<PAGE>
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-32762
[Logo of Trintech Group PLC Appears Here]
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Trintech Group PLC
6,000,000 American Depositary Shares
Representing 3,000,000 Ordinary Shares
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We are offering 4,000,000 American depositary shares and selling
shareholders are offering 2,000,000 American depositary shares in this
offering. Each American depositary share, or ADS, offered by this prospectus
represents one-half of one of our ordinary shares. The ADSs are represented
by American depositary receipts, or ADRs. The ADSs being offered are
initially being offered in the United States and are concurrently being
offered, under a separate prospectus, in Germany and to institutional
investors outside of the United States and Germany. We will not receive any
of the proceeds from the sale of ADSs by the selling shareholders.
The ADSs are quoted on the Nasdaq National Market under the symbol TTPA and
on the Neuer Markt segment of the Frankfurt Stock Exchange under the symbol
TTP. The last reported sale price of the ADSs on the Nasdaq National Market
on May 4, 2000 was $23.75 and the last reported sale price of the ADSs on
the Neuer Markt on May 4, 2000 was (Euro)28.35 per ADS.
Investing in the ADSs involves risks. See "Risk Factors" beginning on page
6.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
A copy of this prospectus, together with the documents specified in
paragraphs 11 and 14 of Annex A in this prospectus, has been delivered to
the Registrar of Companies in the Republic of Ireland.
<TABLE>
<CAPTION>
Per American
Depositary
Share Total
------------------ ------------------------------
<S> <C> <C> <C> <C>
Public offering price $22.56 (Euro)25.33 $135,360,000 (Euro)151,980,000
Underwriting discounts and commissions 1.06 1.19 6,360,000 7,140,000
Proceeds, before expenses, to Trintech 21.50 24.14 86,000,000 96,560,000
Proceed to selling shareholders 21.50 24.14 43,000,000 48,280,000
</TABLE>
We and the selling shareholders identified on pages 66 and 67 of this
prospectus have granted the underwriters the right to purchase up to 900,000
ADSs to cover any over-allotments.
The underwriters expect to deliver the ADRs evidencing the ADSs in book
entry form through the facilities of The Depositary Trust Company and
Clearstream Banking AG on or about May 9, 2000.
Deutsche Banc Alex. Brown
Donaldson, Lufkin & Jenrette
Robertson Stephens
Chase H&Q
The date of this prospectus is May 4, 2000
<PAGE>
"Payment is at the heart of commerce, and we have been at the heart of
secure electronic payment since its creation. We have a simple philosophy--
produce the best solutions that allow consumers, businesses and financial
institutions to pay securely."
John McGuire, co-founder and CEO.
We have been a leading provider of secure electronic payment solutions to
leading banking, technology and retail organizations since our creation in
1987. Whether electronic payments take place in the physical world or over the
Internet, we supply a comprehensive range of end-to-end solutions that enable
consumers, merchants and financial institutions to by, sell and process, with
confidence and security.
Trintech securing end-to-end e-commerce
Paygate Logo
Secure e-payment solutions to
enable institutions to capture,
authorize and settle payment
card transactions in the physical
world and over the Internet.
Banks, financial transaction
Payware Logo
Payware Logo
Payware Logo
PayWare Net for e- PayWare ERP payment Electronic point of sale
merchants and PayWare enables organizations systems, Compact 9000i
NetHost for with deployed enterprise and PayWare for Call
Internet/commerce resources planning Centers allows merchants
service providers allows systems. PayWare in the physical world
virtual world merchants PurchaseCard enables accept and process
to accept and process secure Internet based payment transactions
payment card business-to-business securely.
transactions securely payment and procurement.
over the Internet.
Physical world commerce
Business-to-consumer
Business-to-consumer e-commerce
e-commerce
<PAGE>
Our product family is based on three core payment card transaction
platforms:
. PayGate: an enterprise solution that allows banks, financial transaction
processors, Internet service providers and commerce service providers to
authorize and settle payment card transactions.
. PayWare: an integrated merchant payment technology for the transactions in
the physical world and for business-to-consumer and business-to-business
transactions over the Internet.
. NetWallet: a secure virtual wallet that can protect and evoke the
cardholder's payment cards when transacting commerce on-line.
. EzCard: a virtual version of the consumers plastic credit card that resides
on the consumers personal computer and automatically completes e-merchant
payment forms, improving speed and security of shopping on-line. Also allows
streaming of advertising directly to the ezCard.
In our mission to be the world's leading provider of secure e-payment
solutions for payment card transactions, we will continue to pursue a
technology strategy to embrace and extend our position in the world of secure
e-payments--be that in the physical world or the world of e-commerce.
2
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SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully.
Trintech Group PLC
We are a leading provider of secure electronic payment infrastructure
solutions, known as e-payment solutions, for payment card transactions. We
develop, market and sell a comprehensive suite of software products, and
electronic point of sale systems known as PoS systems, that enable end-to-end
card-based electronic payments in the physical world and over the Internet. We
offer vendor-neutral, open, feature-rich software products that provide a
highly secure e-payment solution for each of the parties to an e-payment
transaction--the bank or other financial transaction processor, the merchant
and the cardholder. With the launch of our first Internet product in 1996, we
shifted our growth strategy to emphasize e-commerce software products for
Internet applications. In addition, in February 2000 we jointly announced with
Motorola the availability of an e-payment software application for mobile
commerce, or m-commerce, transactions involving mobile phones. We have also
established strategic relationships with VISA, MasterCard, VeriSign, RSA
Security, Compaq, SAP and Intershop. Our customers include banks, card
associations, financial transaction processors and Internet service providers
in major markets including Germany, the United States, Scandinavia, the United
Kingdom and South America.
The growth of payment card transactions, in conjunction with increased
payment card fraud, has driven the need for more comprehensive, secure and
effective hardware and software payment products to process these transactions.
More recently, the growth of the Internet as a medium for commerce has
significantly increased the risk that payment card fraud and repudiation can
occur. According to a study conducted by VISA International in 1999, several
member banks in its European region were experiencing repudiation and
discovered fraud rates as high as 50% for Internet transactions while
transactions originating on the Internet represent only 1% to 2% of total
transaction volumes. The results of this study support our belief that the
growth of e-commerce has further driven the demand for comprehensive and
effective solutions for secure e-payment transactions.
Our mission is to become the leading worldwide provider of secure e-payment
infrastructure solutions for payment card transactions. Our product suite
consists of software and electronic PoS systems for use with a variety of
operating systems, databases, merchant web servers, and networked and
standalone computers. Our product suite consists of more than 20 modules
designed to perform authorization, data capture and settlement for e-payment
transactions, as well as management of merchant e-payment systems. These
modules can be deployed as an end-to-end solution or integrated with modules of
other vendors. Our software products for the Internet incorporate the principal
security standards for e-payment transactions, secure socket layer, known as
SSL, and secure electronic transaction, known as SET.
We were incorporated in 1987. As of February 29, 2000, we had 306 employees
operating from offices in Dublin, Ireland, San Mateo, California, Austin,
Texas, Princeton, New Jersey, Miami, Florida and Frankfurt, Germany. Our
principal executive office, which is also our registered office, is located at
Trintech Building, South County Business Park, Leopardstown, Dublin 18,
Ireland. Our telephone number at that location is 353-1-207-4000.
This prospectus contains forward-looking statements which involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of unexpected
events and trends, as well as the factors described in the section of this
prospectus entitled "Risk Factors." This prospectus may not be used in
connection with the offer or sale of any ADSs to the public in any jurisdiction
where the offer or sale would be unlawful.
3
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The Offering
<TABLE>
<S> <C>
ADSs offered by us.............................. 4,000,000 shares
ADSs offered by selling shareholders............ 2,000,000 shares
Equivalent ADSs to be outstanding after the
offering....................................... 54,281,444 shares
Use of proceeds................................. For working capital and general
corporate purposes, including product
development, sales and marketing,
international expansion and the
acquisition of complementary products or
businesses. See "Use of Proceeds."
Nasdaq National Market symbol................... TTPA
Neuer Markt symbol.............................. TTP
</TABLE>
The number of equivalent ADSs to be outstanding after the offering is based
on 25,140,722 ordinary shares outstanding as of January 31, 2000, after giving
effect to a two-for-one ADS split effected on March 21, 2000. As a result of
the two-for-one ADS split, each ordinary share equals two equivalent ADSs. The
number of equivalent ADSs to be outstanding after the offering excludes
7,222,654 equivalent ADSs, or 3,611,327 ordinary shares, issuable upon exercise
of options outstanding under our share option schemes at January 31, 2000 and
500,000 equivalent ADSs, or 250,000 ordinary shares, issuable upon the exercise
of a warrant outstanding at January 31, 2000.
The following table summarizes the financial data of our business. Note 11
of the notes to the consolidated financial statements provides an explanation
of the method used to calculate pro forma basic and diluted net income (loss)
per equivalent ADS. The information presented under "As Adjusted" reflects the
receipt of net proceeds of approximately $83.8 million, or approximately
(Euro)94.1 million, from the sale of 4,000,000 ADSs offered by us at a public
offering price of $22.56, or (Euro)25.33, per ADS.
Summary Consolidated Financial Data
(in thousands of U.S. dollars, except share and per share data)
<TABLE>
<CAPTION>
Year Ended January 31,
---------------------------------
1998 1999 2000
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<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenue:
Product................................... $ 10,824 $ 14,554 $ 18,457
License................................... 4,101 4,477 9,158
Service................................... 1,721 2,002 2,629
---------- ---------- ----------
Total revenue........................... 16,646 21,033 30,244
Total cost of revenue...................... 9,694 13,913 17,257
---------- ---------- ----------
Gross margin............................... 6,952 7,120 12,987
Total operating expenses................... 6,733 13,944 27,145
---------- ---------- ----------
Income (loss) from operations.............. 219 (6,824) (14,158)
Net income (loss).......................... $ 175 $ (6,873) $ (12,111)
========== ========== ==========
Basic net income (loss) per equivalent
ADS....................................... $ 0.01 $ (0.21) $ (0.31)
========== ========== ==========
ADSs used in computation of basic net
income (loss) per equivalent ADS.......... 31,376,670 32,315,662 38,619,928
========== ========== ==========
Diluted net income (loss) per equivalent
ADS....................................... $ 0.01 $ (0.21) $ (0.31)
========== ========== ==========
ADSs used in computation of diluted net
income (loss) per equivalent ADS.......... 31,498,322 32,315,662 38,619,928
========== ========== ==========
</TABLE>
4
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<TABLE>
<CAPTION>
January 31, 2000
-------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................... $10,862 $94,658
Marketable securities....................................... 48,830 48,830
Working capital............................................. 57,803 141,599
Total assets.............................................. 74,295 158,091
Long-term obligations, less current portion................. 1,127 1,127
Series B preference shares.................................. -- --
Total shareholders' equity ............................... 61,116 144,912
</TABLE>
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Except as otherwise specified, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option. All share and per share
numbers in this prospectus have been adjusted to give effect to a two-for-one
split of our ADSs effected on March 21, 2000. As a result of the ADS split,
each of our ordinary shares is represented by two ADSs.
PayGate Acquirer(TM), PayGate NetIssuer(TM), PayWare PurchaseCard(TM),
PayWare SmartCard(TM), PayWare ERP(TM), PayWare Net(TM), PayWare NetHost(TM),
NetWallet(TM), EzCard(TM), Compact 9000(TM), Compact 9002(TM), S/PAY(TM) and
Trintech(TM) and our logo are our trademarks and PayGate(R), PayWare(R) and
PayPurse(R) are our registered trademarks. SAP R/3(R) is a registered trademark
of SAP AG. This prospectus also includes product names and other trade names
and trademarks of other organizations.
5
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RISK FACTORS
You should carefully consider the following risks before making an
investment decision. Our business, operating results and financial condition
could be materially adversely affected by any of the following risks. The
trading price of the ADSs could decline due to any of these risks, and you
could lose all or part of your investment. You should also refer to the other
information described in this prospectus, including our financial statements
and the related notes.
We recently emphasized e-commerce software for Internet payment transactions,
an area in which we have limited experience.
We introduced our first e-commerce software product for Internet payment
transactions in 1996, and the majority of our e-commerce products and modules
that we currently market have been released in the last twelve months. As a
result, we have a very limited operating history in developing, marketing and
selling our e-commerce software, which makes the prediction of future operating
results for this portion of our business very difficult. A substantial majority
of our research and development expenses in the past two years has related to
e-commerce software for payment card transactions, and this effort will
continue to account for a significant percentage of our total research and
development expenses. Demand for our e-commerce software may not increase and
these products may not gain market acceptance. If we fail to increase sales of
our e-commerce software, our future revenue and net income, as well as the
prospects for this critical portion of our business, will be materially
adversely affected.
The standards for e-commerce payment transactions that we support may not
achieve broad market acceptance or market acceptance may be slower than
anticipated.
A significant part of our business strategy is to continue to develop
software products that support both SSL and SET standards for payment card
transactions over the Internet. If neither achieves broad market acceptance,
our results of operations and prospects will be materially adversely affected.
In addition, if a new standard emerges that is more accepted by the
marketplace, we may not be successful in developing products that comply with
that standard on a timely basis, or at all.
The SSL standard was developed in 1996, but it has not achieved broad
acceptance outside of North America. In particular, SSL has not achieved broad
acceptance in Europe, which is currently our primary market for our e-payment
solutions for payment card transactions in the physical world. The SET standard
was first implemented in 1997 to address perceived security limitations of SSL.
However, the SET standard has been adopted at a slower rate than we originally
anticipated, and currently the SET standard has achieved limited market
acceptance, particularly in the United States. Because our product development
efforts have focused on these two standards, future sales of our e-payment
products for Internet transactions and the rate of revenue growth attributable
to these products, will be materially adversely affected if these standards do
not achieve broad market acceptance.
Part of our strategy has been, and continues to be, to develop products that
support the SET standard. We pursue this strategy because we believe that
marketing SET-compliant products can differentiate us from competitors that do
not market SET-compliant products. We further believe that this differentiation
is important to our business because the level of competition relating to SSL
products is significantly greater than that relating to SET products. However,
the adoption of SET has been impeded by several factors, including:
. the ease of using SSL as compared to SET
6
<PAGE>
. limited financial incentives for cardholders and merchants to use SET
. the installed base of SSL technology, including embedded functionality
in Netscape products
If SET technology is not broadly adopted, we will lose a potential
competitive advantage, and our prospects and results of operations could be
materially adversely affected.
To be successful, we will need to effectively respond to future changes in the
rapidly developing markets in which we sell our software products.
The markets for our e-payment software solutions for the physical world and,
in particular, for payment card transactions over the Internet, are at early
stages of development and are rapidly evolving. Our ability to design, develop,
introduce and support new e-payment software products and enhancements to
existing products on a timely basis that meet changing market needs and respond
to technological developments is critical to our future success. In addition,
these products will need to support industry standards and interoperate with a
variety of third parties' products, including those of our competitors. We may
be unable to develop interoperable products, and widespread adoption of a
proprietary or closed e-payment standard could preclude us from effectively
doing so. Also, the number of businesses and cardholders engaged in e-commerce
may not grow or could decrease, reducing the potential market for our e-
commerce products.
The market for e-payment solutions for mobile commerce may not develop and, if
it does develop, we may not be able to develop products that successfully
compete in this market, either of which would significantly impact our
financial results and prospects.
In February 2000, we announced the availability of our first e-payment
solution for making online purchases from mobile phones and other wireless
devices. We have not yet begun to market or sell this m-commerce payment
product, nor do we currently have any commercial customers for this product. We
intend to invest a significant portion of our future research and development
expenses to enhance this first product and to develop one or more additional
products for the m-commerce payment market. However, we cannot predict whether
we will be successful in these development efforts or whether our existing
product or any future m-commerce products will gain market acceptance. We do
not currently expect to recognize significant revenue from m-commerce products
until at least late fiscal 2002. In addition, if this market develops, we may
face significant competition from major telecommunication service providers and
mobile phone handset and equipment providers, among others. These companies
have significantly more resources than us and may develop new standards for
payment card mobile phone based transactions which we do not address and may
not be able to support in the future. In addition, these companies may provide
similar products to ours at a lower cost or at no cost to facilitate sales of
their telecom equipment or mobile phones. If we fail to generate significant
sales of our m-commerce payment products, our future revenue and net income, as
well as the prospects for this portion of our business, will be materially
adversely affected.
We depend on sales of our electronic point-of-sale systems for payment card
transactions for a substantial majority of our total revenue.
A substantial majority of our total revenue historically has been derived
from the sale of our electronic payment card point-of-sale system products. We
expect that these products will continue to account for a significant
percentage of our total revenue through at least fiscal 2002. We have
historically marketed our electronic PoS system products solely in Europe, and
7
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particularly in Germany. For fiscal 2000, our customers in Germany accounted
for over 88% of our electronic PoS system product revenues. We intend to
continue to focus substantially all of our marketing efforts for our electronic
PoS system products in Europe, and particularly in Germany. As a result, our
future results of operations will depend on continued market demand for, and
acceptance of, these products in Europe in general and Germany in particular. A
reduction in demand for our electronic PoS system products could have a
material adverse effect on our business, financial condition and results of
operations.
Average selling prices for electronic PoS system products may continue to
decline, adversely affecting our results of operations, particularly our
revenue and operating and net income.
The market for electronic PoS system products is characterized by increasing
price competition, which historically has caused the average selling prices of
our electronic PoS systems to decrease over the life of each product. We expect
this trend to continue. To offset declines in the average selling prices of our
electronic PoS system products, we will need to reduce the cost of these
products by implementing cost reduction design changes, obtaining cost
reductions as and if volumes increase and successfully managing manufacturing
and subcontracting relationships. We do not operate our own manufacturing
facilities, and, as a result, we may not be able to reduce our costs as rapidly
as companies that operate their own manufacturing facilities. If we do not
design and introduce lower cost versions of our electronic PoS system products
in a timely manner or successfully manage our manufacturing relationships,
margins on our electronic PoS system products will decrease. A decrease in
margins or an accelerated decrease in average selling prices could have a
material adverse effect on our business, financial condition and results of
operations.
We have incurred losses and expect continued losses.
We incurred a net loss of $12.1 million for the year ended January 31, 2000,
and we have incurred net losses in nine of our last twelve quarters. As of
January 31, 2000, we had an accumulated deficit of $21.6 million. In fiscal
2000 we substantially increased our operating expenditures to build our
presence in the e-commerce software business. This has included significant
increases in our research and development expenses related to the development
of e-commerce capable products, and substantial increases in our sales and
marketing personnel. We intend to continue to grow our operating expenditures
and, consequently, we expect to continue to report losses from operations for
at least two years.
Our business is subject to currency fluctuations that can adversely affect our
operating results.
Due to our multinational operations, our business is subject to fluctuations
based upon changes in the exchange rates between the currencies in which we
collect revenues or pay expenses and the Irish pound and the euro. In
particular the value of the U.S. dollar and U.K. pound sterling impacts our
operating results. Our expenses are not necessarily incurred in the currency in
which revenue is generated, and, as a result, we are required from time to time
to convert currencies to meet our obligations. These currency conversions are
subject to exchange rate fluctuations, and changes to the value of the Irish
pound or the euro relative to other currencies could adversely affect our
business and results of operations. For example, sales of our electronic PoS
systems in Germany are denominated in euro while a portion of the related
manufacturing costs are denominated in U.K. pounds sterling. As a result, in
the year ended January 31, 2000, margins on electronic PoS systems were
negatively impacted.
In addition, our consolidated financial statements are prepared in Irish
pounds and translated to U.S. dollars for reporting purposes. As a result, even
when foreign currency
8
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expenses substantially offset revenues in the same currency, our net income may
be diminished, or our net loss increased, when reported in U.S. dollars in our
financial statements.
Our quarterly operating results are difficult to predict because they can
fluctuate significantly. This limits your ability to evaluate our historical
financial results and increases the likelihood that our results will fall below
market analysts' expectations, which could cause the price of our ADSs to drop
rapidly and severely.
We have experienced significant quarterly fluctuations in operating results
and cash flows and we expect that these fluctuations will continue in future
periods. In addition, our revenue is difficult to predict for several reasons.
As a result, we believe that our quarterly revenue, expenses and operating
results are likely to vary significantly in the future. Thus, it is likely that
in some future quarters our results of operations will be below the
expectations of public market analysts and investors, which could have a severe
adverse effect on the trading price of our ADSs. We also believe that period-
to-period comparisons of our quarterly operating results are not necessarily
meaningful and that, as a result, these comparisons should not be relied upon
as indications of our future performance.
Quarterly fluctuations have been, and may in the future be, caused by
factors which include:
. the size and timing of orders
. currency fluctuations
. product mix
. the rate of acceptance of new products
. purchasing and payment patterns of our customers
. our pricing policies and those of our competitors
In addition, our revenue is difficult to predict for the following reasons:
. we have generally recognized a substantial portion of our revenue in the
last month of each quarter
. the market for our e-commerce products is new and rapidly changing
. the sales cycle for our products is typically 6 to 12 months and varies
substantially from customer to customer
Over the past few years, we have substantially increased our investment in
our infrastructure, and we expect to continue to do so. As a result, if revenue
in any quarter falls below expectations, expenditure levels could be
disproportionately high as a percentage of revenue, and our business and
operating results for that quarter would be adversely affected, perhaps
materially.
We derive a significant amount of our revenues from a limited number of
customers.
