1 Form of Voting and Exchange Trust Exhibit 9.1 to IVI Checkmate's
Agreement Registration Statement on Form S-4
(No. 333-53629)
9.2 Stockholders Agreement by and Exhibit 9.2 to IVI Checkmate's
between Ingenico, J. Stanford Spence Registration Statement on Form S-4
and Dudley L. Moore, Jr. dated as of (No. 333-53629)
January 16, 1998
10.1 Combination Agreement dated January Exhibit 10.1(a) to Checkmate
16, 1998, by and among IVI Checkmate Electronics' Annual Report on Form
Corp., International Verifact Inc., 10-K for the year ended December 31,
Checkmate Electronics, Inc. and 1997
Future Merger Corporation
10.2 Form of Plan of Arrangement and Exhibit 2.2 to IVI Checkmate's
Exchangeable Share Provisions Registration Statement on Form S-4
(No. 333-53629)
10.3 Master Alliance Agreement dated Exhibit 10.6 to IVI Checkmate's
December 5, 1996, between Ingenico, Registration Statement on Form S-4
S.A. and International Verifact Inc. (No. 333-53629)
10.4 Investment Agreement dated December Exhibit 10.10 to IVI Checkmate's
5, 1996, between Ingenico, S.A. and Registration Statement on Form S-4
International Verifact Inc., as (No. 333-53629)
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 Exhibit 10.11 to IVI Checkmate's
dated December 17, 1996, between Registration Statement on Form S-4
Ingenico, S.A., International (No. 333-53629)
Verifact Inc. and IVI Ingenico Inc.
10.6 Assignment, Assumption and Consent Exhibit 10.12 to IVI Checkmate's
Agreement dated as of January 16, Registration Statement on Form S-4
1998 among International Verifact (No. 333-53629)
Inc., Ingenico S.A., and IVI
Checkmate Corp.
10.9 IVI Checkmate Corp. 1998 Long-Term Exhibit 10.5.1 to IVI Checkmate's
Incentive Plan Registration Statement on Form S-4
(No. 333-53629)
10.10 IVI Checkmate Corp. 1998 Directors Exhibit 10.5.2 to IVI Checkmate's
Stock Option Plan Registration Statement on Form S-4
(No. 333-53629)
10.11 Latin America Unanimous Exhibit 10.7 to IVI Checkmate's
Shareholders' Agreement dated Registration Statement on Form S-4
December 17, 1996, between Ingenico, (No. 333-53629)
S.A., International Verifact Inc.
and IVI Ingenico Inc.
10.12 Technology License Agreement dated Exhibit 10.8 to IVI Checkmate's
December 17, 1996, between Ingenico, Registration Statement on Form S-4
S.A. and International Verifact Inc. (No. 333-53629)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description SEC Document Reference
- ------- ----------- ----------------------
<S> <C> <C>
10.13 Joint Development and Procurement Exhibit 10.9 to IVI Checkmate's
Agreement dated December 17, 1996, Registration Statement on Form S-4
between Ingenico, S.A. and (No. 333-53629)
International Verifact Inc.