A significant percentage of our revenue is derived from a limited number of
our customers. Approximately 40% of our total revenue for the year ended
January 31, 2000 was
attributable to our three largest customers in that period. The loss of any
major customer, or any reduction or delay in orders by any major customer,
could have a material adverse effect on our business, financial condition and
results of operations.
9
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We rely on strategic relationships that may not continue in the future.
We have developed strategic relationships with larger, public companies. We
rely in part on these relationships to co-market our products and generate
leads for our direct sales force. However, these relationships are not
exclusive, and the third party generally is not obligated to market our
products or provide leads. We will need to establish additional strategic
relationships to be successful.
Two of the companies with which we have developed strategic relationships
are VISA International and MasterCard International. We believe that our
reputation has benefited from past transactions and joint press releases with
VISA and MasterCard, as well as from VISA's equity investment in us in 1998.
Neither VISA nor MasterCard is obligated to continue to conduct business or
marketing activities with us. VISA's or MasterCard's endorsement of one or more
of our competitors could cause existing customers to switch to competitors and
could materially adversely affect our ability to add new customers.
Our success depends on our ability to expand our direct sales force.
We have sold our products almost exclusively through our direct sales force.
Our future revenue growth will depend in large part on our ability to recruit,
train and manage additional sales personnel worldwide. We have experienced and
continue to experience difficulty in recruiting qualified sales personnel, and
the market for these personnel is highly competitive. We may not be able to
successfully expand our direct sales force, and any expansion of the sales
force may not result in increased revenue. Our business and results of
operations will be materially adversely affected if we fail to successfully
expand our direct sales force.
Our growth may be limited if we fail to build an indirect sales channel.
Indirect sales channels accounted for approximately 4% of our total revenue
in fiscal 2000. We recently have established relationships with a limited
number of resellers and systems integrators and consultants. These are new,
early-stage relationships and, as such, are generally untested. Our existing
indirect channels will have to generate significant revenue, and we will need
to establish additional indirect channels to be successful.
Increased competition may result in decreased demand for our products and
services, which may result in reduced revenues and gross margins and loss of
market share.
The market for e-payment software and electronic PoS systems is intensely
competitive, and we expect competition to continue to increase. Our competitors
include Verifone, a subsidiary of Hewlett-Packard, and Giesecke & Devrient for
our electronic PoS system products, and IBM, Verifone and GlobeSet for our e-
payment software. In addition, the companies with whom we have strategic
relationships could develop products or services which compete with our
products or services. Growing competition may result in reduced revenues and
gross margins and loss of market share, any one of which could have a material
adverse effect on our business, financial condition and results of operations.
Some competitors in our market have longer operating histories, significantly
greater financial, technical, marketing and other resources, greater brand
recognition and a larger installed customer base than we do. In addition,
current and potential competitors may make strategic acquisitions or establish
cooperative relationships to expand their product offerings and to offer more
comprehensive e-payment solutions. We also expect to face additional
competition as other established and emerging companies enter the market for e-
payment solutions.
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We depend on a few key personnel to manage and operate us.
Our success is largely dependent on the personal efforts and abilities of
our senior management, including in particular John McGuire, Cyril McGuire,
George Burne, Kevin Shea, Paul Byrne, Chris Meehan and John Harte. The loss of
one or more of members of our senior management could have a material adverse
effect on our business and prospects.
If we are unable to attract and retain highly skilled personnel with experience
in the e-payment and banking industries, we may be unable to grow our business.
The market for qualified personnel with experience in the e-payment and
banking industries in general, and software engineers with this experience in
particular, is highly competitive. Our strategic plan requires continued
investment in research and development and sales and marketing personnel.
Failure to successfully attract, hire, assimilate and retain qualified
personnel could limit the rate at which we develop new products and generate
sales, which could have a material adverse effect on our business, prospects
and results of operations.
Our reliance on third parties to manufacture our electronic PoS system products
involves risks, including, in particular, reduced control over the
manufacturing process and product quality.
Our electronic PoS system products are manufactured by Keltek and Fujitsu.
Our reliance on outsourced manufacturers involves significant risks, including:
. reduced control over delivery schedules, quality assurance and cost
. the potential lack of adequate manufacturing capacity
. the potential misappropriation of our intellectual property
We must make binding forecasts as much as three months in advance of
expected delivery dates. If product sales do not meet these forecasts, our
cashflow would be adversely impacted, and the risk that our inventory could
become obsolete would increase. If Keltek or Fujitsu cease manufacturing our
electronic PoS system products or increase their prices, we may not be able to
rapidly obtain alternative capacity at a comparable price. Any delay in
delivery of products to our customers or any increase in manufacturing costs
could have a material adverse effect on our business and results of operations.
We have in the past received products that contained defects from our
manufacturers. Because we warrant the quality of our electronic PoS system
products to our customers, we have been required to repair or replace defective
products at our own expense. This expense has in the past exceeded the amounts
reimbursed to us by the manufacturers. This expense has not in the past had a
material adverse effect on our results of operations. However, any repetition
of these or similar problems could have a material adverse effect on our
reputation, business and results of operations.
We may not be able to timely respond to rapid technological changes that impact
our business.
The markets for our e-payment software and electronic PoS system solutions
are susceptible to rapid changes due to technology innovation, evolving
industry standards, changes in customer and cardholder needs and frequent new
product introductions. We will need to use leading technologies effectively,
continue to develop our technical expertise and enhance our existing products
on a timely basis to compete successfully in these markets. We may not be
successful in achieving these business requirements.
11
<PAGE>
We may be unable to protect our proprietary rights. Unauthorized use of our
technology may result in development of products which compete with our
products.
Our success depends in part on our ability to protect our rights in our e-
payment and PoS system technology. We rely upon a combination of patents,
contractual rights, trade secrets, copyright laws and trademarks to establish
and protect these rights. We also enter into confidentiality agreements with
our employees, consultants and third parties to seek to limit and protect the
distribution of our proprietary information regarding this technology. However,
we have not signed protective agreements in every case. Unauthorized parties
may copy aspects of our products and obtain and use information that we regard
as proprietary. Other parties may breach confidentiality agreements and other
protective contracts we have executed. We may not become aware of, or have
adequate remedies in the event of, a breach.
Some may claim that we infringe their intellectual property rights, which could
result in costly litigation or require us to reengineer or cease sales of our
products.
We believe that our products do not infringe upon the intellectual property
rights of others and that we have all rights necessary to use the intellectual
property employed in our business. However, we have not performed patent
searches for all of the technologies encompassed in our products. Third parties
may in the future claim that our current or future products infringe their
proprietary rights. Any infringement claim, with or without merit, could result
in costly litigation or require us to reengineer or cease sales of our
products, any of which could have a material adverse effect on our business,
financial condition, results of operations and prospects. Infringement claims
could also require us to enter into royalty or licensing agreements. Licensing
agreements, if required, may not be available on terms acceptable to us or at
all.
Our industry and our customers' industry are subject to government regulations
that could limit our ability to market our products.
Our current and prospective customers include non-U.S. and state and
federally chartered banks and savings and loan associations. These customers,
as well as customers in other industries that we plan to target in the future,
operate in markets that are subject to extensive and complex regulation. While
we are not directly subject to this regulation, our products and services must
be designed to work within the extensive and evolving regulatory constraints
under which our customers operate. If our products fail to comply with
regulations applicable to our customers, or if we cannot timely and cost-
effectively respond to changes in the regulatory environments of each of our
customers, our product sales could be materially adversely affected, which
could have a material adverse effect on our business, prospects and results of
operations.
Exports of software products utilizing encryption technology are generally
restricted by the U.S., Irish, German and various other foreign governments.
Our inability to obtain and maintain required approvals under these regulations
could adversely affect our ability to sell our products. Also, U.S., Irish,
German or other foreign legislation or regulations may further limit levels of
encryption or authentication technology that may be sold or exported. Any
export restrictions of this sort, new legislation or regulations, or increased
costs of compliance could have a material adverse effect on our business,
results of operations and prospects.
Our electronic PoS system products must comply with standards established by
telecommunications authorities in various countries, as well as with
recommendations of quasi-regulatory authorities and standards-setting
committees. Failure to comply with these standards and recommendations could
limit our ability to sell these products.
12
<PAGE>
Rapid growth could strain our personnel and systems.
We have recently experienced rapid expansion of our operations in multiple
countries, which has placed, and is expected to continue to place, significant
demands on our administrative, operational and financial personnel and systems.
Because of these demands, we hired a significant number of employees in fiscal
2000 and expect to continue hiring during fiscal 2001. Our inability to train
and integrate our new employees and promptly address and respond to rapid
growth if it occurs could have a material adverse effect on our business and
results of operations.
We may fail to integrate adequately acquired products, technologies or
businesses.
From time to time, we evaluate opportunities to acquire additional product
offerings, complementary technologies and businesses. Any future acquisition
could result in difficulties assimilating acquired products, technologies and
businesses, amortization of acquired intangible assets and diversion of our
management's attention. Our management has limited experience in assimilating
acquired organizations and products into our operations. We may not be able to
integrate successfully any products or technologies or businesses that might be
acquired in the future, and the failure to do so could have a material adverse
effect on our business and results of operations. In addition, the accounting
treatment for any future acquisition may result in the recognition of
significant goodwill which, when amortized, would adversely affect our net
income (loss) and earnings per equivalent ADS.
Trading in our shares could be subject to extreme price fluctuations and you
could have difficulty trading your shares.
The market for shares in newly public technology companies is subject to
extreme price and volume fluctuations, often unrelated to the operating
performance of these companies. Due to the potential volatility of our stock
price, we may in the future be the target of securities class action
litigation. Securities litigation could result in substantial costs and divert
our management's attention and resources. In addition, although the ADSs are
quoted on the Nasdaq National Market and the Neuer Markt, the daily trading
volume has been limited. An active trading market may not develop or be
sustained. In addition, the Neuer Markt is a new trading market. The Neuer
Markt may experience delays in settlement and clearance as trading volume
increases. These factors could adversely affect the market price of the ADSs.
The rights of shareholders in Irish corporations may be more limited than the
rights of shareholders in United States and German corporations.
The rights of holders of ordinary shares and, therefore, some of the rights
of ADS holders, are governed by Irish law and the laws of the European Union.
As a result, the rights of our shareholders differ from, and may be more
limited than, the rights of shareholders in typical United States or German
corporations. In particular, Irish law significantly limits the circumstances
under which shareholders of Irish corporations may bring derivative actions.
Our three largest shareholders have the ability to significantly influence or
control corporate actions, which limits your ability to influence or control
corporate actions. This concentration of ownership also can reduce the market
price of the ADSs.
Our three largest shareholders will own approximately 46% of our equivalent
ADSs after completion of this offering, or 45% if the underwriters' over-
allotment option is exercised in full. If these shareholders act together, they
will have the ability to significantly influence, if not control, the election
of directors and the outcome of all corporate actions requiring
13
<PAGE>
shareholder approval. This concentration of ownership also may have the effect
of delaying or preventing a change in control of us, which in turn could reduce
the market price of the ADSs.
Our corporate tax rate may increase, which could adversely impact our cash
flow, financial condition and results of operations.
We have operations and generate substantially all of our taxable income in
the Republic of Ireland. Currently, some of our Irish subsidiaries are taxed at
rates substantially lower than U.S. or German tax rates. If our Irish
subsidiaries were no longer to qualify for these lower tax rates or if the
applicable tax laws were rescinded or changed, our operating results could be
materially adversely affected. In addition, if German, U.S. or other foreign
tax authorities were to change applicable tax laws or successfully challenge
the manner in which our subsidiaries' profits are currently recognized, our
taxes could increase, and our business, cash flow, financial condition and
results of operations could be materially adversely affected.
You will experience an immediate and substantial dilution in the book value of
your investment.
Purchasers of ADSs in this offering will experience immediate and
substantial dilution.
Future sales by existing shareholders could depress the market price of our
ADSs.
Sales of ADSs in the public market following this offering could adversely
affect the market price of the ADSs. All of the ADSs offered under this
prospectus and the international prospectus will be freely tradable in the open
market. In addition,
. 23,800,402 ADSs may be sold immediately after completion of this
offering subject, in some cases, to volume and other restrictions under
Rule 144 promulgated under the U.S. Securities Act of 1933; and
. 30,480,376 additional ADSs may be sold 91 days after the date of this
prospectus.
The German takeover code, our articles of association and Irish law may make an
acquisition of us more difficult, which could affect the trading price of our
ADSs.
As required by the Neuer Markt, we have adopted the takeover code
recommended by the Stock Exchange Expert Commission at the German Federal
Ministry of Finance. Although this takeover code does not have the force of
law, it is generally required by the Frankfurt Stock Exchange that companies
listed on the Neuer Markt acknowledge these takeover provisions. The
applicability of the takeover code, as well as provisions of our articles of
association and Irish law, could delay, defer or prevent a change of control of
us, which in turn could reduce the market price of the ADSs. In addition, the
rights of our shareholders under the takeover code could differ from the rights
of shareholders under the United States federal and state laws governing tender
offers and takeovers.
14
<PAGE>
USE OF PROCEEDS
We expect to receive approximately $83.8 million, or approximately
(Euro)94.1 million, in net proceeds from the sale of the 4,000,000 ADS offered
by us at a public offering price of $22.56, or approximately (Euro)25.33, per
ADS, or approximately $93.3 million, or approximately (Euro)104.8 million, if
the underwriters' over-allotment option is exercised in full, after deducting
estimated offering expenses and underwriting discounts and commissions. We will
not receive any proceeds from the sale of ADSs by the selling shareholders. We
estimate that the offering expenses payable by us will be $2,203,557, or
approximately (Euro)2,473,961. Underwriting discounts and commissions payable
by us will be approximately $4,240,000, or approximately (Euro)4,760,000, or
approximately $4,717,000 or approximately (Euro)5,295,500 if the underwriters'
over-allotment option is exercised in full.
We intend to use the net proceeds from this offering to grow and expand our
business, including growing our research and development and sales and
marketing organizations, for international expansion and for working capital
and other general corporate purposes. We may also use a portion of the net
proceeds to acquire additional products, technologies and businesses that we
believe will complement our current or future business. However, we have no
specific oral or written agreements or commitments to do so, and are not
currently negotiating any acquisitions. We have not identified specific uses
for the proceeds, and we will have broad discretion over their use. We intend
to invest the net proceeds from this offering in short-term, investment grade,
interest-bearing securities until they are used.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our share capital. We
currently intend to retain future earnings, if any, to fund the development and
growth of our business. Future dividends, if any, will be determined by our
board of directors. Under the Companies Acts of the Republic of Ireland,
dividends may only be paid out of such of our profits as are legally available
for distribution. Any dividends declared by us would be paid in the currency
determined by our directors at that time.
PRESENTATION OF FINANCIAL INFORMATION
Unless otherwise specified, all reference to U.S. dollars, dollars or $ are
to United States dollars, the legal currency of the United States of America.
All references to euro or (Euro) are to the euro, the legal currency of the
Republic of Ireland and the Federal Republic of Germany. All references to
IR(Pounds) are to Irish pounds, and all references to the Deutsche mark or the
DM are to the Deutsche mark. All references to sterling or U.K. pound sterling
are to the pound sterling, the legal currency of the United Kingdom. For
convenience purposes, U.S. dollars have been converted to euro at the noon
buying rate for cable transfers in New York in foreign currencies certified by
the Federal Reserve Bank of New York on May 4, 2000, which was US$1.00 equals
(Euro)1.1227.
Our financial statements are presented in U.S. dollars and have been
prepared in conformity with United States generally accepted accounting
principles.
Our fiscal year ends on January 31. As used in this prospectus, fiscal 1998
refers to the financial year ended January 31, 1998, fiscal 1999 refers to the
financial year ended January 31, 1999 and fiscal 2000 refers to the financial
year ended January 31, 2000.
15
<PAGE>
EXCHANGE RATE INFORMATION
A significant portion of our revenues and expenses is denominated in
currencies other than U.S. dollars. We do not currently anticipate paying any
dividends to shareholders. However, any dividends declared by us would be in
the currency determined by our directors at the time they are declared, and
exchange rate fluctuations would affect the U.S. dollar equivalent of any cash
dividend received by holders of ADSs that is paid in a currency other than U.S.
dollars.
The Maastricht Treaty, to which each of the Republic of Ireland and the
Federal Republic of Germany is a signatory, provided that on January 1, 1999,
the euro became legal tender in those member states of the European Monetary
Union that satisfied the convergence criteria stated in the Maastricht Treaty
and so elected to adopt the euro as its legal tender, including Ireland and
Germany. The conversion rate between the Irish pound, which will continue to
have legal tender status through a transition period ending June 30, 2002, at
the latest, and the euro was fixed by the Council of the European Union at
IR(Pounds)0.787564. The conversion rate between the Deutsche mark, which will
continue to have legal tender status through a transition period ending June
30, 2002, at the latest, and the euro was fixed by the Council of the European
Union at DM 1.95583.
On December 31, 1998, the Federal Reserve Bank of New York discontinued the
quotation of noon buying rates for currencies now denominated in euro,
including Irish pounds and Deutsche marks.
Prices quoted for the ADSs on the Neuer Markt are quoted in euro. Prices
quoted for the ADSs on the Nasdaq National Market are quoted in U.S. dollars.
Irish Pounds
The table below presents, for the periods and dates indicated, information
concerning the noon buying rates for the Irish pound expressed in Irish pounds
per US$1.00. The information below the caption "Period Average" represents the
average of the noon buying rates on the last business day of each full calendar
month during the relevant period. No representation is made that the Irish
pound or U.S. dollar amounts referred to below could be or could have been
converted into U.S. dollars or Irish pounds at any particular rate or at all.
<TABLE>
<CAPTION>
Fiscal Year Ended Period
January 31, High Low Period Average End
----------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1995.................... IR(Pounds)0.7132 IR(Pounds)0.6198 IR(Pounds)0.6597 IR(Pounds)0.6404
1996.................... 0.6487 0.6033 0.6220 0.6390
1997.................... 0.6445 0.5915 0.6212 0.6287
1998.................... 0.7731 0.6218 0.6720 0.7315
1999 (through December
31, 1998).............. 0.7391 0.6443 0.7004 0.6709
</TABLE>
16
<PAGE>
Deutsche Marks
The table below presents, for the periods and dates indicated, information
concerning the noon buying rates for the Deutsche mark expressed in Deutsche
marks per US$1.00. The information below the caption "Period Average"
represents the average of the noon buying rates on the last business day of
each full calendar month during the relevant period. No representation is made
that the Deutsche mark or U.S. dollar amounts referred to below could be or
could have been converted into U.S. dollars or Deutsche marks, at any
particular rate or at all.
<TABLE>
<CAPTION>
Period Period
Fiscal Year Ended January 31, High Low Average End
----------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
1995.................................... DM1.7627 DM1.4920 DM1.5938 DM1.5232
1996.................................... 1.5362 1.3565 1.4233 1.4895
1997.................................... 1.6485 1.4450 1.5192 1.6362
1998.................................... 1.8810 1.6399 1.7557 1.8315
1999 (through December 31, 1998)........ 1.8542 1.6060 1.7521 1.6670
</TABLE>
Euro
The table below presents, for the period indicated, information concerning
the noon buying rates for the euro expressed in euro per US$1.00. The
information below the caption "Period Average" represents the average of the
noon buying rates on the last business day of each full calendar month during
the relevant period. No representation is made that the euro or U.S. dollar
amounts referred to below could be or could have been converted into U.S.
dollars or euro, at any particular rate or at all.
<TABLE>
<CAPTION>
Period Period
Fiscal Year Ended January 31, High Low Average End
----------------------------- ------ ------ ------- ------
<S> <C> <C> <C> <C>
1999 (from January 1, 1999)..................... 0.8794 0.8466 0.8794 0.8794
2000............................................ 1.0249 0.8819 0.9567 1.0249
2001 (to May 4, 2000)........................... 1.1247 0.9940 1.0516 1.1227
</TABLE>
PRICE RANGE OF AMERICAN DEPOSITARY SHARES
The ADSs are listed on the Nasdaq National Market under the symbol TTPA and
on the Neuer Markt under the symbol TTP. Public trading of the ADSs commenced
on September 24, 1999. Prior to that date, there was no public market for the
ADSs. The following table sets forth, for the periods indicated, the high and
low sale price per ADS on the Nasdaq National Market and on the Neuer Markt,
after giving effect to a two-for-one ADS split effected on March 21, 2000:
<TABLE>
<CAPTION>
Nasdaq
National
Market Neuer Markt
------------- -----------------------
High Low High Low
------ ------ ----------- -----------
<S> <C> <C> <C> <C>
Year Ended January 31, 2000
Third Quarter (from September 24,
1999)................................. $ 8.81 $ 6.00 (Euro) 8.48 (Euro) 5.75
Fourth Quarter......................... $31.69 $ 8.75 (Euro)32.80 (Euro) 8.35
Year Ending January 31, 2001
First Quarter.......................... $75.44 $25.00 (Euro)77.00 (Euro)27.00
</TABLE>
As of April 26, 2000 there were 97 holders of record of the ordinary shares.
On May 4, 2000, the last sale price reported on the Nasdaq National Market for
the ADSs was $23.75 per ADS and the last sale price reported on the Neuer Markt
was (Euro)28.35 per ADS.
17
<PAGE>
CAPITALIZATION
The following table presents as of January 31, 2000:
. our actual capitalization; and
. our capitalization as adjusted to reflect the issuance and sale of
4,000,000 ADSs representing 2,000,000 ordinary shares offered by us in
this offering at a public offering price of $22.56, or approximately
(Euro)25.33, per ADS and the application of the estimated net proceeds
from the sale of these ADSs after deducting estimated underwriting
discounts and commissions and estimated offering expenses
The outstanding share information excludes 7,222,654 equivalent ADSs, or
3,611,327 ordinary shares, issuable upon the exercise of options outstanding as
of January 31, 2000, at a weighted average exercise price of $5.98, or
approximately (Euro)6.71, per ADS, and 500,000 equivalent ADSs, or 250,000
ordinary shares, issuable upon the exercise of a warrant outstanding as of
January 31, 2000 at an exercise price of $3.00, or approximately (Euro)3.37,
per ADS. This table should be read in conjunction with our consolidated
financial statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
January 31, 2000
-----------------------------------------------
(in thousands)
Actual As Adjusted
---------------------- -----------------------
$ (Euro) $ (Euro)
-------- ------------ -------- -------------
<S> <C> <C> <C> <C>
Long-term obligations, less
current portion............... $ 1,127 (Euro)1,265 $ 1,127 (Euro)1,265
Series B preference shares,
par value $0.0027, 10,000,000
shares authorized; no shares
issued and outstanding....... -- -- -- --
Shareholders' equity:
Ordinary shares, par value
$0.0027; 100,000,000 ordinary
shares authorized; 25,140,722
ordinary shares issued and
outstanding, actual;
27,140,722 ordinary shares
outstanding as adjusted...... 71 80 76 86
Additional paid-in capital..... 84,286 94,629 168,077 188,702
Accumulated other comprehensive
income........................ (1,656) (1,859) (1,656) (1,859)
Accumulated deficit............ (21,585) (24,234) (21,585) (24,234)
-------- ------------ -------- -------------
Total shareholders' equity .... 61,116 68,616 144,912 162,695
Total capitalization........... $ 62,243 (Euro)69,881 $146,039 (Euro)163,960
======== ============ ======== =============
</TABLE>
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statements of operations data for the
years ended January 31, 1998, 1999 and 2000 and the consolidated balance sheet
data at January 31, 1998, 1999 and 2000 are derived from our consolidated
financial statements, which have been audited by Ernst & Young and are included
in this prospectus. The selected consolidated statements of operations data for
the years ended January 31, 1996 and 1997 and the consolidated balance sheet
data at January 31, 1996 and 1997 are derived from our audited consolidated
financial statements which are not included in this prospectus. This table
should be read in conjunction with our consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended January 31,
----------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
(in thousands of U.S. dollars, except share and per
share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue:
Product............... $ 4,355 $ 8,235 $ 10,824 $ 14,554 $ 18,457
License............... 738 1,359 4,101 4,477 9,158
Service............... 1,478 2,496 1,721 2,002 2,629
---------- ---------- ---------- ---------- ----------
Total revenue........ 6,571 12,090 16,646 21,033 30,244
---------- ---------- ---------- ---------- ----------
Cost of revenue:
Product............... 3,637 6,080 8,352 10,851 12,034
License............... 27 132 334 648 2,981
Service............... 478 857 1,008 2,414 2,242
---------- ---------- ---------- ---------- ----------
Total cost of
revenue............. 4,142 7,069 9,694 13,913 17,257
---------- ---------- ---------- ---------- ----------
Gross margin.......... 2,429 5,021 6,952 7,120 12,987
Operating expenses:
Research and
development.......... 557 1,170 1,729 3,676 8,892
Sales and marketing... 1,019 1,783 2,474 5,921 8,849
General and
administrative....... 1,087 1,951 2,530 4,347 7,336
Stock compensation.... -- -- -- -- 2,068
---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 2,663 4,904 6,733 13,944 27,145
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations............. (234) 117 219 (6,824) (14,158)
Interest income
(expense), net......... 58 25 18 272 1,208
Exchange gain (loss),
net.................... (32) (69) (12) (321) 842
---------- ---------- ---------- ---------- ----------
Income (loss) before
provision for income
taxes.................. (208) 73 225 (6,873) (12,108)
Provision for income
tax.................... (2) (3) (50) -- (3)
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ (210) $ 70 $ 175 $ (6,873) $ (12,111)
========== ========== ========== ========== ==========
Basic net income (loss)
per equivalent ADS..... $ (0.01) $ 0.00 $ 0.01 $ (0.21) $ (0.31)
========== ========== ========== ========== ==========
ADSs used in computation
of basic net income
(loss) per equivalent
ADS.................... 30,595,930 30,595,930 31,376,670 32,315,662 38,619,928
========== ========== ========== ========== ==========
Diluted net income
(loss) per equivalent
ADS.................... $ (0.01) $ 0.00 $ 0.01 $ (0.21) $ (0.31)
========== ========== ========== ========== ==========
ADSs used in computation
of diluted net income
(loss) per equivalent
ADS.................... 30,595,930 30,595,930 31,498,322 32,315,662 38,619,928
========== ========== ========== ========== ==========
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
January 31, January 31, 2000
---------------------------- ----------------
As
1996 1997 1998 1999 Actual Adjusted
------ ------ ------ ------- ------- --------
(in thousands of U.S. dollars)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....... $2,100 $1,899 $ 272 $ 1,691 $10,862 $94,658
Marketable securities........... -- -- -- 7,178 48,830 48,830
Working capital................. 1,223 1,541 1,449 9,437 57,803 141,599
Total assets.................. 4,289 6,330 7,003 20,261 74,295 158,091
Long-term obligations, less
current portion................ 157 432 546 935 1,127 1,127
Redeemable preference shares.... 283 -- -- 17,760 -- --
Total shareholders' equity
(net capital deficiency)..... 1,052 1,739 1,642 (4,700) 61,116 144,912
</TABLE>
See note 11 of notes to consolidated financial statements for an explanation
of the method used to calculate basic and diluted net income (loss) per
equivalent ADS. Basic and diluted net income (loss) have been calculated after
giving effect to a two-for-one ADS split effected on March 21, 2000. As a
result of the two-for-one ADSs split, each ordinary share equals two equivalent
ADSs. The information under "As Adjusted" reflects the receipt of net proceeds
of approximately $83.8 million, or approximately (Euro)94.1 million, from the
sale of 4,000,000 ADSs offered by us at a public offering price of $22.56, or
approximately (Euro)25.33, per ADS.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
From our organization through 1995, we developed and marketed electronic PoS
systems and e-payment software for payment card transactions in the physical
world. In early fiscal 1997, we launched our first products for Internet e-
payment transactions. Today, our revenue is primarily derived from three
sources:
Product Revenue. Product revenue, which continues to represent the majority
of our total revenue, is derived from sales of our electronic PoS system
products, primarily the Compact 9000 and 9000i PoS devices and the Compact 950-
PP pin pad. Revenue for these products is recognized at the time the products
are shipped.
License Revenue. Software license revenue is derived from license fees from
our e-payment software products for payment card transactions in the physical
world and over the Internet, and the provision of related support and
maintenance services to customers. We recognize software license revenue under
SOP 97-2. Under the terms of SOP 97-2, where an arrangement to deliver software
does not require significant production, modification or customization, we
recognize software license revenue when all of the following criteria are met:
. persuasive evidence of an arrangement exists;
. delivery has occurred;
. our fee is fixed or determinable; and
. collectibility is probable.
Before fiscal 1999, we recognized software license revenue under SOP 91-1.
Under SOP 91-1, the initial license fee, as well as subsequent license fees
arising from upgrades and licenses of additional modules, were generally
recognized at the time of shipment, provided that we had no significant vendor
obligations or collection uncertainties remaining. We also license our software
on a recurring rental basis, and, under SOP 97-2, we recognize revenue from
these arrangements ratably over the life of the agreement. Customer support and
maintenance fees are established as a percentage of the software license price,
typically 18% per year, and are generally paid quarterly. We recognize revenue
related to customer support and maintenance fees ratably over the life of the
agreement. The adoption of SOP 97-2 did not have a material effect on our
operating results.
Service Revenue. We derive service revenue from consulting services,
educational and training services and customization and implementation
services. Services are provided primarily on a time and materials basis for
which revenue is recognized in the period that the services are provided.
With the launch of our first Internet product in fiscal 1997, we shifted our
growth strategy to emphasize e-commerce software products for Internet
applications. Due in part to this shift in emphasis, revenue from software
license fees increased by 202% for the fiscal year ended January 31, 1998,
increasing from 11% of total revenue for the fiscal year ended January 31, 1997
to 25% of total revenue for the fiscal year ended January 31, 1998. In the
fiscal year ended January 31, 1999, software license revenue grew by 9% over
the prior year, and accounted for 21% of total revenue for the year. Software
license and related service revenue growth in fiscal 1999 was negatively
influenced by several factors, including the overall slower than anticipated
rate of adoption of emerging secure e-payment technologies by banks and
21
<PAGE>
financial transaction processors, particularly SET technology. Our software
license and related service revenue was also negatively impacted by the re-
direction of information technology funds by our customers to address euro and
year-2000 issues, as well as the economic situation in Asia, which we believe
led potential customers to become cautious. In the fiscal year ended January
31, 2000, software license revenue grew by 105% over the prior year, and
accounted for 30% of total revenue for the year. Software license and related
service revenue growth in fiscal 2000 was positively influenced by increased
adoption of SSL e-payment technologies by banks and financial transaction
processors.
We have historically sold our products primarily through a direct sales
force in Europe and North and South America, which accounted for 96% of our
total revenue in fiscal 2000. Since January 1998, we have established strategic
relationships with VISA, MasterCard, RSA Security, Compaq and SAP, which
provide joint marketing opportunities as well as lead-generation for our direct
sales force. To facilitate worldwide market penetration, we have begun to
establish indirect sales channels, such as resellers and systems integrators.
Revenue from products sold through indirect sales channels is recognized net of
commissions and discounts.
The following table illustrates our revenues for the fiscal years ended
January 31, 1998, 1999 and 2000 by customer location before intercompany
eliminations:
<TABLE>
<CAPTION>
Year Ended January 31,
----------------------------
1998 1999 2000
-------- -------- --------
(in thousands of U.S.
dollars)
<S> <C> <C> <C>
Germany........................................... $ 21,176 $ 25,649 $ 31,616
Europe (excluding Germany)........................ 6,906 12,245 18,762
Rest of the world................................. 1,934 2,238 6,580
Eliminations...................................... (13,370) (19,099) (26,714)
-------- -------- --------
Total........................................... $ 16,646 $ 21,033 $ 30,244
======== ======== ========
</TABLE>
Cost of product revenue includes outsourced manufacturing costs, and
packaging, documentation, labor and other costs associated with packaging and
shipping our electronic PoS system products and the amortization of capitalized
software development costs. Cost of license revenue includes shipping, software
documentation, labor, third-party license fees and other costs associated with
the delivery of software products from which license revenue is derived and the
cost of providing after-sale support and maintenance services to customers.
Cost of service revenue includes labor, travel and other non-recoverable costs
associated with the delivery of services to customers.
Research and development expenses consist primarily of labor and associated
costs connected with the development of our software products and electronic
PoS system products. Sales and marketing expenses consist of labor costs,
including commissions, travel and other costs associated with sales activity,
and advertising, trade show participation, public relations and other marketing
costs. General and administrative expenses consist primarily of labor and
recruitment costs, facilities costs, telephone and other office costs and
depreciation.
Due to our decision to emphasize e-commerce software products for Internet
applications, in fiscal 1999 and in fiscal 2000, we substantially increased our
operating expenditures to build our presence in this business. This has
included significant increases in our research and development expenses related
to the development of e-commerce capable products, and substantial increases in
our sales and marketing personnel as we have expanded our global sales
capabilities. We intend to continue to grow our operating expenditures and,
consequently, we expect to continue to report losses from operations through at
least fiscal 2002.
22
<PAGE>
We operate as a holding company with operating subsidiaries in Ireland,
Germany, the United Kingdom and the United States and a financing subsidiary in
the Cayman Islands. Each subsidiary is taxed based on the laws of the
jurisdiction in which it is incorporated. Because taxes are incurred at the
subsidiary level, and one subsidiary's tax losses cannot be used to offset the
taxable income of subsidiaries in other tax jurisdictions, our consolidated
effective tax rate may increase to the extent that we report tax losses in some
subsidiaries and taxable income in others. In addition, our tax rate may also
be affected by costs that are not deductible for tax purposes, such as
amortization of goodwill.
We have significant operations and generate substantially all of our taxable
income in the Republic of Ireland, and some of our Irish operating subsidiaries
are taxed at rates substantially lower than U.S. tax rates. One Irish
subsidiary currently qualifies for a 10% tax rate which, under current
legislation, will remain in force until December 31, 2010, and another Irish
subsidiary qualifies for an exemption from income tax as our revenue source is
license fees from qualifying patents within the meaning of Section 234 of the
Irish Taxes Consolidation Act, 1997. We currently anticipate that we will
continue to benefit from this tax treatment, although the extent of the benefit
could vary from period to period, and our tax situation may change. In
addition, if these subsidiaries were no longer to qualify for these tax rates
or if the tax laws were rescinded or changed, our operating results could be
materially adversely affected.
A significant portion of our revenue, costs, assets and liabilities are
denominated in currencies other than the U.S. dollar, and we and all of our
subsidiaries, other than our U.S. and Cayman Islands subsidiaries, have
functional currencies other than the U.S. dollar. These currencies fluctuate
significantly against the U.S. dollar. As a result of the currency fluctuations
resulting primarily from fluctuations in the U.S. dollar and the Irish pound
and the conversion to U.S. dollars for financial reporting purposes, we
experience fluctuations in our operating results on an annual and, in
particular, on a quarterly basis. We also experience significant fluctuations
in the value of marketable securities denominated in U.S. dollars, which are
translated to Irish pounds, our functional currency on preparing consolidated
financial statements. At January 31, 2000, the value of marketable securities
was $48.8 million. From time to time we have in the past and may in the future
hedge against the fluctuations in exchange rates. Future hedging transactions
may not successfully mitigate losses caused by currency fluctuations. We expect
to continue to experience exchange rate fluctuations on an annual and quarterly
basis, and currency fluctuations could have a material adverse impact on our
results of operations.
The conversion to the euro has not had a material effect on the pricing of,
or the market for, our products, licenses and services, and we do not expect
the conversion will have a material effect in the future.
23
<PAGE>
Results of Operations
The following table presents our results of operations expressed as a
percentage of total revenue, after giving effect to rounding, for the periods
indicated:
<TABLE>
<CAPTION>
Year Ended January 31,
----------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Revenue:
Product......................................... 65% 69% 61%
License......................................... 25 21 30
Service......................................... 10 10 9
------- ------- -------
Total revenue................................. 100 100 100
Cost of revenue:
Product......................................... 51 52 40
License......................................... 2 3 10
Service......................................... 6 11 7
------- ------- -------
Total cost of revenue......................... 59 66 57
------- ------- -------
Gross margin.................................... 41 34 43
Operating expenses:
Research and development........................ 10 17 29
Sales and marketing............................. 15 28 29
General and administrative...................... 15 21 24
Stock compensation.............................. -- -- 7
------- ------- -------
Total operating expenses...................... 40 66 90
------- ------- -------
Income (loss) from operations..................... 1 (32) (47)
Other expenses:
Interest income (expense), net.................. -- 1 4
Exchange gain (loss), net....................... -- (1) 3
------- ------- -------
Income (loss) before provision for income
taxes.......................................... 1 (32) (40)
Provision for income taxes........................ -- -- --
------- ------- -------
Net income (loss)............................. 1% (32)% (40)%
======= ======= =======
</TABLE>
Fiscal Year Ended January 31, 2000 Compared To Fiscal Year Ended January 31,
1999
Revenue
Total Revenue. Total revenue increased $9.2 million to $30.2 million in the
fiscal year ended January 31, 2000 from $21.0 million in the fiscal year ended
January 31, 1999, an increase of 44%. The increase was primarily attributable
to increased sales of electronic PoS system products and software license fees.
We have historically derived a significant portion of our total revenue from
a small number of customers. In the fiscal year ended January 31, 2000, Which,
a subsidiary of Tyco, accounted for 20% of our total revenue and Deutsche
Verkehrs Bank Zentrale accounted for 11% of our total revenue. In the fiscal
year ended January 31, 1999, Which accounted for 33% of our total revenue and
Bank of Ireland accounted for 11% of our total revenue.
Product. Product revenue increased $3.9 million to $18.5 million in the
fiscal year ended January 31, 2000 from $14.6 million in the fiscal year ended
January 31, 1999, an increase of 27%. Electronic PoS system sales represented
61% of total revenue in the fiscal year ended January 31, 2000 compared to 69%
of total revenue in the fiscal year ended January 31, 1999. The increase in
product revenue in absolute dollars was due primarily to increased volume of
sales, which represented approximately 160% of the increase in product revenues
for this
24
<PAGE>
period, to existing and new customers. The increase in product revenue,
however, was partially offset by lower average selling prices for our
electronic PoS system products, which declined by an average of 7% per unit in
the fiscal year ended January 31, 2000 compared to the fiscal year ended
January 31, 1999. The increase of product revenue was further offset by the
impact of the declining value of the euro as against the dollar in fiscal 2000,
which reduced product revenue, when converted to and reported in U.S. dollars,
by 9% if calculated using the exchange rate we experienced in fiscal 1999.
License. Software license revenue increased $4.7 million to $9.2 million in
the fiscal year ended January 31, 2000 from $4.5 million in the fiscal year
ended January 31, 1999, an increase of 105%. Software license revenue
represented 30% of total revenue in the fiscal year ended January 31, 2000
compared to 21% of total revenue in the fiscal year ended January 31, 1999. The
increase in software license revenue was primarily due to increased sales of
our e-payment software products to new customers.
Service. Service revenue increased $627,000 to $2.6 million in the fiscal
year ended January 31, 2000 from $2.0 million in the fiscal year ended January
31, 1999, an increase of 31%. Service revenue represented 9% of total revenue
in the fiscal year ended January 31, 2000 and 10% of total revenue in the
fiscal year ended January 31, 1999. The increase in service revenue was
primarily due to increased sales of consulting, training and implementation
services associated with increased software license sales.
Cost of Revenue
Total Cost of Revenue. Total cost of revenue increased $3.3 million to $17.3
million in the fiscal year ended January 31, 2000 from $13.9 million in the
fiscal year ended January 31, 1999, an increase of 24%. Gross margin increased
to 43% in the fiscal year ended January 31, 2000 from 34% in the fiscal year
ended January 31, 1999. The increase in gross margin was attributed to
improvements in the product margin and an increase in the proportion of higher
margin software license revenues relative to product and service revenues.
Product. Cost of product revenue increased $1.2 million to $12.0 million in
the fiscal year ended January 31, 2000 from $10.8 million in the fiscal year
ended January 31, 1999, an increase of 11%. The increase in the cost of product
revenue in absolute dollars primarily resulted from increased volume of sales.
Product revenue costs decreased to 65% of product revenue in the fiscal year
ended January 31, 2000 from 75% of product revenue in the fiscal year ended
January 31, 1999. The decrease as a percentage of product revenue was primarily
due to the introduction of a new version of the Compact 9000i electronic PoS
system in January 1999, which costs less to manufacture than its predecessor.
This decrease as a percentage of product revenue was partially offset by lower
average selling prices in fiscal 2000 for our electronic PoS system products
and by the impact of the declining value of the euro as against the dollar in
fiscal 2000. For example, sales of our electronic PoS systems in Germany are
denominated in euro while a portion of the related manufacturing costs are
denominated in U.K. pounds sterling.
License. Cost of software license revenue increased $2.3 million to $3.0
million in the fiscal year ended January 31, 2000 from $648,000 in the fiscal
year ended January 31, 1999, an increase of 360%. Software license costs were
33% of license revenue in the fiscal year ended January 31, 2000 compared to
14% in the fiscal year ended January 31, 1999. The increase in absolute dollars
and as a percentage of license revenue resulted from the amortization of our
capitalized software development costs, increased expenditures in both
infrastructure and labor costs associated with the expansion of our support and
maintenance facilities and the cost of third-party software products sold as
part of our e-payment software solution.
25
<PAGE>
Service. Cost of service revenue decreased $172,000 to $2.2 million in the
fiscal year ended January 31, 2000 from $2.4 million in the fiscal year ended
January 31, 1999, a decrease of 8%. Service costs were 85% of service revenue
in the fiscal year ended January 31, 2000 compared to 121% of service revenue
in the fiscal year ended January 31, 1999. The decrease in the cost of service
revenue in absolute dollars and as a percentage of service revenue primarily
resulted from a lower investment in service infrastructure as compared to
fiscal 1999.
Operating Expenses
Research and Development. Research and development expenses increased $5.2
million to $8.9 million in the fiscal year ended January 31, 2000 from $3.7
million in the fiscal year ended January 31, 1999, an increase of 142%.
Research and development expenses were 29% of total revenue in the fiscal year
ended January 31, 2000 compared to 17% of total revenue in the fiscal year
ended January 31, 1999. The increase in absolute dollars and as a percentage of
total revenue was primarily due an increase in number of research and
development employees from 103 at January 31, 1999 to 155 at January 31, 2000.
Sales and Marketing. Sales and marketing expenses increased $2.9 million to
$8.9 million in the fiscal year ended January 31, 2000 from $5.9 million in the
fiscal year ended January 31, 1999, an increase of 49%. Sales and marketing
expenses were 29% of total revenue in the fiscal year ended January 31, 2000
compared to 28% of total revenue in the fiscal year ended January 31, 1999. The
increase in absolute dollars primarily resulted from the recruitment of
additional sales personnel, the expansion of our sales offices in San Mateo,
California and Dublin, Ireland, and increases in direct marketing activities
and travel costs.