10.14 Amendment No. 1 to Agreement filed Exhibit 10.14 to IVI Checkmate's
as Exhibit 10.15 Annual Report on Form 10-K for the
year ended December 31, 1998
10.15 Agreement dated June 25, 1998, Exhibit 10.15 to IVI Checkmate's
between J. Stanford Spence and IVI Annual Report on Form 10-K for the
Checkmate Corp. year ended December 31, 1998
10.16 Management Services Agreement Exhibit 10.16 to IVI Checkmate's
between IVI Checkmate, IVI, Annual Report on Form 10-K for the
Checkmate, LBT Investments, Inc. and year ended December 31, 1998
L. Barry Thomson dated as of June
25, 1998
10.17 Employment Agreement dated as of Exhibit 10.17 to IVI Checkmate's
June 25, 1998 between International Annual Report on Form 10-K for the
Verifact Inc. and George Whitton year ended December 31, 1998
10.18 Employment Agreement dated as of Exhibit 10.4(f) to Checkmate
January 1, 1998, between Checkmate Electronics' Form 10-K for the
Electronics, Inc. and John J. period ended December 31, 1997
Neubert
10.19 Employment Agreement dated as of Exhibit 10.4(g) to Checkmate
January 1, 1998, between Checkmate Electronics' Annual Report on Form
Electronics, Inc. and Gregory A. 10-K for the year ended December 31,
Lewis 1997
10.20 Eleventh Amendment, dated July 16, Exhibit 10.20 to IVI Checkmate's
1998, to the Lease Agreement filed Annual Report on Form 10-K for the
as Exhibit 10.28 year ended December 31, 1998
10.21 Tenth Amendment, dated May 20, 1998, Exhibit 10.21 to IVI Checkmate's
to the Lease Agreement filed as Annual Report on Form 10-K for the
Exhibit 10.27 year ended December 31, 1998
10.22 Ninth Amendment, dated August 18, Exhibit 10.1(e) to Checkmate
1997, to the Lease Agreement filed Electronics' Annual Report on Form
as Exhibit 10.27 10-K for the year ended December 31,
1997
10.23 Eighth Amendment, dated April 1, Exhibit 10.1(d) to Checkmate
1996, to the Lease Agreement filed Electronics' Annual Report on Form
as Exhibit 10.27 10-K for the year ended December 31,
1996
10.24 Seventh Amendment, dated January 18, Exhibit 10.1(c) to Checkmate
1996, to the Lease Agreement filed Electronics' Annual Report on Form
as Exhibit 10.27 10-K for the year ended December 31,
1995
10.25 Sixth Amendment, dated February 10, Exhibit 10.1(b) to Checkmate
1995, to the Lease Agreement filed Electronics' Annual Report on Form
as Exhibit 10.27 10-K for the year ended December 31,
1994
10.26 Fifth Amendment, dated August 16, Exhibit 10.20 to Checkmate
1994, to the Lease Agreement filed Electronics' Annual Report on Form
as Exhibit 10.27 10-K for the year ended December 31,
1994
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description SEC Document Reference
------- ----------- ----------------------
<S> <C> <C>
10.27 Lease Agreement dated July 17, 1990, Exhibit 10.1 to Checkmate
as amended, by and between Checkmate Electronics' Registration Statement
Electronics. Inc. and ASE North on Form S-1 (No. 33-67048)
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 Exhibit 10.1 to IVI Verifact's
May 1986 between Markborough Registration Statement on Form F-4
Properties Limited and International (No. 33-84926)
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 Exhibit 10.2 to IVI Verifact's
1st day of July 1991 between Morgan Registration Statement on Form F-4
Mae Enterprises Limited and (No. 33-84926)
International Verifact Inc.
10.30 Assignment, Assumption and Consent Exhibit 10.12 to IVI Checkmate's
Agreement dated as of January 16, Registration Statement on Form
1998 among International Verifact S-4 (No. 333-53629)
Inc., Ingenico, S.A., and IVI
Checkmate Corp.
16.1 Letter from Deloitte & Touche LLP Previously filed.
relating to the change in
accountants
</TABLE>
<TABLE>
<S> <C> <C>
21.1 Subsidiaries of Registrant Exhibit 21 to IVI Checkmates' Annual
Report on Form 10-K for the year
ended December 31, 1999.
23.1 Consent of Ernst & Young LLP Filed herewith.
23.2 Consent of Coopers & Lybrand Filed herewith.
23.3 Consent of Deloitte & Touche LLP Filed herewith.
</TABLE>
<TABLE>
<S> <C> <C>
23.4 Consent of Alston & Bird LLP Included in Exhibit 5.
23.5 Consent of Southeast Appraisal Included in Appendix C to the proxy
Resource Associates, Inc. statement prospectus contained in
this registration statement.
24.1 Powers of Attorney Included on page II-7.
99.1 Form of Proxy Card Previously filed.
</TABLE>
(b) Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts for National Transaction
Network, Inc. is incorporated by reference into the proxy statement--
prospectus contained in this registration statement. All other schedules
for which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been omitted.