General and Administrative. General and administrative expenses increased
$3.0 million to $7.3 million in the fiscal year ended January 31, 2000 from
$4.3 million in the fiscal year ended January 31, 1999, a 69% increase. General
and administrative expenses were 24% of total revenue in the fiscal year ended
January 31, 2000 compared to 21% of total revenue in the fiscal year ended
January 31, 1999. The increase in absolute dollars and as a percentage of total
revenue primarily resulted from increases in labor costs of approximately
$682,000 related to hiring additional management and administrative personnel,
facilities costs of approximately $573,000 due to the leasing of additional
office space in Dublin, Ireland, Frankfurt, Germany and Princeton, New Jersey,
telecommunications and management information systems costs of approximately
$365,000, and an increase in depreciation costs of approximately $351,000.
Stock Compensation. For fiscal 2000, we recognized in the fourth quarter
$2.1 million of non-cash stock compensation associated with options to acquire
an aggregate of 230,000 ordinary shares (460,000 equivalent ADSs) granted to
members of our advisory board and MasterCard at fair market value on the date
of grant. The options are treated as variable options for accounting purposes
under Financial Accounting Standard 123 and Emerging Issues Task Force 96-18
("Accounting for Equity Instruments that are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods and Services" (EITF 96-18)).
As a result, in the fourth quarter we recognized, and in the future on a
quarterly basis we will recognize, non-cash stock compensation related to the
fair value of the option determined using the Black-Scholes option pricing
model on the last trading day of each quarter, multiplied by the number of
options time-apportioned over their respective vesting periods.
Interest Income (Expense), Net. Interest income (expense), net consists of
interest income and interest expense. Interest income, net increased $936,000
to $1.2 million of interest
26
<PAGE>
income, net in the fiscal year ended January 31, 2000 compared to $272,000 of
interest income, net in the fiscal year ended January 31, 1999. The increase
was due to higher cash balances arising from the sale of 5.9 million ordinary
shares in our initial public offering.
Provision for Income Taxes. Provision for income taxes was $3,000 in the
fiscal year ended January 31, 2000 compared to no provision for income taxes in
the fiscal year ended January 31, 1999.
Fiscal Year Ended January 31, 1999 Compared To Fiscal Year Ended January 31,
1998
Revenue
Total Revenue. Total revenue increased by $4.4 million to $21.0 million in
the fiscal year ended January 31, 1999 from $16.6 million in the fiscal year
ended January 31, 1998, an increase of 26%. The increase was primarily
attributable to strong electronic PoS system product sales to our customers.
In the fiscal year ended January 31, 1999, Which, a subsidiary of Tyco,
accounted for approximately 33% of our total revenue and Bank of Ireland
accounted for approximately 11% of our total revenue. In fiscal 1998, Which
accounted for 26% of our total revenue, EasyCash accounted for 12% of our total
revenue, Bank of Ireland accounted for 11% of our total revenue and GRK, the
card processing organization for Germany's community banks, accounted for 10%
of our total revenue.
Product. Product revenue increased by $3.8 million to $14.6 million in the
fiscal year ended January 31, 1999 from $10.8 million in the fiscal year ended
January 31, 1998, an increase of 34%. Electronic PoS systems sales represented
69% of total revenue in the fiscal year ended January 31, 1999 compared to 65%
of total revenue in the fiscal year ended January 31, 1998. The increase in
product sales in absolute dollars and as a percentage of total revenue was due
primarily to an increased volume of sales of electronic PoS system products in
Germany, which increase represented approximately 114% of the increase in
product revenues for this period. This increase, however, was partially offset
by lower average selling prices for our electronic PoS system products, which
declined by an average of 14% per unit in the fiscal year ended January 31,
1999 compared to the fiscal year ended January 31, 1998.
License. Software license revenue increased by $376,000 to $4.5 million in
the fiscal year ended January 31, 1999 from $4.1 million in the fiscal year
ended January 31, 1998, an increase of 9%. The increase in software license
revenue was due to increased sales of e-payment software products to new
customers. Software license revenue represented 21% of total revenue in the
fiscal year ended January 31, 1999 compared to 25% of total revenue in the
fiscal year ended January 31, 1998. Software license revenue declined as a
percentage of total revenue as a result of the more rapid sales growth rate of
electronic PoS system products.
Service. Service revenue increased by $281,000 to $2.0 million in the fiscal
year ended January 31, 1999 from $1.7 million in the fiscal year ended January
31, 1998, an increase of 16%. Service revenue represented 10% of total revenue
in each of the fiscal years ended January 31, 1998 and 1999. The increase in
service revenue in absolute dollars was due primarily to an increase in sales
of software license, which resulted in increased demand for services.
27
<PAGE>
Cost of Revenue
Total Cost of Revenue. Total cost of revenue increased by $4.2 million to
$13.9 million in the fiscal year ended January 31, 1999 from $9.7 million in
the fiscal year ended January 31, 1998, an increase of 44%. Gross margin
decreased to 34% in the fiscal year ended January 31, 1999 from 41% in the
fiscal year ended January 31, 1998. The decrease in gross margin primarily
resulted from increased headcount in our services group, the expansion of our
software license support and maintenance facilities and investment in
infrastructure, in each case in advance of associated revenue.
Product. Cost of product revenue increased by $2.5 million to $10.9 million
in the fiscal year ended January 31, 1999 from $8.4 million in the fiscal year
ended January 31, 1998, an increase of 30%. The increase in the cost of product
revenue primarily resulted from increased volume of product shipments. Product
revenue costs as a percentage of product revenue decreased to 75% in the fiscal
year ended January 31, 1999 from 77% in the prior fiscal year primarily due to
our ability to negotiate more favorable prices from our vendors as purchase
volumes increased. This decrease was partially offset by lower average selling
prices for our electronic PoS system products.
License. Cost of software license revenue increased $314,000 to $648,000 in
the fiscal year ended January 31, 1999 from $334,000 in the fiscal year ended
January 31, 1998, an increase of 94%. Software license costs were 14% of
software license revenue in the fiscal year ended January 31, 1999 compared to
8% in the fiscal year ended January 31, 1998. The increase in absolute dollars
and as a percentage of license revenue resulted from increased expenditures in
both infrastructure and labor costs associated with the expansion of our
support and maintenance facilities.
Service. Cost of service revenue increased by $1.4 million to $2.4 million
in the fiscal year ended January 31, 1999 from $1.0 million in the fiscal year
ended January 31, 1998, an increase of 139%. Service costs were 121% of service
revenue in the fiscal year ended January 31, 1999 compared to 59% of service
revenue in the fiscal year ended January 31, 1998. The increase in the cost of
service revenue in absolute dollars and as a percentage of service revenue
primarily resulted from increased headcount and investment in infrastructure in
advance of associated revenue.
Operating Expenses
Research and Development. Research and development expenses increased $1.9
million to $3.7 million in the fiscal year ended January 31, 1999 from $1.7
million in the fiscal year ended January 31, 1998, an increase of 113%.
Research and development expenses were 17% of total revenue in the fiscal year
ended January 31, 1999 compared to 10% of total revenue in the fiscal year
ended January 31, 1998. The increase in absolute dollars and as a percentage of
total revenue was primarily due to increased labor costs resulting from
increased headcount associated with our increased emphasis on the development
of e-commerce software, and due to higher average salaries.
Sales and Marketing. Sales and marketing expenses increased $3.4 million to
$5.9 million in the fiscal year ended January 31, 1999 from $2.5 million in the
fiscal year ended January 31, 1998, an increase of 139%. Sales and marketing
expenses were 28% of total revenue in the fiscal year ended January 31, 1999
compared to 15% of total revenue in the fiscal year ended January 31, 1998. The
increase in absolute dollars and as a percentage of total revenue primarily
resulted from the recruitment of additional sales personnel, the expansion of
our
28
<PAGE>
sales offices in Campbell, California and Miami, Florida, and increases in
direct marketing activities and travel costs.
General and Administrative. General and administrative expenses increased
$1.8 million to $4.3 million in the fiscal year ended January 31, 1999 from
$2.5 million in the fiscal year ended January 31, 1998, a 72% increase. General
and administrative expenses were 21% of total revenue in the fiscal year ended
January 31, 1999 compared to 15% of total revenue in the fiscal year ended
January 31, 1998. The increase in absolute dollars and as a percentage of total
revenue primarily resulted from increases in labor costs of approximately
$284,000 related to hiring additional management and administrative personnel,
recruitment costs of approximately $480,000 associated with a general increase
in our employee base, facilities costs of approximately $278,000 due to the
leasing of additional office space in Dublin, Ireland, Frankfurt, Germany and
Princeton, New Jersey, telecommunications and management information systems
costs of approximately $379,000, and an increase in depreciation costs of
approximately $225,000.
Interest Income (Expense), Net. Interest income, net increased $254,000 to
$272,000 of interest income, net in the fiscal year ended January 31, 1999
compared to $18,000 of interest income, net in the fiscal year ended January
31, 1998. The increase was due to higher cash balances arising from the
completion of equity financings in fiscal 1999 that generated gross proceeds of
approximately $20.0 million.
Provision for Income Taxes. There was no provision for income taxes in
fiscal 1999 compared to a provision for income taxes of $50,000 in fiscal 1998.
The decrease in fiscal 1999 is partly due to the losses incurred, which did not
require a tax provision, and to non-recoverable withholding taxes incurred in
fiscal 1998.
29
<PAGE>
Selected Quarterly Results
The following table presents selected unaudited consolidated financial
information for each of the eight quarters in the period ended January 31,
2000. In our opinion, this unaudited information has been prepared on a basis
consistent with our audited consolidated financial statements and includes all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly our unaudited quarterly results when read in conjunction with
our audited financial statements included elsewhere in this prospectus. The
results of operations for any quarter are not necessarily indicative of future
results of operations.
<TABLE>
<CAPTION>
Apr. 30, July 31, Oct. 31, Jan. 31, Apr. 30, July 31, Oct. 31, Jan. 31,
1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands of U.S. dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product................ $3,164 $ 3,935 $ 3,101 $ 4,354 $ 3,808 $ 4,727 $ 4,890 $ 5,032
License................ 1,282 1,102 678 1,415 1,490 1,846 2,357 3,465
Service................ 570 718 370 344 676 618 783 552
------ ------- ------- ------- ------- ------- ------- -------
Total revenue........ 5,016 5,755 4,149 6,113 5,974 7,191 8,030 9,049
Cost of revenue:
Product................ 2,334 3,004 2,365 3,149 2,534 3,157 3,045 3,298
License................ 70 132 210 236 647 725 574 1,035
Service................ 401 574 691 747 630 432 689 491
------ ------- ------- ------- ------- ------- ------- -------
Total cost of
revenue............. 2,805 3,710 3,266 4,132 3,811 4,314 4,308 4,824
------ ------- ------- ------- ------- ------- ------- -------
Gross margin............ 2,211 2,045 883 1,981 2,163 2,877 3,722 4,225
Operating expenses:
Research and
development........... 767 893 825 1,191 1,638 1,950 2,387 2,917
Sales and marketing.... 1,237 1,446 1,522 1,716 1,922 1,996 2,184 2,747
General and
administrative........ 754 1,006 1,232 1,355 1,546 1,697 1,763 2,330
Stock compensation..... -- -- -- -- -- -- -- 2,068
------ ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 2,758 3,345 3,579 4,262 5,106 5,643 6,334 10,062
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (547) (1,300) (2,696) (2,281) (2,943) (2,766) (2,612) (5,837)
Interest income
(expense), net......... (2) 51 153 70 98 41 252 817
Exchange gain (loss),
net.................... (68) (26) (311) 84 35 228 222 357
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes.................. (617) (1,275) (2,854) (2,127) (2,810) (2,497) (2,138) (4,663)
Provision for income
taxes.................. -- -- -- -- (1) -- -- (2)
------ ------- ------- ------- ------- ------- ------- -------
Net income (loss).... $ (617) $(1,275) $(2,854) $(2,127) $(2,811) $(2,497) $(2,138) $(4,665)
====== ======= ======= ======= ======= ======= ======= =======
</TABLE>
30
<PAGE>
The following table presents unaudited consolidated results of operations as
a percentage of total revenue for each of the eight quarters in the period
ended January 31, 2000.
<TABLE>
<CAPTION>
Apr. 30, July 31, Oct. 31, Jan. 31, Apr. 30, July 31, Oct. 31, Jan. 31,
1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product................ 63 % 68 % 75 % 71 % 64 % 66 % 61 % 56 %
License................ 26 19 16 23 25 26 29 38
Service................ 11 13 9 6 11 8 10 6
--- --- --- --- --- --- --- ---
Total revenue........ 100 100 100 100 100 100 100 100
Cost of revenue:
Product................ 47 52 57 52 42 44 38 37
License................ 1 2 5 4 11 10 7 11
Service................ 8 10 17 12 11 6 9 5
--- --- --- --- --- --- --- ---
Total cost of
revenue............. 56 64 79 68 64 60 54 53
--- --- --- --- --- --- --- ---
Gross margin............ 44 36 21 32 36 40 46 47
Operating expenses:
Research and
development........... 15 16 20 19 27 27 30 33
Sales and marketing.... 25 25 36 28 32 28 27 30
General and
administrative........ 15 17 30 22 26 23 22 26
Stock compensation..... -- -- -- -- -- -- -- 23
--- --- --- --- --- --- --- ---
Total operating
expenses............ 55 58 86 69 85 78 79 112
--- --- --- --- --- --- --- ---
Income (loss) from
operations............. (11) (22) (65) (37) (49) (38) (33) (65)
Interest income
(expense), net......... -- -- 4 1 2 1 3 9
Exchange gain (loss),
net.................... (1) -- (8) 1 1 3 3 4
--- --- --- --- --- --- --- ---
Income (loss) before
provision for income
taxes.................. (12) (22) (69) (35) (46) (34) (27) (52)
Provision for income
taxes.................. -- -- -- -- -- -- -- --
--- --- --- --- --- --- --- ---
Net income (loss).... (12) (22) (69) (35) (46) (34) (27) (52)
=== === === === === === === ===
</TABLE>
Significant Quarterly Fluctuations in Revenue and Operating Results
Our quarterly revenue and operating results have historically been subject
to significant fluctuations due to a variety of factors described below, and we
anticipate that this volatility will continue. As a result, period-to-period
comparisons of our results of operations are not necessarily meaningful and
these comparisons should not be relied upon as indications of our future
performance. It is likely that in some future quarters our results of
operations will be below the expectations of public market analysts and
investors, which could have a severe adverse effect on the trading price of the
ADSs.
We have experienced significant fluctuations in our quarterly product
revenue. In particular, electronic PoS systems revenue has typically been
higher in the quarter ended January 31 of each year as customers on a calendar-
based fiscal year complete their capital spending plans in December and have
capital budgets available in January. In addition, revenue from sales of these
systems has typically been lower in the quarter ended October 31 of each year
as compared to the preceding quarter primarily due to slow downs associated
with our customers' vacation periods.
License revenue can fluctuate significantly from quarter to quarter for a
number of reasons. A significant portion of our software revenue is typically
derived from a limited number of customers. As a result, small changes in the
number of customers in a particular quarter can significantly affect software
license revenue for that quarter. Additionally, because the price of our
software products varies significantly based on the product and the
functionality, the product mix in a particular quarter can also significantly
affect license
31
<PAGE>
revenue in that quarter. For example, the number of customers and product mix
in the second and third quarters of fiscal 1999 were negatively influenced by
several factors. These factors included a slower than anticipated overall rate
of adoption of emerging secure e-payment technologies by banks and financial
transaction processors. Our software license revenue during these periods was
also negatively impacted by our customers re-directing their information
technology funds to address euro and year-2000 issues, as well as the economic
situation in Asia, which we believe led European customers to become cautious.
In the third quarter of fiscal 1999, we launched PayWare ERP, which integrates
our e-payment merchant functionality into SAP's enterprise resource planning
system, R/3. In the fourth quarter of fiscal 1999, we launched PayWare Net,
which has become our primary e-commerce solution for Internet merchants. Sales
for PayWare ERP and PayWare Net have positively impacted our revenues for the
fourth quarter of fiscal 1999 and for fiscal 2000. In addition, at the end of
the first quarter of fiscal 2000, we released PayGate NetIssuer, which has
positively impacted license revenues for the third and fourth quarters of
fiscal 2000.
Service revenue has varied significantly from quarter to quarter. Service
revenue has been significantly impacted by the number of customers requesting
services and the scope of the service engagements undertaken in a particular
quarter. The demand for customization services can vary as a result of the mix
of products that are licensed to our customers as well as the requirements of
the customers for customization of our products to suit their needs. As the
functionality of our product line has broadened, the portion of service revenue
attributable to customization has declined. This is being replaced by increased
demand for consultancy, integration, educational and training services. Service
revenue in the third quarter of fiscal 1999 was negatively impacted by lower
license revenue. Service revenue in the fourth quarter of fiscal 1999 and the
fourth quarter of fiscal 2000 was also negatively impacted by the mix of
products licensed, which resulted in a relative increase in the licensing of
products that required a lower level of customization.
Cost of revenue and gross margin has varied substantially from quarter to
quarter, both in line with revenue fluctuations and due to factors such as
headcount costs, currency fluctuations and facilities cost increases. Cost of
license revenue may be further impacted by license fees payable to third
parties from whom we license technology, which can vary depending upon product
mix and by the amortization of capitalized software development costs. For
example, in the fourth quarter of fiscal 2000, cost of license revenue
increased in part due to the cost of software which we licensed from a third
party to develop a software solution for a specific customer. Because a
substantial percentage of our costs are fixed, quarterly fluctuations in total
revenue result in significant fluctuations in our costs as a percentage of
revenue. For example, in the third and fourth quarters of fiscal 1999, we
continued to build our service organization as anticipated under our long-term
business strategy despite a downturn in service revenue during those quarters,
which resulted in negative service gross margins in each period.
The level of research and development expenditures can vary from quarter to
quarter due to changing labor costs and other costs associated with growth in
headcount. In connection with our strategy emphasizing e-commerce software
products for Internet applications, we have generally increased our research
and development expenditures over the past few years. In particular, research
and development expenses have increased in absoluted dollars in each quarter
since the quarter ended October 31, 1998. Our ability to continue to grow our
research and development organization will depend on our ability to identify
and hire qualified personnel.
Sales and marketing expenditure can vary significantly from quarter to
quarter depending on the timing of our advertising and promotion campaigns, the
hiring of sales personnel and
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the establishment of sales offices. We are continuing to build our sales and
marketing organization, and these expenditures generally have increased from
quarter to quarter.
In the fourth quarter of fiscal 2000, we recognized $2.1 million of non-cash
stock compensation associated with options granted to members of our advisory
board and MasterCard at fair market value on the date of grant. The options are
treated as variable options for accounting purposes. As a result, in the fourth
quarter we recognized, and in the future on a quarterly basis we will
recognize, non-cash stock compensation related to the fair value of the option
determined using the Black-Scholes option pricing model on the last trading day
of each quarter, multiplied by the number of options time-apportioned over
their respective vesting periods.
Liquidity and Capital Resources
Until 1998, we had satisfied our cash requirements principally through cash
generated by operations, proceeds from the sale of ordinary shares to a single
outside investor and borrowings under our bank credit facilities. We have an
approved credit facility from Bank of Ireland of IR(Pounds)650,000 or
approximately $808,000 as of January 31, 2000. The credit facility bears
interest at the bank's overdraft rate which was 5.94% per year as of January
31, 2000. The facility does not have a stated expiration date, but all amounts
drawn under it are repayable on demand. As of January 31, 2000, there was $0
outstanding under the credit facility. As of January 31, 2000, we had working
capital of $57.8 million, including cash and cash equivalents totaling $10.9
million and marketable securities totaling $48.8 million.
In fiscal 1999, we raised an aggregate of $20.0 million in private
placements of 482,765 ordinary shares and 3 million redeemable convertible
preference shares. In September 1999, we raised $59.5 million net of expenses
from the sale of 5.9 million ordinary shares in our initial public offering.
Net cash used in operating activities was approximately $695,000, $12.6
million and $48.4 million for fiscal 1998, 1999 and 2000. Net cash used in
operating activities in fiscal 1998 resulted primarily from increases in
accounts receivable and general working capital requirements. Net cash used in
operating activities in fiscal 1999 resulted primarily from a loss on
operations of $6.9 million and net purchases of marketable securities of $7.2
million. Net cash used in operating activities in fiscal 2000 resulted
primarily from a loss on operations of $12.1 million and net purchases of
marketable securities of $41.7 million, partially offset by an increase in the
level of current liabilities.
Net cash used in investing activities was approximately $427,000 for fiscal
1998, $4.1 million for fiscal 1999 and $1.9 million for fiscal 2000. Cash used
in investing activities was primarily related to the purchase of property and
equipment. In addition, net cash used in investing activities in fiscal 1999
included $2.5 million for the purchase of capitalized software.
Net cash used in financing activities was approximately $427,000 for fiscal
1998. Net cash provided by financing activities was approximately $18.2 million
for fiscal 1999 and $59.2 million for fiscal 2000. Net cash used in financing
activities in fiscal 1998 primarily related to the repayment of the loans from
three of our directors and the repayment of a bank overdraft which was
outstanding at the end of fiscal 1997. Net cash provided by financing
activities in fiscal 1999 primarily related to the $20.0 million raised in
private placements of 482,765 ordinary shares and 3 million redeemable
convertible preference shares. Net cash provided by financing activities in
fiscal 2000 primarily related to the $59.5 million net of expenses raised from
the sale of 5.9 million ordinary shares in our initial public offering.
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Although we have no material commitments for capital expenditures or
strategic investments, we anticipate an increase in the rate of capital
expenditures consistent with our anticipated growth in operations,
infrastructure and personnel. Our future liquidity and capital requirements
will depend upon numerous factors including the cost and timing of expansion of
product development efforts and the success of these development efforts, the
cost and timing of expansion of sales and marketing activities, the extent to
which our existing and new products gain market acceptance, market
developments, the level and timing of license revenue and available borrowings
under line of credit arrangements.
We believe that the proceeds generated by the sale of our securities in this
offering, together with funds available under our credit facility and cash and
cash equivalents on hand, will be sufficient to meet our projected working
capital requirements for at least the next 12 months. However, the underlying
assumed levels of revenues and expenses may prove to be inaccurate. We may be
required to finance any additional requirements within the next twelve months
or beyond through additional equity, debt financings or credit facilities. We
may not be able to obtain additional financings or credit facilities, or if
these funds are available, they may not be available on satisfactory terms. If
funding is insufficient at any time in the future, we may be unable to develop
or enhance our products or services, take advantage of business opportunities
or respond to competitive pressures. If we raise additional funds by issuing
equity securities, dilution to existing shareholders will result.
Qualitative and Quantitative Disclosure About Market Risk
Interest income and expense are sensitive to changes in the general level of
Irish and U.S. interest rates, particularly since our investments are in short-
term instruments and our available line of credit requires interest payments at
variable rates. As of January 31, 2000, one of our subsidiaries had a contract
maturing in February 2000 and a contract maturing in May 2000, each to sell
$1.0 million for euro. Based on the nature and current levels of our
investments and debt, we have concluded that there is no material market risk
exposure.
Our investment policy requires us to invest funds in excess of current
operating requirements in marketable securities such as commercial paper,
corporate bonds and U.S. government agency fixed income securities. As stated
in our investment policy, we are averse to principal loss and seek to ensure
the safety and preservation of invested funds by limiting default and market
risks. We mitigate default risk by investing in only investment-grade
securities.
At January 31, 2000, our cash and cash equivalents consisted primarily of
highly liquid investments with maturity of three months or less. We have
concluded that this does not result in any material market risk exposure.
Year 2000 Readiness
The year 2000 issue existed because many computer systems and applications
use two-digit rather than four-digit date fields to designate a year. As a
result, the systems and applications may not properly recognize the year 2000
or be able to process data including it, which has the potential to cause data
miscalculations or inaccuracies, operational malfunctions or failures.
In November 1997, we established a year 2000 steering committee, comprised
of our group quality manager, group management information systems manager,
European controller, customer support manager and product manager. The
committee reports to Chris Meehan, our executive vice president, operations and
a member of our board of directors. The
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committee was charged with evaluation of the year 2000 issue as it affects our
products and services, our internal network and supporting infrastructure and
the internal network and supporting infrastructure of our customers. To
identify and prioritize efforts for critical systems, networks, products and
key business partners, we identified the following tasks for the year 2000
committee: inventory, assessment, remediation, testing, implementation,
contingency plans and monitoring. As of January 31, 2000, these tasks have been
substantially completed.
These costs would not have a material impact on our business, financial
condition or results of operations. We currently anticipate incurring
approximately $70,000 in fiscal 2001 in connection with continuing year 2000
related costs. Modifying and testing our information and transaction processing
systems is estimated to cost approximately $50,000 to be incurred in fiscal
2001 as we complete the installation and testing of new or modified hardware
and software. Additional capital costs to be incurred in fiscal 2001 to support
the replacement of systems, hardware or equipment are currently estimated to be
approximately $50,000. These estimates also do not include litigation or
warranty costs related to the year 2000 issue, which at this time cannot be
reasonably estimated. All year 2000 costs previously incurred have been funded
from operations.
As of February 29, 2000, we have not experienced any year 2000 issues with
our internal network or infrastructure and we were not aware of any year 2000
issues with our products or services, or the internal network and supporting
infrastructure of our manufacturers, suppliers or strategic partners. We may
become aware of year 2000 issues in the future, which could adversely affect
our business and results of operations.
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BUSINESS
Overview
We are a leading provider of secure e-payment infrastructure solutions for
payment card transactions. We develop, market and sell a comprehensive suite of
software and electronic PoS systems that enable card-based electronic payments
in the physical world and over the Internet. We offer vendor-neutral, open
software solutions that provide a highly secure e-payment solution for our
customers. Our customers include banks, card associations, financial
transaction processors and Internet service providers in major markets
including Germany, the United States, Scandinavia, the United Kingdom and South
America. Through our portfolio of feature-rich software products and electronic
PoS systems, we offer solutions for each of the parties to an e-payment
transaction--the bank or other financial transaction processor, the merchant
and the cardholder. Our comprehensive suite of software and electronic PoS
system products enables secure end-to-end payment solutions to automate the
entire e-payment transaction process.
The E-Payment Industry
The e-payment industry has rapidly grown throughout the world since the
1970s when banks and merchants began to encourage widespread use of credit
cards by consumers. Use of these cards has increased significantly in
traditional commerce channels, first at the countertop in a merchant's store,
and later through mail order and telephone order. More recently, the
introduction of new payment card alternatives, such as chip-based smart cards,
stored value cards, purchase cards and debit cards, has further fueled the use
of payment cards and the growth of the e-payment industry. According to The
Nilson Report, the volume of payment card transactions at the merchant in the
United States alone is expected to increase from 16 billion in 1997 to 39
billion in 2005. The growth of payment card transactions, in conjunction with
increased payment card fraud, has driven the need for more comprehensive,
secure and effective hardware and software payment products to process these
transactions. In particular, financial institutions and merchants have broadly
adopted electronic PoS systems and secure software solutions to mitigate fraud
and to improve the efficiency of payment card transaction processing.
With the emergence of e-commerce, the Internet has developed as a new and
significant sales channel for goods and services. Payment cards have emerged as
the predominant means of making purchases over the Internet, further driving
the demand for comprehensive and effective solutions for secure e-payment
transactions. According to International Data Corporation, the number of people
with access to the world wide web will rise from 159 million in 1998 to
approximately 510 million in 2003. The growing base of users, combined with the
convenience of the Internet as a medium for commerce, helps drive the growth of
e-commerce. International Data Corporation estimates that global business-to-
consumer e-commerce revenue will grow from $15 billion in 1998 to $117 billion
in 2002. International Data Corporation additionally estimates that the number
of on-line shoppers will increase from 30.8 million in 1998 to 133.9 million in
2002. Merchants are increasingly seeking to participate in e-commerce due to
the global reach of the Internet, combined with the lower transaction costs
compared to the traditional retail market place and the increasing use of the
Internet for a broad range of business-to-business and business-to-consumer
activities. Emerging channels for Internet access, such as mobile phones for
wireless Internet access, are expected to further fuel the growth of e-
commerce.
E-Payment Transactions
Each of the participants in an e-payment transaction operates within a
framework of policies and standards established by card associations such as
VISA and MasterCard and card
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companies like American Express and Discover Financial Services. They have
established the network and processing infrastructures required to authorize
payments and transfer funds, and have implemented large-scale marketing
programs to promote consumer and merchant acceptance of existing card brands
and new card-related products.
Through the use of payment cards, cardholders traditionally have had the
flexibility to purchase goods and services either in person at a merchant's
physical store or conveniently in their own homes or offices through telephone
or mail order. These traditional distribution channels have been broadened by
the emergence of the Internet as a medium for commerce. The global acceptance
of payment cards and the convenience they provide facilitate business-to-
consumer and business-to-business commerce in the physical world and over the
Internet.
To initiate a typical payment card transaction, the merchant receives the
cardholder's payment card information through a variety of means, including
physical presentation of the actual card, mail order, telephone order or over
the Internet. The e-payment system at the merchant location captures the card
and transaction information and forwards this information to the merchant's
bank or a third-party financial transaction processor. Through its payment
software system, the merchant's bank or processor requests authorization from
the cardholder's bank. The cardholder's bank receives the information, confirms
that the cardholder has sufficient funds or credit available and approves or
declines the transaction. If the transaction is approved, the cardholder's bank
charges the cardholder's account while the merchant's bank or processor
transfers funds to the merchant's account.
The following depicts the flow in an e-payment transaction:
[GRAPHIC DEPICTION OF E-PAYMENT TRANSACTION SETTING FORTH THE FLOW OF GOODS OR
SERVICES FROM THE MERCHANT TO THE CARDHOLDER AND THE FLOW OF FUNDS FROM THE
CARDHOLDER TO THE CARDHOLDER'S BANK TO THE MERCHANT'S BANK TO THE MERCHANT]
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E-Commerce Transactions
In an Internet transaction, the payment card information must first be
entered by the cardholder either directly on the merchant's web site or into an
electronic wallet resident on the cardholder's computer or mobile phone.
Typically, software resident on the cardholder's computer or mobile phone
encrypts and then transmits the information to the merchant over the Internet.
The e-commerce payment software resident on the merchant's server receives the
card information and forwards this information to the merchant's bank or
financial transaction processor. The merchant's bank's or processor's e-payment
system captures and processes the payment information and, together with the
cardholder's bank, settles the transaction.
Software is required by each participant at each stage of an e-commerce
payment transaction. Banks, financial transaction processors, merchants and
cardholders are interdependent, and therefore the e-payment systems that link
them must interoperate to efficiently and securely complete payment card
transactions. It is also necessary for e-commerce software payment systems to
integrate with existing hardware and software payment systems, particularly
mainframe systems that continue to be operated by banks and financial
transaction processors. Additionally, the increased globalization of e-commerce
presents payment challenges, such as translation adjustments for multi-currency
transactions and the ability to bill cardholders in the currency of their
choice.
The Need for Security and Authentication
Losses incurred as a result of payment card fraud are typically borne
primarily by the card companies or member banks of card associations, and to a
lesser extent by merchants and cardholders. In addition, card companies and
member banks incur significant administration costs to verify the authenticity
of charges that cardholders have repudiated. This repudiation can occur when
the name of the merchant for a particular charge presented on the cardholder's
monthly bill is unrelated to the name of the merchant from whom the cardholder
made the purchase or when the cardholder believes that their card has been used
fraudulently. To minimize fraud and repudiation in the physical world, card
associations and card companies have encouraged merchants to use electronic PoS
systems and e-payment software solutions, often in conjunction with enhanced
encryption and other embedded security technology.
The emergence of the Internet as a medium for commerce has significantly
increased the risk that payment card fraud and repudiation can occur. According
to a recent study conducted by VISA International, several member banks in its
European region were experiencing repudiation and discovered fraud rates as
high as 50% for Internet transactions while transactions originating on the
Internet represent only 1% to 2% of total transaction volumes. In addition,
according to Jupiter Communications, Internet merchants report a repudiation
level ranging from 25% to 30% of their total revenue. We believe that the
higher incidence of fraud and repudiation in Internet transactions is primarily
caused by:
. an inability to effectively verify the identity of, or authenticate, the
cardholder
. an inability to confirm the legitimacy of, or authenticate, the merchant
. theft of cardholder information that resides unencrypted on a merchant's
server
. inadequate encryption technology
. the aggregation of merchant transactions on the Internet by
intermediaries, such as commerce service providers, resulting in
confusion regarding the name of the merchant for a particular charge
presented on the cardholder's monthly bill
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Netscape developed a standard for the transmission of information over the
Internet known as SSL. SSL is currently the most prevalent Internet security
solution as a result of being embedded in the Netscape and Microsoft web-
browsers. The SSL standard provides a limited level of encryption security and
only generic digital certificates for users.
Digital certificates are specially prepared software files that uniquely
identify an on-line entity such as a cardholder, payment card, merchant, bank
or e-mail account. However, the digital certificates embedded in the Microsoft
and Netscape web browsers are generic and thus do not provide a unique
identification of each individual user. We believe that the lack of unique
digital certificates has resulted in a high level of repudiated e-payment
transactions.
In a typical SSL transaction, a cardholder's payment card number and other
payment information is encrypted and transferred to the merchant who, in turn,
decrypts this information to process the transaction. The decrypted payment
card number is stored on the merchant's computer, where it is vulnerable to
theft by either a merchant's employee or an outside computer user who
infiltrates the merchant's computer. The stolen payment card number may then be
fraudulently used. This is one of the recognized security limitations of the
SSL standard when used for e-payment transactions over the Internet.
In response to the deployment of non-unique certificates and the security
limitations of SSL, VISA and MasterCard developed the SET standard. SET is a
comprehensive security standard which is specifically designed for payment card
transactions over the Internet. In contrast to SSL, the SET standard increases
the security of e-payment transactions by:
. keeping the payment card number encrypted while it is handled by the
merchant by employing multiple levels of encryption between the
cardholder, the merchant and the bank or financial transaction processor
. providing unique digital certificates to all parties to an e-payment
transaction, thus authenticating all parties and reducing repudiation
. providing stronger encryption, further enhancing the security of the
transaction
Using SET, a cardholder's payment card number, unique digital certificate
and other payment information is encrypted and transferred to the merchant.
Because this information is bundled in separate packets, the merchant can only
decrypt the information necessary to process the transaction and cannot decrypt
the cardholder's payment card number. Instead, the encrypted payment card
number is forwarded to the merchant's bank. The merchant's bank decrypts the
payment card number and, together with the transaction information, requests an
authorization from the cardholder's bank. In addition, the merchant's bank
authenticates the digital certificates of both the cardholder and the merchant,
verifies their identities and confirms that the goods the cardholder has
ordered match those that the merchant plans to deliver. Based on the outcome of
these authorizations and authentications, the transaction is approved and
settled.
To encourage use of the SET standard, VISA and MasterCard announced in July
1998 the adoption of the following incentives:
. network transaction fees would not be imposed on the cardholders' or
merchants' banks for SET transactions
. SET transactions would qualify for the lowest offered interchange rates;
in contrast, SSL transactions are charged at a rate equivalent to mail
order and telephone transactions--typically twice that of transactions
in the physical world
. merchants would be relieved of liability if cardholders repudiate
purchases for which they are being billed
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We believe that the e-payment industry will continue to be influenced and
shaped by the strategies and initiatives of VISA and MasterCard, along with
other industry and technology leaders. Furthermore, we believe that the
continued growth in number and complexity of e-payment transactions, together
with the emergence of the Internet and wireless networks as a channel for e-
commerce, will continue to drive the need for secure, flexible and trusted
e-payment solutions. Currently the SSL standard remains the predominant
standard for secure e-payment transactions. The SET standard has not yet been
broadly adopted, nor is this adoption certain. We believe that the key
participants in the e-payment industry, such as banks, card associations and
merchants, will continue to demand software solutions and services from
focused, responsive and innovative vendors who are able to deliver products
that support all standards that are adopted by the marketplace over time.
The Trintech Solution
We are a leading provider of secure e-payment solutions for payment card
transactions. We develop, market and sell a comprehensive suite of software and
electronic PoS systems that enable card-based electronic payments in the
physical world and over the Internet. Our solution consists of software and
electronic PoS systems for use with a variety of operating systems, databases,
merchant web servers and networked and standalone computers. This product suite
consists of more than 20 modules designed to perform authorization, data
capture and settlement for e-payment transactions, as well as management of
merchant e-payment systems. These modules can be deployed as an end-to-end
solution or integrated with modules of other vendors. Our software products are
configurable to satisfy a broad range of secure e-commerce payment needs.
The following elements of our solution enable us to deliver key competitive
advantages to our customers:
Secure Encryption Technology. Our products have been developed using
innovative, robust, cryptographic technologies. All of our e-commerce software
products support both the SET and SSL standards. We were the first software
company to implement a SET transaction. Our SET software products provide 1,024
bit data encryption and handle all of the cryptographic processing and
messaging management required by the SET standard. Our SSL software products
provide up to 128 bit data encryption. Our Internet software products can
incorporate digital certificates to authenticate all parties to an e-payment
transaction, which can reduce fraud and repudiation. We have also developed
software applications to enhance the security of smart card e-payment
transactions. In addition, our electronic PoS system products support the DES,
Triple DES and RSA Security public key security algorithms to meet the security
standards required by our customers.
Flexible Range of Solutions. Our suite of products provides flexible e-
payment solutions for each participant in a transaction: banks and financial
transaction processors, merchants and cardholders. Our products are designed to
be modular, permitting them to interoperate with e-payment products of other
vendors. Alternatively, by offering our products as an integrated end-to-end
payment solution, we also provide a complete solution for our customers.
Comprehensive Functionality. Our software products have been designed for
scalability and operate in multi-currency, multi-taxation, multi-payment
protocol and complex communication environments. We are one of the few vendors
to offer integrated secure e-payment solutions that allow customers to process
transactions in the physical world and over the Internet.
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Open Systems Architecture. Our open architecture design supports a wide
variety of operating systems, databases and merchant commerce servers. Our
software solutions for banks, financial transaction processors and merchants
have been developed for Windows NT and UNIX client/server platforms. Our
approach is to develop once only solutions to run on multiple platforms. This
approach facilitates integration with existing hardware and software systems,
including mainframe systems. In addition, our software products are vendor
neutral and are designed to interface with e-payment hardware and software
products of third-party vendors, including IBM, Oracle, Verifone, Microsoft,
SAP and Intershop.
Expertise in Secure E-Payment Industry. Since our inception, we have focused
on developing secure e-payment solutions for payment card transactions. We
believe our 13 years of experience in this industry has enabled us to develop
sophisticated e-commerce solutions for payment card transactions over the
Internet. We also believe that this industry focus has enabled us to develop
strong and close relationships with the card associations and banks that can
influence the structure and development of the e-payment industry.
Trintech's Growth Strategy
Our mission is to become the leading worldwide provider of secure e-payment
solutions for payment card transactions. The key elements of our strategy to
achieve this mission are the following:
Leverage Technology Expertise. Using our 13 years experience in developing
secure e-payment solutions, we have leveraged our technology expertise to
develop advanced solutions for this market. For example, our merchant software
product runs on multiple platforms, including personal computers located in
merchant call centers, third-party PoS systems, such as electronic cash
registers, and our own electronic PoS system products. In addition, we continue
to develop innovative electronic PoS system products. We intend to continue to
invest significant resources to further develop our product suite.
Extend Early Lead in Internet E-Payment Software. We were one of the first
software companies to adopt both the SET and SSL standards, and we were the
first software company to implement a SET transaction. We intend to continue to
extend our range of SET and SSL products and support new e-payment standards
and Internet technologies, including wireless access technologies, as they
emerge. For example, in February 2000, we jointly announced with Motorola the
availability of e-payment software applications for mobile commerce
transactions using mobile phones.
Continue to Build Strategic Relationships with Key Industry Leaders. We have
strategic relationships with VISA, MasterCard, Compaq, SAP America, Intershop
and RSA Security. These relationships have provided a number of competitive
advantages, including access to product development plans, joint marketing
opportunities and lead-generation for our direct sales force. We intend to
continue to enter into development and marketing alliances with key industry
leaders to produce and distribute custom-tailored e-payment solutions for
specific market segments.
Expand Channels of Distribution Globally. We have relied primarily on our
direct sales force to market our products to banks and financial transaction
processors, card associations, card companies and other major U.S. and
international financial institutions. With the expansion of our e-commerce
product line, we are increasingly targeting large merchants, Internet service
providers and commerce service providers. To reach organizations that cannot
otherwise be effectively targeted by our direct sales force and to increase
worldwide market penetration, we have begun to use indirect sales channels,
including resellers providing additional services, systems integrators and
consultants.
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Target Fast-Growing Markets. We believe that fast-growing markets can
provide significant marketing opportunities for e-payment applications. We have
recently begun to target Internet service providers, commerce service
providers, and telecommunications companies, including service and equipment
providers. Our goal is to begin to target cable-based providers of high-speed
Internet access to homes and businesses, and financial services companies
within the next 12 months.
Build Strong Brand Recognition. We are a leading brand name in the e-payment
industry and believe that we are benefiting from our early industry presence.
Our strategy is to promote, advertise and build our brand equity and visibility
through excellent service and a variety of marketing and promotional campaigns.
We plan to continue to invest significant resources in our on-line marketing
programs, such as epaynews.com, an award-winning site for information and
trends related to e-payments in the e-commerce industry.
Trintech Products
Our products are designed to provide flexible, vendor neutral, secure e-
payment solutions for banks, financial transaction processors, merchants,
businesses and cardholders. Our products can be deployed on a standalone basis,
or combined with each other to provide an end-to-end secure e-payment solution
or integrated with third party products. In addition, our products support a
broad range of communication protocols and security standards. Our products
also support multiple currencies, languages and payment protocols. In
connection with the license of our products, we provide a range of support
services to our customers including preventive maintenance, compliance,
upgrades, site inspections and 24-hour telephone and on-line support.