(c) Opinion of Southeast Appraisal Resource Associates, Inc. (included as
Appendix C to the proxy statement-prospectus contained in this registration
statement).
II-4
<PAGE>
Item 22. Undertakings
(a)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10 (a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Roswell, State of
Georgia, on May 2, 2000.
IVI CHECKMATE CORP.
/s/ JOHN J. NEUBERT
By: _________________________________
John J. Neubert
Executive Vice President--Finance
and Administration, Chief
Financial Officer, Treasurer and
Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 2, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ * President, Chief Executive Officer and
______________________________________ Director (Principal Executive Officer)
L. Barry Thomson
/s/ * Chairman of the Board
______________________________________
J. Stanford Spence
/s/ * Vice Chairman of the Board
______________________________________
George Whitton
/s/ * Director
______________________________________
Gerard Compain
/s/ * Director
______________________________________
Gregory A. Lewis
/s/ * Director
______________________________________
Paul W. Noblett
/s/ * Director
______________________________________
Bertil D. Nordin
/s/ * Director
____________________________________
Gareth Owen
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ * Director
______________________________________
Peter E. Roode
/s/ John J. Neubert Executive Vice President--Finance and
______________________________________ Administration, Chief Financial Officer,
</TABLE> John J. Neubert Treasurer and Secretary (Principal
Financial and Accounting Officer)
*By: /s/ John J. Neubert
-----------------------------
John J. Neubert
Attorney-in-Fact
II-7
<PAGE>
INDEX OF EXHIBITS
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
Exhibit
No. Description SEC Document Reference
- ------- ----------- ----------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger among Included as Appendix A to the proxy
National Transaction Network, Inc., statement-prospectus contained in
IVI Checkmate Corp., IVI Checkmate this registration statement.
Inc., and NTN Merger Corp.
3.1 Certificate of Incorporation of the Previously filed.
Company, as amended
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 Previously filed.
Agreement, dated as of September 16,
1998, between IVI 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.), as amended on April 6, 1999
5.1 Opinion of Alston & Bird LLP as to Previously filed.
the validity of the securities being
registered, including consent
9.1 Form of Voting and Exchange Trust Exhibit 9.1 to IVI Checkmate's
Agreement Registration Statement on Form S-4
(No. 333-53629)
9.2 Stockholders Agreement by and Exhibit 9.2 to IVI Checkmate's
between Ingenico, J. Stanford Spence Registration Statement on Form S-4
and Dudley L. Moore, Jr. dated as of (No. 333-53629)
January 16, 1998
10.1 Combination Agreement dated January Exhibit 10.1(a) to Checkmate
16, 1998, by and among IVI Checkmate Electronics, Inc.'s Annual Report on
Corp., International Verifact Inc., Form 10-K for the year ended
Checkmate Electronics, Inc. and December 31, 1997
Future Merger Corporation
Electronics' Annual Report on Form
10-K for the year ended December 31,
1997
10.2 Form of Plan of Arrangement and Exhibit 2.2 to IVI Checkmate's
Exchangeable Share Provisions Registration Statement on Form S-4
(No. 333-53629)
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description SEC Document Reference
------- ----------- ----------------------
<S> <C> <C>
10.3 Master Alliance Agreement dated Exhibit 10.6 to IVI Checkmate's
December 5, 1996, between Ingenico, Registration Statement on Form S-4
S.A. and International Verifact Inc. (No. 333-53629)
10.4 Investment Agreement dated December Exhibit 10.10 to IVI Checkmate's
5, 1996, between Ingenico, S.A. and Registration Statement on Form S-4
International Verifact Inc., as (No. 333-53629)
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 Exhibit 10.11 to IVI Checkmate's
dated December 17, 1996, between Registration Statement on Form S-4
Ingenico, S.A., International (No. 333-53629)
Verifact Inc. and IVI Ingenico Inc.