The following table summarizes our product lines, product functionality and
the end-users of our products:
<TABLE>
<CAPTION>
Product
Product Line Functionality End-user End-user Profile End-user Need
------------ ------------- -------- ---------------- -------------
<S> <C> <C> <C> <C>
PayGate Captures, Banks, financial Any business Pay merchants
authorizes, transaction that processes and bill
settles and processors, and settles cardholders
bills payment Internet or payment card while minimizing
card commerce service based fraud and
transactions and providers transactions or transaction
issues on-line issues on-line costs in the
payment cards payment cards physical world
and over the
Internet
PayWare Enables Merchants Any business Receive payment
Compact merchants to selling goods or for goods or
capture payment services that services in a
card and accepts payment secure,
transaction cards guaranteed form
information from with minimal
cardholders, and fraud over
send this multiple
information to channels,
the merchant's including
bank for payment physical retail
processing outlets and over
the Internet
EzCard Enables Cardholders On-line Pay for goods or
NetWallet cardholders to purchasers services with
securely pass payment cards in
details of their a secure manner
payment cards to over the
merchants over Internet
the Internet
</TABLE>
Bank and Financial Transaction Processor Products: PayGate
PayGate is an e-payment transaction software suite primarily used by banks
and financial transaction processors. PayGate supports the payment card
transaction processing needs for
42
<PAGE>
both the merchant's bank and the cardholder's bank. It uses a scalable and
interoperable payment architecture for Windows NT and UNIX platforms and
supports modular payment components for specific financial instruments and
operating environments. This product provides financial transaction processors
and banks with the ability both to issue on-line payment cards and to capture
and process card-based e-payment transactions in both the physical world and
over the Internet. The PayGate product line is designed to interface with
third-party products, including many banks' mainframe systems. The following
are the principal products in the PayGate product suite:
. PayGate Acquirer provides e-payment processing capabilities. PayGate
Acquirer consists of a suite of payment modules that can be purchased
individually or as part of an integrated suite. It provides banks and
financial transaction processors with the functionality required to
capture, authorize, settle and bill payment card transactions. PayGate
Acquirer was first released in May 1995. Core capabilities include:
-- transaction authorization functionality using a choice of protocols,
including certified interfaces to the VISA, MasterCard and EuroPay
networks, as well as a majority of the proprietary bank networks
-- data capture functionality using a choice of protocols, including
enhanced data formats for applications such as fuel and fleet card,
corporate and purchase card item detail, and loyalty schemes
-- automatic detection of the SSL and SET standards
-- smart card PoS device management, allowing the downloading of funds,
personal identification number verification and data capture for
off-line electronic purse transactions
-- remote deployment, update and configuration of merchant applications
. PayGate NetIssuer is designed to support the needs of payment card
issuers by enabling the distribution and management of electronic
payment cards and wallets. PayGate NetIssuer was first released in April
1999. PayGate NetIssuer provides the following functionality:
-- it can be deployed in a variety of configurations, with the majority
of the functionality residing on a bank's or financial transaction
processor's server or in a distributed manner with functionality
residing on a client's personal computer or within a smart card
-- it helps to reinforce the brand identity of the issuing bank by
providing dynamic delivery of up-to-date marketing and advertising
messages to issued wallets while the wallets are being used
-- it interacts with existing bank certificate authorities to pre-
generate authentication certificates while simultaneously supporting
SSL and SET payment options
Sales prices for PayGate licenses range from $50,000 to $500,000, depending
on the product licensed, the number of modules and the number of transactions
that can be processed.
Merchant Products: PayWare and Electronic PoS Systems
Payware
PayWare is an e-payment transaction software suite primarily used by
merchants. It can be deployed as a standalone merchant e-payment system or can
be integrated with third-party
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products. PayWare consists of a suite of payment modules that can be purchased
individually or as part of an integrated suite. It offers a range of modules
designed to meet merchant requirements for e-commerce over the Internet or in a
variety of retail environments in the physical world, including large
department stores, grocery chains, call centers, mail order and telephone
order. PayWare runs on multiple computing platforms, including the following:
computers running on Windows and UNIX operating systems located in merchant
businesses and call centers; third-party PoS systems, such as electronic cash
registers; and our own electronic PoS system products. For e-commerce
transactions over the Internet, PayWare processes secure e-payment transactions
using SSL or SET standards or a combination of both. We recently introduced
PayWare ERP, our enterprise product that operates seamlessly with SAP's R/3
enterprise resource planning system.
Our Payware suite of products includes:
. PayWare Net is our primary e-commerce solution for Internet merchants.
It supports SSL and SET payment options. It is designed to interoperate
with commerce servers from Microsoft, Intershop and other third-parties.
We released PayWare Net in December 1998.
. PayWare NetHost is an e-commerce solution for Internet service
providers, commerce service providers and portals that provide hosting
services for Internet merchants. PayWare NetHost is designed to enable
these providers to manage e-payment transactions for multiple merchants
and to provide browser-based, remote administration facilities for
hosted merchants. We released PayWare NetHost in May 1999.
. PayWare SmartCard supports a variety of smart card-based payment options
for merchants. These payment options include small-value purchases over
the Internet and digital certificate-based identification and
authentication. We released PayWare SmartCard in June 1998.
. PayWare PurchaseCard is our business-to-business e-payment solution.
PayWare PurchaseCard allows businesses to define and implement corporate
purchase card policies and guidelines. This can significantly reduce the
administration cost of low-value procurement transactions. We released
PayWare PurchaseCard in April 1999.
. PayWare ERP seamlessly integrates our e-payment merchant functionality
into the SAP R/3 system for physical world and e-commerce payment card
transactions. We released PayWare ERP in September 1998.
. PayWare Call Center is our e-payment solution for call centers and mail
order centers. It is designed to integrate with third party software
systems and provide the e-payment functionality for telephone order and
mail order purchases. We released PayWare Call Center in March 1998.
Sales prices for PayWare licenses range from $500 to $250,000, depending on
the product licensed, the number of modules and the number of transactions that
can be processed.
Electronic PoS systems
Our electronic PoS system product line, Compact, contains the features and
functions required by merchants to manage card-based e-payments in the physical
world. The Compact product line is comprised of point of sale devices, high-
security personal identification number pads, and a software development
toolkit for merchant e-payment transactions in the physical world. This product
line has historically been the foundation of our sales and long-term
relationships with banks and financial transaction processors.
44
<PAGE>
. Compact 9000i is a range of card acceptance PoS devices for merchants to
process payment card transactions, including smart card transactions, in
large department stores, grocery chains, restaurants, hotels and service
businesses. These countertop devices deliver e-payment transactions in a
secure electronic format to the payment networks for authorization and
data capture for onward settlement. The software configurations of these
products are modular and can be varied to meet the needs of a wide range
of merchants. We recently introduced the eVia 2000 which provides secure
payment mobility for merchants through the use of wireless standards,
including DECT and GSM, and IP-Protocols. We released our first
electronic PoS device in October 1989.
. Compact 950-PP is a high security cardholder interface device for a
cardholder using a debit or credit card to enter his personal
identification number. This product then encrypts the personal
identification number for forwarding in a secure message format to an
authorization center for verification. The Compact 950-PP contains alarm
security electronics to prevent unauthorized access to customer card and
personal identification number data. It is also used for viewing and
deducting value from smart cards. Secure payment applications and
payment encryption keys can be securely and remotely downloaded to the
device. This product supports DES, Triple DES and RSA public key
encryption standards. We released the Compact 950-PP in February 1997.
. Compact 9000i SDK is a software development toolkit that allows our
distributors and partners in local markets to develop and test diverse
software modules for custom-tailored payment card applications. The SDK
includes a license for foundation software libraries, development and
test tools, as well as documentation. We released the Compact 9000i SDK
in March 1999.
Compact PoS devices and pin pads range from $325 each to $750 each,
depending on the functionality and the software modules included. Licenses of
the software development toolkit commence at approximately $50,000.
Cardholder Products: EzCard and NetWallet
EzCard is an e-payment transaction software product primarily used by on-
line cardholders. It provides secure storage and transfer of payment data to
the merchant. It also manages card accounts, digital certificates, delivery
address information and purchase history details. EzCard complies with the new
electronic commerce modeling language standard, developed by companies
including Visa, MasterCard, Trintech, Microsoft and America-On-Line, and,
supports both SSL and SET payment options. This product automatically completes
the merchants' purchasing data web page for merchants that comply with this new
standard. EzCard also allows payment card issuers to perform risk management by
monitoring on-line purchases and managing fraudulent card activity. In
addition, payment card issuers can advertise and market directly to EzCard
holders through PayGate NetIssuer, which manages messages to and from the
EzCard. Payment card issuers can also create on-line branding through
customizing EzCards for their customers. To promote the use of payment cards
for e-commerce, we have in the past and intend to continue to distribute EzCard
bundled with PayGate NetIssuer. We released EzCard in July 1999.
NetWallet is the precursor to our EzCard product. We released NetWallet in
October 1998 to promote the use of payment cards for e-commerce. Historically,
we have distributed NetWallet on a standalone basis at a minimal charge or
bundled with PayGate NetIssuer.
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<PAGE>
Services
To complement and support our product offerings, we provide our customers
with the following services:
. Consulting services. Our consulting team provides comprehensive project
management, using sophisticated methodologies and tools to identify
customers' business objectives and requirements for e-payment solutions.
We implement these solutions with our customers according to mutually
agreed plans and milestones. We also provide in-house product
consultation, and provide technical services to design or enhance our
customers' existing information technology infrastructure.
. Educational and training services. We offer educational and training
programs targeted specifically at users and administrators of our
customers' information technology systems. These programs are tailored
to provide customers with the technical knowledge to operate our e-
payment solutions. Additionally, seminars and other educational
initiatives are available on an ongoing basis to assist our customers in
staying current with advances in the e-payment industry.
. Customization and implementation services. We provide customization
services to customize or configure our solutions to meet our customers'
particular needs and to integrate our products into their other
processing, accounting and communications systems. Our experienced
professional services engineers also perform on-site implementation
services to manage, in conjunction with our customers' information
technology resources, the implementation of their new systems through
the testing and acceptance phases of the overall implementation plan.
Technology
Our software solutions incorporate advanced technologies to address user
requirements in today's highly distributed networking environments. Our
products support high volumes of transactions. Our recently released e-payment
software products are browser based to take advantage of client operating
system portability.
Our software is developed using C, C++, Java and web programming languages
and standards, and incorporates the following features:
. System Architecture. Our products are modular in design and flexible in
implementation, so that they can be rapidly adapted to address specific
customer requirements. We employ an object oriented systems
architecture, allowing us to add and re-use functionality across
existing and new products, lowering our product development costs. Our
modular design can improve our time to market for new products,
including emerging applications for products such as personal digital
assistants, advanced mobile telephones and set top boxes.
. Security and encryption. Due to the sensitive nature of the data handled
by our products, we have developed significant expertise in encryption
technology. We employ a dedicated team of cryptography specialists who
focus on the development of advanced cryptography algorithms and
software products. This team includes nine professionals with doctorate
degrees in mathematics, physics or related fields. These professionals
are responsible for implementing the security infrastructure that forms
the basis of our products. This infrastructure incorporates advanced
security algorithms including DES, Triple DES and RSA private/public key
and other advanced proprietary algorithms.
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<PAGE>
. Protocols and infrastructure. It is critical that our products be
interoperable with a wide range of payment networks and customer
information technology systems. Our products therefore feature advanced
application programming interfaces, or APIs, to facilitate
interoperability with payment systems and applications. Our products
also support a variety of communications protocols, including Internet
and telecommunications protocols such as X.25, ISDN and ATM, as well as
specific bank authorization and settlement protocols.
. Support of widely accepted technologies. Our products are configured to
run on operating systems and to support databases widely adopted by the
e-payment industry. This includes the Windows and UNIX operating
systems. They are also designed to integrate easily with enterprise
resource planning software systems, such as the SAP R/3 system.
Customers
We have a customer base of over 100 banks, financial transaction processors,
card associations, card companies, Internet service providers and technology
companies. As of January 31, 2000, we had shipped over 60,000 electronic PoS
systems and over 5,000 licenses of secure e-payment software. A representative
sample of our customers is as follows:
Banks, Card Associations and Card Companies
Financial Transaction Processors
---------------------------
--------------------------------------- Allcash
Bank of Ireland B+S Card Services
Boland Bank EasyCash
S-E Banken GRK
MasterCard Lufthansa Air Plus Card
VISA International Services
Discover Financial Services Post Girot
VISA USA
Which/Tyco International
Internet Service Providers Technology Companies
-------------------
--------------------- Cap Gemini
Big Planet Galileo
Open Market Inc. SAP
[email protected] (a subsidiary of Deutsche Bank) Siemens
Fort Nocs
Sales and Marketing
Our sales and marketing efforts are targeted at three principal regions:
. Europe, Middle East and Africa,
. North and South America, and
. the Asia-Pacific region
Our principal market is Germany, which represented 60% of our total revenue
in fiscal 2000. Our sales strategy is to use our direct sales force in
conjunction with indirect distribution channels such as regional distributors
and co-marketing relationships with established leaders in the e-payment
industry. In Europe, we plan to continue to market our electronic PoS systems
and e-payment software through our direct sales force and strategic
partnerships. Consistent with our historical strategy, we plan to continue to
focus our electronic PoS systems marketing in Europe, primarily in Germany. In
North and South America, we intend to
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<PAGE>
continue to use a direct sales approach together with alliances and
partnerships to develop this market for our Internet software products. In the
Asia-Pacific region, we plan to continue to rely primarily on independent
distributors to market our Internet software products.
Direct Sales Channel
We have direct sales offices in Dublin, Ireland; Frankfurt, Germany; San
Mateo, California and Miami, Florida. We also have a direct sales and product
marketing office in Austin, Texas. These offices coordinate direct sales and
manage indirect sales channels in the various regions. Due to the technical
nature of our products, members of the direct sales force are accompanied by
pre-sales technical support staff who are key to closing sales contracts and
winning customer confidence.
Our direct sales accounted for approximately 96% of our total revenues in
fiscal 2000. At January 31, 2000, we employed 27 direct sales people who
primarily target card associations and card companies such as VISA, MasterCard,
Discover and American Express, as well as banks, financial transaction
processors and large merchants. Our direct sales group has also begun to target
Internet service providers and commerce service providers as customers of our
Internet software products.
Indirect Sales Channel Strategy
To further facilitate worldwide market penetration and complement our direct
sales efforts, we have begun to establish a range of indirect sales channels.
We expect these indirect channels to account for an increasing percentage of
our total revenue as we implement this strategy and e-commerce becomes more
widely adopted. These indirect channels include:
. Resellers Providing Additional Services. Since 1998, we have used
regional resellers trained and certified by us to develop customer
relationships and expand our global branding. We provide resellers such
as Prism in South Africa and Scopus Tecnologia in Brazil with our
software technology and implementation expertise.
. Systems Integrators and Consultants. We leverage our relationships with
systems integrators and consultants to market our e-payment solutions
while in turn providing them with the opportunity to make a highly
functional, vendor-independent solution available to their customers.
. Emerging Distribution Channels. We continually evaluate new methods and
opportunities to market and sell our products, including through on-line
Internet sales or branding opportunities with banks and other financial
institutions.
Strategic Relationships
We intend to expand our position in the e-payment market by forming
additional strategic technology and marketing relationships with key industry
players. To date, we have established strategic relationships with VISA,
MasterCard, RSA Security, Compaq, SAP and Intershop. We believe our technology
and marketing alliances offer us a number of competitive advantages, which vary
with each relationship. These advantages include sales lead generation, early
access to the partner's engineering plans and technical personnel for
assistance in developing new product offerings. The following describes our
current strategic relationships:
VISA. We initially developed a strategic relationship with VISA
International in Europe and have since extended this relationship to the United
States, Latin America and the Asia-Pacific region. VISA currently markets
PayWare Net in different regions throughout the world.
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<PAGE>
In addition, VISA exclusively recommends our PayGate software to replace its
proprietary data capture software used by over 30 of its member banks. In
August 1997, we entered into agreements with VISA LAC relating to the marketing
and distribution of NetWallet in Latin America, including the customization of
software to provide e-payment solutions for VISA's smart card customers. In
August 1998, VISA International became a shareholder in us. In May 1999, VISA
USA entered into a strategic alliance with us to provide one-stop e-commerce
solutions for VISA's member banks and Internet merchants, incorporating our
PayWare and PayGate technology.
MasterCard. In 1999, we entered into a technology and strategic alliance
agreement with MasterCard International. Under the terms of this agreement,
MasterCard has agreed to license our PayGate NetIssuer product, to host and
operate a pilot site demonstrating PayGate NetIssuer, and to actively market
this product to MasterCard's member financial institutions and refer business
to us. We have agreed to provide sales materials to MasterCard and to provide
support for their marketing programs for PayGate NetIssuer. In addition, we and
MasterCard have jointly agreed to publicize this relationship, to maintain
links in a prominent position on each other's websites and to meet quarterly to
discuss product development.
RSA Security. In 1998, we entered into a technology license agreement with
RSA and also established a continuing strategic relationship. The technology
licensing agreement provides us with royalty-free access to source and object
code for cryptography functionality that we have incorporated into our e-
payment software products. In addition, we and RSA have entered into a joint
marketing agreement to publicize the relationship and encourage the sales of
our products that incorporate RSA's cryptographic technology. RSA also provides
us with sales leads and a link on their web site. RSA has made a strategic
equity investment in us, and its vice chairman sits on our board of directors.
Compaq. We are collaborating with Compaq to develop and provide Compaq and
its customers a secure e-payment software module that integrates with Compaq's
ActiveAnswers Internet solution, a product targeted to e-commerce needs. This
module is being designed to include the functionality of PayGate and PayWare.
Upon completion, our module will offer Compaq's customers with highly reliable,
secure Internet e-payment functionality running on Compaq ProLiant and
AlphaServer platforms.
SAP. We are a member of the SAP's complementary software program. As part of
the alliance, we have provided a secure e-payment module, PayWare ERP, for the
SAP R/3 system release 4.0 enterprise business software solution. SAP also
provides us with sales leads and a link on their web site.
Intershop. We work with Intershop to integrate our PayWare Net e-payment
product with Intershop's merchant server solutions to jointly provide complete
payment and hosting solutions to on-line merchants offering goods and services
on the Internet using SSL or SET security standards. Our enhanced version of
PayWare Net supports multiple currencies and payment types, complementing
Intershop's technology.
Research and Development
We believe that our future success will depend in large part on our ability
to enhance and expand our technologies. We intend to continue to develop new
and innovative e-payment solutions to respond to the needs of our customers in
this rapidly changing industry. We intend to offer products that interoperate
with a variety of new and emerging acceptance channels and communication and
security protocols. We have developed our e-payment products both
independently, through our research and development team, and through
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funded development projects, such as the development of certain modules of
PayWare SmartCard for VISA International. From time to time, we have acquired
or licensed technology from third parties, including encryption technology from
RSA Security.
Each of our development centers has been chosen for its combination of
access to global markets and the availability of skilled personnel. The
following lists our research and development centers and their primary
concentration:
. Dublin, Ireland: Electronic PoS systems and e-payment software
. Princeton, New Jersey: Encryption and authentication
. San Mateo, California: E-commerce payment solutions
. Frankfurt, Germany: Smart card applications
As of February 29, 2000 we had a total of 161 employees dedicated to
research and development. Research and development expenses were $1.7 million
in fiscal 1998, $3.7 million in fiscal 1999 and $8.9 million in fiscal 2000.
Manufacturing
We outsource the fabrication, testing and packaging of our electronic PoS
system products to Keltek and Fujitsu, enabling us to concentrate our resources
on product design and software development. We believe this eliminates the high
cost of owning and operating a manufacturing facility. The manufacturing
facilities for Keltek are located in the United Kingdom and for Fujitsu are
located in Ireland.
We maintain a five-person quality control team that oversees the manufacture
of the products by Keltek and Fujitsu to ensure that our specifications are
met. These quality assurance engineers have both extensive knowledge of our
products and expertise in software quality assurance techniques. Members of the
team conduct on-site inspections of the manufacturing facilities of our
subcontractors as well as periodic assessments of products shipped by our
subcontractors to us. The members also participate on all beta release teams
and provide initial training materials for customer support and service.
Competition
The card based e-payment industry is highly competitive, and we expect
competition to increase as other e-payment companies introduce electronic PoS
system products and e-payment software. In the electronic PoS systems market,
we principally compete with Verifone, a subsidiary of Hewlett-Packard, Giesecke
& Devrient, Dassault, Hypercom and Ingenico. Indirectly, we also compete with
local firms that offer country-specific alternatives. In addition, several of
our electronic PoS system products compete with software solutions designed by
our customers' in-house engineering departments. Competition has in the past
caused us to reduce the average selling prices of our electronic PoS systems,
and we expect this trend to continue.
In the e-payment software market for payment card transactions in the
physical world, we principally compete with Verifone, CyberCash and Transaction
Systems Architects. In the e-payment software market for payment card
transactions over the Internet, we principally compete with IBM, Verifone,
GlobeSet and CyberCash. Additionally, we experience significant competition
from existing and potential customers that develop, implement and maintain
their own proprietary e-payment solutions relating to our e-payment software
solutions for both the physical world and the Internet. These existing and
potential customers are primarily banks, financial transaction processors and
merchants.
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In each of the electronic PoS systems and e-payment software markets, we
compete primarily on the basis of the following factors:
. product capabilities and technical features
. product performance and effectiveness
. price
. support of industry standards
. ease of use
. customer technical support and service
We believe that we compete favorably in each of these markets based on these
factors. However, in particular cases, our competitors may offer electronic PoS
system products or e-payment software with functionality that is sought by our
prospective customers and which differs from that offered by us. Several of our
competitors have also in the past, and may in the future, distribute products
in pilot programs at low-cost or below-market prices or, in the case of
electronic wallets, at no cost.
Additionally, several of our competitors have significantly greater
financial, technical and marketing resources and larger installed customer
bases than us. Also, a number of our competitors have been acquired by, or
formed strategic alliances with, industry leaders with significant resources.
We may not be able to compete successfully against current and future
competitors. In addition, our current and future competitors may develop
products comparable or superior to those developed by us or adapt more quickly
than us to new technologies, evolving industry standards or customer
requirements. Increased competition could result in price reductions, reduced
margins and loss of market share, any or all of which could have a material
adverse effect on our business, financial condition, results of operations and
prospects.
Intellectual Property and Proprietary Rights
Our success is dependent on our proprietary software technology. We rely on
a combination of patents, contractual rights, trade secrets, copyright law,
non-disclosure agreements and trademarks to establish and protect our
proprietary rights in our products and technologies. Our patents include the
following:
<TABLE>
<CAPTION>
Field of Application Regions Issued Regions Pending
-------------------- -------------- ---------------
<S> <C> <C>
Ireland, U.S., Canada, European Union, Ireland,
Electronic field of point- Australia, U.S., Australia, Brazil, and
of-sale security system South Africa, U.K., Japan Japan
incorporated in Compact and Germany
Secure merchant transaction Ireland European Union, U.S.,
software incorporated in Australia, Brazil, and Japan
PayWare
Secure bank/financial Ireland European Union, U.S.,
transaction processor Australia, Brazil, and Japan
software incorporated in
PayGate
Secure card issuing software -- European Union and U.S.
incorporated in PayGate
NetIssuer
</TABLE>
These issued patents and the pending patent applications cover key areas of
our e-payment software for payment card transactions in the physical world and
over the Internet, as well as our electronic PoS system products.
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<PAGE>
Our registered trademarks include the following:
<TABLE>
<CAPTION>
Trademark Regions Issued Regions Pending
--------- -------------- ---------------
<S> <C> <C>
Trintech logo -- Ireland
Trintech the Secure Way to -- Ireland
Pay logo
NetWallet -- United States
European Union, United --
PayWare States
European Union, United Ireland
PayGate States
PayPurse European Union, Ireland United States
PayLet -- United States, Ireland
S/PAY -- United States
</TABLE>
On March 31, 1998, we licensed the source code for S/PAY and J/PAY from RSA.
S/PAY and J/PAY are security toolkit products which enable the user to add
cryptography functionality to other software products for securing e-payment
transactions. The license is exclusive for that portion of the source code that
implemented and provided the functionality of parts of the SET 0.0 standard.
Under the terms of the agreement, we also received a royalty-free sublicensable
license to the object code of the licensed software. Our rights under the
license are subject to pre-existing rights of third-party licensees. In
exchange for receiving the rights under the license, we paid RSA a one-time
payment of $2.5 million in cash.
In addition to our patents, trademarks and technology licenses, we have
developed a significant portfolio of copyrights, know-how and trade secrets
during our 13 years of experience developing solutions for the e-payment
industry.
Except for the intellectual property described above, we are not currently
dependent on any intellectual property that is of material importance to our
business or profitability.
Employees
We employed the following numbers of employees as of January 31, 1998, 1999
and 2000:
<TABLE>
<CAPTION>
As of January
31,
--------------
Category 1998 1999 2000
-------- ---- ---- ----
<S> <C> <C> <C>
Research and development...................................... 63 103 155
Professional and support services............................. 19 39 35
Sales and marketing........................................... 13 46 54
Administration................................................ 23 34 42
--- --- ---
Total....................................................... 118 222 286
=== === ===
</TABLE>
Of our total number of employees, as of January 31, 2000, 156 are located in
Ireland, 32 are located in Europe outside Ireland and 98 are located in North
America.
None of our employees are represented under collective bargaining
agreements. We have never experienced a work stoppage, and we believe that our
relations with our employees are good.
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Investments
Our investments were as follows as of January 31, 1998, 1999 and 2000:
<TABLE>
<CAPTION>
As of January 31,
------------------
1998 1999 2000
---- ------ ------
(in thousands of
U.S. dollars)
<S> <C> <C> <C>
Intangible assets--Capitalized software cost................ $-- $2,500 $1,250
Property, plant and equipment............................... 739 2,058 3,190
---- ------ ------
Total..................................................... $739 $4,558 $4,440
==== ====== ======
</TABLE>
Our capital expenditure budget for fiscal 2001 is currently $3.0 million of
which approximately $206,000 has been used as of February 29, 2000. The amount
that we actually spend on capital expenditures in the remainder of fiscal 2001
may be higher or lower, perhaps materially, depending on several variables,
including the rate of our growth, general economic conditions and changes in
our markets.
Facilities
Our principal development center and our principal European executive and
administrative offices are located in a 22,500 square foot leased office
facility in Dublin, Ireland. Our principal executive and administrative offices
for North and South America are located in a 11,300 square foot leased facility
in San Mateo, California. We also have offices for development, sales and
marketing personnel which total an aggregate of approximately 11,700 square
feet in Frankfurt, Germany; Miami, Florida; Austin, Texas; and Princeton, New
Jersey.
Legal Proceedings
From time to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. For example, in
September 1999, a former employee filed a complaint against us alleging
wrongful termination and breach of contract. While we believe this claim is
without merit, we cannot predict the outcome of this dispute. Neither we nor
any of our consolidated subsidiaries are a party to any litigation or
arbitration proceedings which could have, or during the last two fiscal years
has had, a material adverse effect on our business, financial condition and
results of operations.
Corporate Structure
We were incorporated as a limited liability company under the laws of the
Republic of Ireland in 1987. Our registered number is 119798. On August 23,
1999, our shareholders resolved by special resolution to re-register us as a
public limited company. We are not subject to any restrictions on the length of
time for which we can continue to exist. Public limited companies are defined
by the Irish Companies (Amendment) Act, 1983 as companies which are limited by
shares, which state in their memorandum of association that they are to be
public and which comply with the requirements of the Irish companies acts as to
registration. Additionally, the share capital of a public limited company
stated in the company's memorandum of association cannot be less than
IR(Pounds)30,000. Our principal statutory objective is to carry on the business
of investment and to act as a holding company for our other businesses and
companies.
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We have illustrated below our corporate structure including our voting
equity ownership percentages in each of our subsidiaries:
[GRAPHIC OF CORPORATE STRUCTURE OF TRINTECH SETTING FORTH THE NAMES OF TRINTECH
AND ITS WHOLLY-OWNED SUBSIDIARIES AS WELL AS THE COUNTRIES IN WHICH EACH IS
ORGANIZED]
The following is a list and brief description of our significant
subsidiaries:
Trintech Technologies Limited, a wholly-owned subsidiary, is a limited
liability company having a share capital incorporated under the laws of the
Republic of Ireland. Its registered address is Trintech Building, South County
Business Park, Leopardstown, Dublin 18, Ireland. The principal activity of
Trintech Technologies Limited is the sale of electronic PoS system products and
e-payment software. As of January 31, 2000, Trintech Technologies Limited had
158 employees. For fiscal 2000, Trintech Technologies Limited had revenues of
approximately $20.6 million and a net loss of approximately $13.1 million. As
of January 31, 2000, Trintech Technologies Limited's subscribed share capital
was $528,632. As of January 31, 2000, our net book value of our interest in
Trintech Technologies Limited was ($20,505,631), our receivables from Trintech
Technologies Limited was $22,793,327 and our liabilities to Trintech
Technologies Limited was $0.
Trintech Limited is a limited liability company having a share capital
incorporated under the laws of the Republic of Ireland. Its registered address
is Trintech Building, South County Business Park, Leopardstown, Dublin 18,
Ireland. All of the voting securities of Trintech Limited are owned by us.
Trintech Limited has issued shares of a special non-voting class to Huttoft
Company, an unlimited liability company owned by four of our executive
officers. The shares held by Huttoft Company do not entitle it to any share of
the assets of Trintech Limited on a winding up. The amount of any dividends
paid to Huttoft Company will be determined by our board of directors. The
principal activity of Trintech Limited is research and development. Trintech
Limited subcontracts research and development employees from Trintech
Technologies Limited to conduct its research and development programs. For
fiscal 2000, Trintech Limited had revenues of approximately $2.3 million and a
net income of approximately $1.3 million. As of January 31, 2000 Trintech
Limited's subscribed share capital was $2,319. As of January 31, 2000, our net
book value of our interest in Trintech Limited was $3,913,354, our receivables
from Trintech Limited was $0 and our liabilities to Trintech Limited was
$199,560.
Trintech GmbH, a wholly-owned subsidiary, is a limited liability company
incorporated in the Federal Republic of Germany. Its registered address is
Siemensstrasse 20, 63263 Neu Isenburg, Germany. The principal activity of
Trintech GmbH is the sale of electronic PoS system products and e-payment
software. As of January 31, 2000, Trintech GmbH had 30 employees. For fiscal
2000, Trintech GmbH had revenues of approximately $18.0 million and a net
income of approximately $0.4 million. As of January 31, 2000, Trintech GmbH's
share capital was $23,329. As of January 31, 2000, our net book value of our
interest in
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Trintech GmbH was ($183,453), our receivables from Trintech GmbH were $707,169
and our liabilities to Trintech GmbH were $0.
Trintech Inc., a wholly-owned subsidiary, is a California corporation. Its
registered address is 2105 South Bascom Avenue, Campbell, California, 95008.
The principal activity of Trintech Inc. is the sale of e-commerce software. As
of January 31, 2000, Trintech Inc. had 98 employees. For fiscal 2000, Trintech
Inc. had revenues of approximately $12.5 million and a net income of
approximately $0. As of January 31, 2000, Trintech Inc.'s subscribed share
capital was $10,000. As of January 31, 2000, the net book value of our interest
in Trintech Inc. was ($2,650,191), our receivables from Trintech Inc. was $0
and our liabilities to Trintech Inc. was $2,213.
Enforcement of Civil Liabilities under United States Federal Securities Laws
We are a public limited company incorporated under the laws of the Republic
of Ireland. Several of our directors and officers, and experts named in this
prospectus are non-residents of the United States, and these persons and a
significant portion of our assets are located outside the United States. As a
result, it may not be possible for investors to effect service of process
within the United States upon these persons or to enforce against them in U.S.
courts judgments predicated upon the civil liability provisions of the laws of
the United States, including the federal securities laws. We have been advised
by A&L Goodbody, Solicitors, our Irish corporate counsel, that there is doubt
regarding the enforceability against these persons in the Republic of Ireland,
whether in original actions or in actions for the enforcement of judgments in
U.S. courts, of civil liabilities predicated solely upon the laws of the United
States, including the federal securities laws.
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MANAGEMENT
Executive Officers and Directors
The following table presents information regarding our directors and
executive officers as of April 12, 2000:
<TABLE>
<CAPTION>
Name Age Position
---- --- -------------------------------------------------
<S> <C> <C>
Executive Directors
John F. McGuire....... 38 Chief Executive Officer and Director
Cyril P. McGuire...... 40 Executive Chairman and Director(1)
Kevin C. Shea......... 49 Chief Operating Officer and Director
R. Paul Byrne......... 35 Chief Financial Officer and Director
Chris P. Meehan....... 40 Executive Vice President, Operations and Director
Non-executive Directors
D. James Bidzos....... 45 Director
Wolfgang H. Heinrich.. 51 Director(1)(2)
Robert M. Wadsworth... 39 Director(1)(2)
Trevor D. Sullivan.... 63 Director
Other Executive Officers
George L. Burne....... 37 Vice President, Technology
John Harte............ 55 Executive Vice President, Sales and Marketing
Donald Marcotte....... 43 Vice President, Sales
Noel Ryan............. 34 Controller
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
John F. McGuire, one of our co-founders, has served as a director since
1987, the year of our incorporation, and has been our chief executive officer
since 1987. During his studies at Trinity College, Dublin, Mr. McGuire
developed an encrypted electronic PoS device, which provided our original
business concept. Mr. McGuire has received a bachelors of arts in mathematics,
a bachelors of engineering in electronics and a diploma of business management
from Trinity College, Dublin. Mr. McGuire is a member of Institute of Engineers
of Ireland. Mr. McGuire currently resides in Dublin, Ireland.
Cyril P. McGuire, one of our co-founders, has served as a director since
1987 and as our executive chairman since August 1999. From 1991 to August 1999,
Mr. McGuire served as our president, and from 1987 to 1991, Mr. McGuire served
as our managing director. Before co-founding us, Mr. McGuire worked with the
Industrial Credit Corporation plc, a leading Irish commercial bank, from 1982
to 1987, where his responsibilities included the appraisal of electronic
industry investment projects. Mr. McGuire received a bachelors of commerce and
masters of business studies from University College Dublin. Mr. McGuire is a
member of the Marketing Institute of Ireland. Mr. McGuire currently resides in
Dublin, Ireland.
Kevin C. Shea has served as a director and Chief Operating Officer since
January 2000. Prior to joining us, Mr. Shea was Chief Financial Officer of
National Data Corporation from May 1998 to December 1999. Mr. Shea was
Executive Vice President of corporate strategy and business development from
June 1996 until May 1998 and was General Manager of the Integrated Payment
Systems division of National Data Corporation from 1992 to 1996. Prior to
joining National Data Corporation, he held senior executive positions at
Citicorp and First Interstate Bank Corporation. Mr. Shea received a bachelors
of social science from the State University of New York. Mr. Shea currently
resides in the United States.
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R. Paul Byrne has been our chief financial officer since January 1996. Since
February 1997, Mr. Byrne has also served as a director and secretary. Before
joining us, Mr. Byrne was group financial controller and publisher at Lafferty
Publications Limited, a publishing company located in Dublin, from September
1989 to December 1995. From 1985 through 1989, Mr. Byrne was an accountant with
Price Waterhouse, a large accounting firm. Mr. Byrne received a bachelors of
commerce and a diploma in professional accounting from University College
Dublin and is a fellow of the Institute of Chartered Accountants in Ireland.
Mr. Byrne currently resides in Dublin, Ireland.
Chris P. Meehan has been our executive vice president, operations and a
director since January 1996. Before joining us, Mr. Meehan was group finance
director at Mentec Limited, a computer software company, from February 1983 to
December 1995. From 1979 through 1983, Mr. Meehan was an accountant with KPMG,
a large accounting firm. Mr. Meehan received a bachelors of commerce from
University College Dublin and is a fellow of the Institute of Chartered
Accountants in Ireland. Mr. Meehan currently resides in Dublin, Ireland.
Trevor D. Sullivan has served as a director since 1991. From 1991 to August
1999, Mr. Sullivan was the chairman of our board of directors. From 1987 to
1990, Mr. Sullivan was managing director of Memorex Ireland, a computer
products company, and, from 1985 until 1987, Mr. Sullivan was vice president,
customer operations of Memorex International, a computer products company. From
1981 until 1985, Mr. Sullivan held other senior management positions at Memorex
International, a computer products company. Before 1981, Mr. Sullivan held
several senior management positions at IBM, a computer company. Mr. Sullivan
currently resides in Dublin, Ireland.
D. James Bidzos has served as a director since February 1999. Since its
founding in April 1995, Mr. Bidzos has served as chairman of the board of
directors of VeriSign, Inc., a public key infrastructure company, and, from
April 1995 to July 1995, as its chief executive officer. Between 1986 and
February 1999, Mr. Bidzos also served as the president and chief executive
officer of RSA Security, Inc., a security encryption company. Additionally, Mr.
Bidzos is a director and vice chairman of RSA Securities, Inc., formerly
Security Dynamics Technologies, Inc., a data security company and the parent of
RSA.
Wolfgang H. Heinrich has served as a director since June 1999. From February
2000 to date, he has served as president, EMEA region of Oasis Technology Ltd.
From 1997 to February 2000, he has served as executive vice president, global
customer support, Visa International, a card association company, and, from
1995 to 1997, he served as executive vice president in charge of developing
strategies for domestic processing, international standardization, chip
technology developments and electronic commerce infrastructure developments.
From 1990 to 1995, he served as managing director of B+S Card Service, a
payment card service provider. From 1985 to 1990, he served as head of the
Frankfurt branch and member of the executive team of IKOSS GmbH, Frankfurt, a
banking software company.
Robert M. Wadsworth has served as a director since September 1998. Since
1986, Mr. Wadsworth has been a general partner and an owner of HarbourVest
Partners LLC, a private investment company. Mr. Wadsworth has served as the
Managing Director of HarbourVest Partners, LLC since 1997, and is a Managing
Director of Hancock Venture Partners, Inc. Before 1986, Mr. Wadsworth worked
for Booz, Allen & Hamilton, an international consulting company, specializing
in the areas of operations strategy and manufacturing productivity. Mr.
Wadsworth currently serves on the advisory boards of several US venture firms
and on the board of directors of Banyan Systems, Inc., Coil S.A., Communication
Systems Technology, Inc., Concord Communications, Inc., Nuera Communications,
Inc. and Outsourcing Services
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Group, Inc. Mr. Wadsworth received his bachelor of science degree, magna cum
laude, in systems engineering and computer science from the University of
Virginia, and his masters in business administration, with distinction, from
Harvard Business School.
George L. Burne has been our vice president, technology since September
1989. Before joining us, Mr. Burne was a senior software design
engineer/project leader at PCAS, a European technology company, from January
1988 to September 1989. Mr. Burne received a bachelors of science in English,
first class honors and a higher diploma in English from Trinity College,
Dublin. Mr. Burne is a member of the Institute of Electrical Engineers.
John M. Harte joined us in August 1999 as our executive vice president for
sales and marketing. From 1993 to 1999, Mr. Harte served as president and chief
executive officer of NeoVista Software Inc., a provider of data mining services
and a developer of solutions for knowledge discovery in databases. Mr. Harte
has sat on the board of NeoVista since 1996. From 1987 to 1992, Mr. Harte held
senior management positions in Alliant Computer Systems Inc., a manufacturer of
standards based parallel supercomputers. From 1989 to 1992, Mr. Harte served as
vice president, worldwide sales, marketing and services, and from 1987 to 1989
he served as president european operations. Between 1987 and 1988, Mr. Harte
held various sales and marketing positions in Floating Point Systems Inc., a
systems integration and software supplier. Mr. Harte holds a bachelors of
science in physics degree from Exeter University, United Kingdom.
Donald J. Marcotte joined us in January, 1999 and is our vice-president,
sales. Before joining us, Mr. Marcotte worked at Syncsort Inc., a maker of
client server performance software from 1990 until 1999. From 1995 through
1999, Mr. Marcotte served as Syncsort's director of North American sales. From
1990 through 1995, Mr. Marcotte was director for international operations where
he managed distributor operations. Mr. Marcotte also spent eleven years from
1979 to 1990 with Wang Laboratories, a computer services company, and IBM, a
computer company, where he held a number of management positions including
sales management. Mr. Marcotte received his bachelor in business administration
from the University of Notre Dame and his masters in business administration in
finance from Fordham University.
Noel Ryan has served as our controller since March, 1999. From January 1997
until March 1999, Mr. Ryan was our management accountant. Before joining us,
Mr. Ryan was a senior financial analyst in Dataproducts, a subsidiary of the
Hitachi Corporation, Japan, from June 1990 until January 1997. Mr. Ryan has
received a bachelor of business studies from Dublin City University and is a
member of the Chartered Institute of Management Accountants.
John McGuire and Cyril McGuire are brothers. There are no other family
relationships among any of our directors or executive officers.
Board of Directors
Our decision-making responsibility is divided between our shareholders in
general meeting and our board of directors. Our shareholders are entitled to
determine the form of our memorandum and articles of association in the manner
provided under Irish law and our memorandum and articles of association. Our
shareholders have delegated the power to manage our day to day business to the
board of directors. However, our shareholders may subsequently amend our
articles of association by special resolution to reserve to themselves the
power to manage our day to day business. Alternatively, our shareholders may
change the composition of our board of directors.
Our memorandum and articles of association authorize no fewer than three nor
more than fifteen directors. Our shareholders may, from time to time, increase
or reduce the number of directors by ordinary resolution. We presently have
nine directors.
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Generally, directors are elected by our shareholders at an annual general
meeting by ordinary resolution, a resolution adopted by a majority of the votes
cast on the resolution by our shareholders entitled to vote on the matter. Our
shareholders may also, by ordinary resolution, appoint persons at extraordinary
meetings to fill vacancies created by retirement or by the increasing of the
size of the board. Our shareholders may also determine the retirement rotation
for any additional directors. Additionally, our shareholders may by ordinary
resolution at any shareholders' meeting remove any director and appoint another
person in his place, subject to compliance with the relevant statutory and
notice provisions and to the rights of the removed director to compensation or
damages arising from the removal.
Our directors may also, at any time and from time to time, appoint any
person to the board to fill a vacancy or as an additional director. Any
director so appointed will serve until the next annual general meeting of the
shareholders and will be subject to re-election by the shareholders at that
meeting.
Our directors are subject to retirement by rotation. At each annual meeting
of the shareholders, one third of the directors, rounded down to the next whole
number if it is a fractional number, are required to retire from office. The
retiring directors are those who have been in office for the longest period of
time. Retirement for persons who became directors or were reappointed on the
same day is determined by lot, unless otherwise agreed. Any director who
retires at an annual meeting may be immediately reappointed by the
shareholders.
Under our current board composition, two of our directors are required to
retire at each annual general meeting of the shareholders. John and Cyril
McGuire will be required to retire at our annual general meeting in 2000.