10.6 Assignment, Assumption and Consent Exhibit 10.12 to IVI Checkmate's
Agreement dated as of January 16, Registration Statement on Form S-4
1998 among International Verifact (No. 333-53629)
Inc., Ingenico S.A., and IVI
Checkmate Corp.
10.9 IVI Checkmate Corp. 1998 Long-Term Exhibit 10.5.1 to IVI Checkmate's
Incentive Plan Registration Statement on Form S-4
(No. 333-53629)
10.10 IVI Checkmate Corp. 1998 Directors Exhibit 10.5.2 to IVI Checkmate's
Stock Option Plan Registration Statement on Form S-4
(No. 333-53629)
10.11 Latin America Unanimous Exhibit 10.7 to IVI Checkmate's
Shareholders' Agreement dated Registration Statement on Form S-4
December 17, 1996, between Ingenico, (No. 333-53629)
S.A., International Verifact Inc.
and IVI Ingenico Inc.
10.12 Technology License Agreement dated Exhibit 10.8 to IVI Checkmate's
December 17, 1996, between Ingenico, Registration Statement on Form S-4
S.A. and International Verifact Inc. (No. 333-53629)
10.13 Joint Development and Procurement Exhibit 10.9 to IVI Checkmate's
Agreement dated December 17, 1996, Registration Statement on Form S-4
between Ingenico, S.A. and (No. 333-53629)
International Verifact Inc.
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description SEC Document Reference
- ------- ----------- ----------------------
<S> <C> <C>
10.14 Amendment No. 1 to Agreement filed Exhibit 10.14 to IVI Checkmate's
as Exhibit 10.15 Annual Report on Form 10-K for the
year ended December 31, 1998
10.15 Agreement dated June 25, 1998, Exhibit 10.15 to IVI Checkmate's
between J. Stanford Spence and IVI Annual Report on Form 10-K for the
Checkmate Corp. year ended December 31, 1998
10.16 Management Services Agreement Exhibit 10.16 to IVI Checkmate's
between IVI Checkmate, IVI, Annual Report on Form 10-K for the
Checkmate, LBT Investments, Inc. and year ended December 31, 1998
L. Barry Thomson dated as of June
25, 1998
10.17 Employment Agreement dated as of Exhibit 10.17 to IVI Checkmate's
June 25, 1998 between International Annual Report on Form 10-K for the
Verifact Inc. and George Whitton year ended December 31, 1998
10.18 Employment Agreement dated as of Exhibit 10.4(f) to Checkmate
January 1, 1998, between Checkmate Electronics' Form 10-K for the
Electronics, Inc. and John J. period ended December 31, 1997
Neubert
10.19 Employment Agreement dated as of Exhibit 10.4(g) to Checkmate
January 1, 1998, between Checkmate Electronics' Annual Report on Form
Electronics, Inc. and Gregory A. 10-K for the year ended December 31,
Lewis 1997
10.20 Eleventh Amendment, dated July 16, Exhibit 10.20 to IVI Checkmate's
1998, to the Lease Agreement filed Annual Report on Form 10-K for the
as Exhibit 10.28 year ended December 31, 1998
10.21 Tenth Amendment, dated May 20, 1998, Exhibit 10.21 to IVI Checkmate's
to the Lease Agreement filed as Annual Report on Form 10-K for the
Exhibit 10.27 year ended December 31, 1998
10.22 Ninth Amendment, dated August 18, Exhibit 10.1(e) to Checkmate
1997, to the Lease Agreement filed Electronics' Annual Report on Form
as Exhibit 10.27 10-K for the year ended December 31,
1997
10.23 Eighth Amendment, dated April 1, Exhibit 10.1(d) to Checkmate
1996, to the Lease Agreement filed Electronics' Annual Report on Form
as Exhibit 10.27 10-K for the year ended December 31,
1996
10.24 Seventh Amendment, dated January 18, Exhibit 10.1(c) to Checkmate
1996, to the Lease Agreement filed Electronics' Annual Report on Form
as Exhibit 10.27 10-K for the year ended December 31,
1995
10.25 Sixth Amendment, dated February 10, Exhibit 10.1(b) to Checkmate
1995, to the Lease Agreement filed Electronics' Annual Report on Form
as Exhibit 10.27 10-K for the year ended December 31,
1994
10.26 Fifth Amendment, dated August 16, Exhibit 10.20 to Checkmate
1994, to the Lease Agreement filed Electronics' Annual Report on Form
as Exhibit 10.27 10-K for the year ended December 31,
1994
10.27 Lease Agreement dated July 17, 1990, Exhibit 10.1 to Checkmate
as amended, by and between Checkmate Electronics' Registration Statement
Electronics. Inc. and ASE North on Form S-1 (No. 33-67048)
Fulton Associates Joint Venture, for
the premises located at 1011 Mansell
Road, Suite C, Roswell, Georgia
30076
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description SEC Document Reference
- ------- ----------- ----------------------
<S> <C> <C>
10.28 Lease Agreement dated the 1st day of Exhibit 10.1 to IVI Verifact's
May 1986 between Markborough Registration Statement on Form F-4
Properties Limited and International (No. 33-84926)
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 Exhibit 10.2 to IVI Verifact's
1st day of July 1991 between Morgan Registration Statement on Form F-4
Mae Enterprises Limited and (No. 33-84926)
International Verifact Inc.
10.30 Assignment, Assumption and Consent Exhibit 10.12 to IVI Checkmate's
Agreement dated as of January 16, Registration Statement on Form S-4
1998 among International Verifact (No. 333-53629)
Inc., Ingenico, S.A., and IVI
Checkmate Corp.
</TABLE>
<TABLE>
<S> <C> <C>
16.1 Letter from Deloitte & Touche LLP Previously filed.
relating to the change in
accountants
21.1 Subsidiaries of Registrant Exhibit 21 to IVI Checkmates' Annual
Report on Form 10-K for the year
ended December 31, 1999
23.1 Consent of Ernst & Young LLP Filed herewith.
23.2 Consent of Coopers & Lybrand Filed herewith.
23.3 Consent of Deloitte & Touche LLP Filed herewith.
23.4 Consent of Alston & Bird LLP Included in Exhibit 5.
23.5 Consent of Southeast Appraisal Included in Appendix C to the proxy
Resource Associates, Inc. statement prospectus contained in
this registration statement.
24.1 Powers of Attorney Included on page II-7.
99.1 Form of Proxy Card Previously filed.
</TABLE>
II-11
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and "IVI
Checkmate Selected Financial Data" in Amendment No. 5 to the Registration
Statement (Form S-4, No. 333-83743) of IVI Checkmate Corp. and to the inclusion
therein of our reports, dated February 18, 2000 (except for Note 14, as to which
the date is February 22, 2000), with respect to the consolidated financial
statements of IVI Checkmate Corp. and February 15, 2000, with respect to the
financial statements of National Transaction Network, Inc. as of and for the
year ended December 31, 1999 included therein and incorporated by reference.
/s/ Ernst & Young LLP
---------------------
Atlanta, Georgia
May 1, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion in this Amendment No. 5 to the Registration
Statement on Form S-4 of IVI Checkmate Corp. of our report dated February 12,
1998, with respect to the financial statements of International Verifact Inc.
for the years ended December 31, 1997, included in Amendment No. 2 to
International Verifact Inc.'s Annual Report (Form 20-F) for the year ended
December 31, 1997, filed with the Securities and Exchange Commission. We also
consent to the reference to our firm under the caption "Experts" in such
Registration Statement.
/s/ Coopers & Lybrand
-------------------------
Toronto, Canada Chartered Accountants
May 1, 2000
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 5 to
Registration Statement No. 333-83743 on Form S-4 of our report dated February
17, 1998 appearing in the Annual Report on Form 10-K of National Transaction
Network, Inc. for the year ended December 31, 1999, and to the use of our report
dated February 17, 1998, appearing in the Proxy Statement-Prospectus, which is
part of this Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Proxy Statement-Prospectus.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 1, 2000