Messrs. Sullivan and Meehan will be required to retire at our annual general
meeting in 2001. Messrs. Byrne and Wadsworth will be required to retire at our
annual general meeting in 2002. Messrs. Heinrich and Bidzos will be required to
retire at our annual general meeting in 2003. Mr. Shea will be required to
retire at our annual general meeting in 2004. The number of directors obligated
to retire at any annual general meeting could change if we appoint additional
directors.
A director must resign from office if he is required to do so under the
Irish Companies Acts or other applicable law, is adjudged bankrupt or makes any
arrangement or composition with his creditors generally, or in the opinion of a
majority of his co-directors, he becomes incapable by reason of mental disorder
of discharging his duties as a director, or not being a director holding for a
fixed term an executive office in his capacity as a director, he resigns his
office by notice to us. Additionally, a director must resign from office if he
becomes of unsound mind or is convicted of an indictable offense, unless the
other directors otherwise determine. Also, a director may resign upon written
notice or may be removed by the other directors if that director is absent from
meetings of the board, without permission of the directors, for more than six
months or for any other reason by notice in writing and signed by all the other
directors in the case of a director holding office for a fixed term, upon
expiration of the term or upon receipt by that director of a notice in writing
delivered to him by us automatically terminating his appointment, or if we or
that director serves a notice for termination or appointment by giving the
requisite notice under the terms of the agreement under which he was appointed,
upon the expiration of the requisite period of notice under that agreement.
Board Committees
Our board of directors may delegate aspects of its responsibilities to
committees of the board. Our board of directors has established an audit
committee and a compensation committee. The audit committee oversees actions
taken by our independent auditors, recommends the engagement of auditors and
reviews our internal audits. The compensation
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committee establishes compensation policies and is responsible for determining
cash and equity compensation for executive officers, including the granting of
options under our share option schemes.
Executive Officers
Our executive officers are responsible for managing our day-to-day business.
Our executive officers are appointed by the board of directors on terms and for
periods determined by the board. Subject to any contractual obligations with an
officer, the board of directors may revoke any appointment at any time.
Directors and Executive Officers Compensation
The aggregate compensation paid by us and our subsidiaries to our directors
and executive officers as a group of 13 persons in the year ended January 31,
2000 totaled $1,150,535. All of the $1,150,535 was paid by our subsidiaries.
Amounts paid include salary and pension, retirement and other similar benefits.
We do not have any currently outstanding loans to any of our directors. In
addition, we do not currently have any outstanding guarantees for the benefit
of any of our directors.
Our Advisory Board
In March 1999, we established an advisory board consisting of members from
the banking, smart card and Internet industries. The role of the advisory board
is to provide insight and consultation on industry developments and trends that
affect us. The members of the advisory board also provide us with valuable
international contacts and profile in the e-payment industry. The advisory
board has no corporate authority under our memorandum or articles of
association. The members of the advisory board are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Edward Jensen............................................... 62 Chairman
Robert Schneider............................................ 51 Member
Magdalena Yesil............................................. 41 Member
</TABLE>
Edward Jensen has served as the chairman of our advisory board since May
1999. From 1994 until 1999, he was the president and chief executive officer of
Visa International, a card association. From 1974 until 1994, he held various
positions at US Bancorp. Mr. Jensen served as vice president of corporate
planning and development of US Bancorp from 1974 until 1991, as chief operating
officer from 1991 until 1993 and as vice-chairman from 1993 until 1994.
Robert Schneider has served as a member of our advisory board since June
1999. Mr. Schneider founded SCM Microsystems, Inc., a provider of smart-card
products and technologies, as its president, chief executive officer, general
manager and chairman of the board in 1990. Mr. Schneider currently serves as
chairman of the board and managing director of SCM Microsystems GmbH, a German
subsidiary of SCM Microsystems, Inc. Mr. Schneider holds a degree in
engineering from HTBL Salzburg and a B.A. degree from Akademie for business
administration in Uberlingen.
Magdalena Yesil has served as a member of our advisory board since June
1999. Since 1998, Ms. Yesil has been a general partner in U.S. Ventures, a
venture capital firm. From August 1996 until April 1997, Ms. Yesil was the
chief executive officer of MarketPay, an e-commerce software company, and from
1994 until August 1996, Ms. Yesil was a co-founder
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and vice-president of marketing and technology of CyberCash, a software
company. Ms. Yesil has received a B.A. in engineering from Stanford University.
We currently do not provide cash compensation to persons for their services
as members of our advisory board. However, each advisory board member is
granted an option to acquire up to 60,000 ordinary shares (120,000 equivalent
ADSs) under our directors and consultants share option scheme in return for
service which he provides as a member of the advisory board.
We do not have any currently outstanding loans to any members of our
advisory board. In addition, we do not have any currently outstanding
guarantees for the benefit of any members of our advisory board.
Employment Agreements
We have entered into indefinite term employment agreements with each of John
McGuire, Cyril McGuire, Christopher Meehan, R. Paul Byrne, John Harte and Kevin
Shea under which each receives an annual base salary, an annual bonus and all
standard benefits accorded our other executives. In addition, each of these
executives will be entitled to participate in and receive options from our
employee share option schemes.
Employee Benefit Plans
Share Issue Limits under Our Plans
The aggregate number of shares which may be issued pursuant to our employee
benefit plans is 5,000,000 ordinary shares (10,000,000 equivalent ADSs). For
each plan, the 5,000,000 ordinary share limit will be reduced by the number of
shares authorized for issuance in accordance with options granted or rights
acquired under the other plans. The aggregate share limit of 5,000,000 ordinary
shares can only be altered by an ordinary resolution approved by a majority of
our shareholders.
Trintech Group Limited share option 1990 scheme
In January 1990, we established the Trintech Group Limited share option 1990
scheme. The 1990 scheme was created for the benefit of our directors, executive
officers and employees as well as those of our subsidiaries which participated
in it. We terminated the 1990 scheme on October 22, 1997, and no further
options to acquire ordinary shares may be granted under it. As of January 31,
2000, there were no outstanding options to acquire ordinary shares under this
plan.
Trintech Group Limited share option 1997 scheme
We established the Trintech Group Limited share option 1997 scheme on May
28, 1997. The 1997 scheme was approved by our shareholders on November 21,
1997. The purpose of the 1997 scheme is to attract and retain the best
available personnel to promote the success of our business. We are required to
keep available sufficient authorized but unissued shares to satisfy our
obligations under the plan. The 1997 scheme will terminate on May 27, 2007,
unless previously terminated by the board of directors.
Under the 1997 scheme, all of our employees and executive directors as well
as those of our subsidiaries are eligible to receive grants of nonstatutory
options. Employees are also eligible to receive grants of incentive stock
options intended to qualify under Section 422 of
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the U.S. Internal Revenue Code of 1986. The 1997 scheme is administered by the
compensation committee, which selects the persons to whom options will be
granted, determines the number of shares to be made subject to each grant and
prescribes other terms and conditions, including the type and amount of
consideration to be paid upon exercise and the vesting schedules in connection
with each grant.
If we are a party to a merger, takeover or other reorganization, the
compensation committee may exercise discretion. The compensation committee
could request that participants exercise their outstanding options, agree to
assume outstanding options, agree to substitute options of a successor
corporation or make a cash settlement payment.
The exercise price of all incentive stock options must be equal to the fair
market value of an ordinary share on the day preceding the date of grant. The
exercise price of non-statutory options is determined by the compensation
committee but must be at least equal to the par value of an ordinary share and,
for non-statutory stock options intended to qualify as performance based
compensation within the meaning of Section 162(m) of the U.S. Internal Revenue
Code of 1986 the exercise price must be at least equal to the fair market value
of an ordinary share on the day preceding the date of grant. For any
participant who owns stock possessing more than 10% of the voting power of all
of our classes of outstanding share capital, the exercise price of any
incentive stock option granted must be at least equal to 110% of the fair
market value of an ordinary share on the grant date, and the term of the
incentive stock option must not exceed five years. Options must be exercised
within a period specified at the date of grant, which is generally seven years.
The board of directors may amend or modify the 1997 scheme at any time.
Shareholder approval is necessary to increase the aggregate number of ordinary
shares which may be issued under the 1997 scheme.
As of January 31, 2000, 57,244 ordinary shares (114,488 equivalent ADSs)
have been issued upon the exercise of share options granted under the 1997
scheme, 3,310,827 ordinary shares (6,621,654 equivalent ADSs) are subject to
outstanding options, and 389,173 ordinary shares (778,346 equivalent ADSs)
remain available for future grant. The weighted exercise price for all
outstanding options to purchase equivalent ADSs under the 1997 scheme is $5.94,
or approximately (Euro)6.67, per ADS.
Trintech Group PLC directors and consultants share option scheme
On April 22, 1998, we established the Trintech Group Limited directors and
consultants share option scheme. The purpose of the scheme is to attract and
retain the best available directors and consultants and to promote the success
of our business. The directors and consultants scheme will terminate on April
21, 2008, unless previously terminated by the board of directors.
Under the directors and consultants scheme, all of our non-executive
directors and consultants as well as those of our subsidiaries are eligible to
receive grants of nonstatutory options. The directors and consultants scheme is
administered by the compensation committee, which selects the persons to whom
options will be granted, determines the number of shares to be made subject to
each grant and prescribes other terms and conditions, including the type and
amount of consideration to be paid upon exercise and the vesting schedules in
connection with each grant.
If we are a party to a merger, takeover or other reorganization, the
compensation committee may exercise discretion. The compensation committee
could request that participants exercise their outstanding options, agree to
assume outstanding options, agree to substitute options of a successor
corporation or make a cash settlement payment.
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The exercise price of all incentive stock options must be equal to the fair
market value of an ordinary share on the day preceding the date of grant. The
exercise price of non-statutory options is determined by the compensation
committee but must be at least equal to the par value of an ordinary share and,
for non-statutory stock options intended to qualify as performance based
compensation within the meaning of Section 162(m) of the U.S. Internal Revenue
Code of 1986 the exercise price must be at least equal to the fair market value
of an ordinary share on the day preceding the date of grant. For any
participant who owns stock possessing more than 10% of the voting power of all
of our classes of outstanding share capital, the exercise price of any
incentive stock option granted must be at least equal to 110% of the fair
market value of an ordinary share on the grant date, and the term of the
incentive stock option must not exceed five years. Options must be exercised
within a period specified at the date of grant, which is generally seven years.
The board of directors may amend or modify the directors and consultants
scheme at any time. Shareholder approval is necessary to increase the aggregate
number of ordinary shares which may be issued under the directors and
consultants scheme.
As of January 31, 2000, no ordinary shares have been issued upon the
exercise of share options granted under the directors and consultants scheme,
300,500 ordinary shares (601,000 equivalent ADSs) are subject to outstanding
options, and 299,500 ordinary shares (599,000 equivalent ADSs) remain available
for future grant. The weighted exercise price for all outstanding options to
purchase equivalent ADSs under the directors and consultants scheme is $6.50,
or approximately (Euro) 7.30, per equivalent ADS.
Trintech savings related share option scheme 1999
On August 23, 1999, we obtained shareholder approval for the establishment
of the Trintech employee savings related share option scheme 1999 for our Irish
employees. The scheme will be adopted by the board shortly following the
receipt of approval by the Irish Revenue Commissioners. The savings related
share option scheme applies to all of our qualifying Irish employees and is
intended to be an approved scheme under Schedule 12A to the Taxes Consolidation
Act 1997 of the Republic of Ireland. The eligible employees may apply for an
option to purchase ordinary shares at a discount of 15% to the market value of
ordinary shares on the last day on which the ordinary shares were traded before
grant. Participants must enter into approved savings arrangements the purpose
of which is to fund the cost of the exercise of the option.
The savings related share option scheme is open to our employees and
executive directors. Grants of options under the savings related share option
scheme may vary as between participants according to level of remuneration,
length of service or other factors relating to their position.
The savings related share option scheme provides that, in the event of a
merger, take-over or other re-organization, any subsisting options may be
exercised within a specified time period not to exceed six months of the date
of the merger, take-over, or reorganization. There is also an alternative for
participants, with the agreement of any company which may acquire us, to
release their rights under the savings related share option scheme in
consideration for equivalent rights in the acquiring company or its parent.
Rights granted under the savings related share option scheme are not
transferable. These rights may only be exercised by the participant or, in the
event of his death, his personal representative. The savings related share
option scheme will terminate ten years after its adoption by the board of
directors unless otherwise terminated before that date by the board
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of directors. The board of directors has power to amend the savings related
share option scheme except that no amendment will be made which would adversely
affect the subsisting rights of participants.
1999 employee share purchase plan
On August 23, 1999, we obtained shareholder approval for the establishment
of the Trintech 1999 employee share purchase plan for our U.S. employees. We
may issue an aggregate of 350,000 ordinary shares (700,000 equivalent ADSs)
under the 1999 share purchase plan.
The 1999 share purchase plan is intended to qualify under Section 423 of the
Code and contains consecutive, overlapping, twenty-four month offering periods.
Each offering period includes four six-month purchase periods. The offering
periods generally start on the first trading day on or after March 1 and
September 1 of each year.
Our U.S. employees are eligible to participate if they are customarily
employed by us or any participating subsidiary for at least 20 hours per week
and more than five months in any calendar year. However, any employee who
immediately after grant owns stock with 5% or more of the total combined voting
power or value of all classes of our capital shares, or holds rights to
purchase shares under our employee share purchase plans that accrue at an
annual rate exceeding $25,000 worth of shares for each calendar quarter may be
not be granted an option to purchase shares under the 1999 share purchase plan.
The 1999 share purchase plan permits participants to purchase common stock
through payroll deductions of up to 15% of the participant's compensation.
Compensation is defined as the participant's base straight time gross earnings,
bonuses and commissions but is exclusive of payments for overtime, shift
premium payments, incentive compensation, incentive payments and other
compensation.
The total amounts deducted and accumulated from the participant's pay are
used to purchase ordinary shares at the end of each purchase period. The price
of ordinary shares purchased under the 1999 share purchase plan is generally
85% of the lower of the fair market value of the ordinary shares at the
beginning of the offering period or at the end of the purchase period. If the
fair market value at the end of a purchase period is less than the fair market
value at the beginning of the offering period, the participants will be
withdrawn from the current offering period following exercise and automatically
enrolled in a new offering period. The new offering period will use the lower
fair market value as of the first date of the new offering period to determine
the purchase price for future purchase periods. Participants may end their
participation at any time during an offering period, and they will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with us.
Rights granted under the 1999 share purchase plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1999 share purchase plan. The 1999 share purchase
plan provides that, in the event of a merger of with or into another
corporation or a sale of substantially all of our assets, each outstanding
option may be assumed or substituted for by the successor corporation. If the
successor corporation refuses to assume or substitute for the outstanding
options, the offering period then in progress will be shortened and a new
exercise date will be set. The 1999 share purchase plan will terminate in 2009.
The board of directors has the authority to amend or terminate the 1999 share
purchase plan, except that no board action may adversely affect any outstanding
rights to purchase shares under the 1999 share purchase plan.
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<PAGE>
Limitations on Liability and Indemnification Matters
In general, Section 200 of the Irish Companies Act, 1963 prohibits us from
exempting any of our officers or auditors from, or indemnifying any of them
against, any liability arising from any negligence, default, breach of duty or
breach of trust of which he may be guilty in relation to us. Section 200 does,
however, provide that we may indemnify any of our officers or auditors against
any liability incurred by him in defending proceedings, whether civil or
criminal, if judgment is given in his favor or the officer or auditor is
acquitted. Additionally, upon our election, we can provide an indemnity under
Section 200 where an officer or auditor is granted relief by a court under
either Section 391 of the Irish Companies Act of 1963 or Section 42 of the
Irish Companies (Amendment) Act, 1983. Our articles of association contain a
provision for this indemnity.
Our subsidiary, Trintech, Inc., has agreed to indemnify each of its
directors and officers and each of the officers and directors serving at the
request of Trintech, Inc. as our directors and officers against liabilities and
expenses incurred by them in connection with claims made by reason of their
being a director or officer.
We have obtained directors and officers insurance for some of our directors,
officers, affiliates, partners or employees for liabilities relating to the
performance of their duties.
At present, there is no pending material litigation or proceeding involving
any of our officers or directors where indemnification will be required or
permitted. We are not aware of any threatened material litigation or proceeding
which may result in a claim for indemnification of an officer or director.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table presents information regarding the beneficial ownership
of our ordinary shares as of January 31, 2000 for
. our chief executive officer and each of our other four most highly
compensated executive officers at the end of our last completed fiscal
year,
. each of our directors,
. each person who beneficially owns 5% or more of our outstanding ordinary
shares,
. each selling shareholder, and
. our officers and directors as a group.
The applicable percentage ownership of each shareholder identified in the
table is based on 50,281,444 equivalent ADSs outstanding at January 31, 2000. A
person is considered to be the beneficial owner of securities that can be
acquired by that person within 60 days of January 31, 2000 upon the exercise of
options or warrants. Calculations of percentage of beneficial ownership also
assume the exercise by only the named shareholder of all options and warrants
for the purchase of ordinary shares held by that shareholder which are
exercisable within 60 days of January 31, 2000. Unless otherwise noted in the
footnotes to the table, we believe that the persons named in the table have
sole voting and investing power for all shares indicated as being beneficially
owned by them.
<TABLE>
<CAPTION>
Equivalent ADSs
Equivalent ADSs Beneficially
Beneficially Owned Owned After the
Prior to the Offering Number of Offering
------------------------- ADSs -----------------
Beneficial Owner Number Percent Being Offered Number Percent
---------------- ------------- ------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
John F. McGuire (1)(2).. 9,283,350 18.4% 90,000 9,193,350 16.9%
c/o Trintech Building
South County Business
Park
Leopardstown
Dublin 18, Ireland
Cyril P. McGuire
(1)(3)................. 9,283,350 18.4 90,000 9,193,350 16.9%
c/o Trintech Building
South County Business
Park
Leopardstown
Dublin 18, Ireland
Kevin C. Shea........... 40,000 0.1 0 40,000 0.1
R. Paul Byrne (4)....... 100,503 0.2 50,000 50,503 0.1
Christopher P. Meehan
(5).................... 681,573 1.4 90,000 591,573 1.1
George L. Burne (6)..... 533,570 1.1 50,000 483,570 0.9
John Harte (7).......... 59,250 0.1 0 59,250 0.1
Donald J. Marcotte (8).. 58,650 0.1 15,000 43,650 0.1
Noel C. Ryan (9)........ 7,719 0.0 2,250 5,469 0.0
Trevor D. Sullivan
(10)................... 2,840 0.0 0 2,840 0.0
James Bidzos (11)....... 2,086,420 4.1 0 2,086,420 3.8
Wolfgang H. Heinrich
(12)................... 2,500 0.0 0 2,500 0.0
Robert Wadsworth (13)... 2,002,500 4.0 300,000 1,702,500 3.1
Instove Limited (14).... 7,701,466 15.3 840,250 6,861,216 12.6
P.O. Box 437 14
14 Conway Street
St. Helier
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Equivalent ADSs Equivalent ADSs
Beneficially Owned Beneficially Owned
Prior to the Offering Number of After the Offering
------------------------- ADSs ------------------
Beneficial Owner Number Percent Being Offered Number Percent
---------------- ------------- ------- ------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Enterprise Ireland
(15).................. 2,779,196 5.5 250,000 2,529,196 4.7
Wilton Park House
Wilton Place
Dublin 2, Ireland
HarbourVest
International (13).... 2,000,000 4.0 300,000 1,700,000 3.1
One Financial Center,
44th Floor
Boston, MA 02111
RSA Security, Inc.
(16).................. 1,917,254 3.8 0 1,917,254 3.5
36 Crosby Drive
Bedford, MA 01730
Pilgrim Baxter......... 1,000,000 2.0 150,000 850,000 1.6
Hybrid Partners I (17)
825 Dupportail Road
Wayne, PA 19087
Dr. Hasso Plattner
(18).................. 333,334 0.7 50,000 283,334 0.5
c/o Lowenthal Capital
Mgmt.
110 Solano Street
Tiburon, CA 94920
Galba Anstalt (19)..... 83,332 0.2 12,500 70,832 0.1
4 Boulevard Du Theatre
1204 Geneva,
Switzerland
Algonquin Trust (20)... 66,666 0.1 10,000 56,666 0.1
Cour Dumoulin
5-9 Rte De L'etat
1380 Lasne, Belgium
Total number of ADSs
being offered by
selling shareholders.. -- -- 2,000,000 -- --
Officers and directors
as a group
(13 persons) (21)..... 24,142,225 47.4 687,250 23,454,975 42.7
</TABLE>
- --------
(1) Jayness Limited and Vanspur Limited, which are owned by two Jersey
discretionary trusts, Jayness Trust and Vanspur Trust, have the option to
acquire up to 2,890,750 equivalent ADSs, representing approximately 5.6%
of the equivalent ADSs before the offering, currently owned by John
McGuire and have the option to acquire up to 2,890,750 equivalent ADSs,
representing approximately 5.6% of the equivalent ADSs before the
offering, currently owned by Cyril McGuire. Neither John McGuire, Cyril
McGuire nor any of their family members are trustees or beneficiaries of
these trusts and John and Cyril McGuire disclaim any beneficial interest
in the securities held by Jayness Limited, Vanspur Limited or the trusts.
For shares held by Instove Limited, see note (14) below.
(2) Includes 116,666 equivalent ADSs subject to options that are exercisable
currently or within 60 days of January 31, 2000. If the underwriters'
overallotment option is exercised in full, these 9,193,350 equivalent ADSs
would represent approximately 16.8% of the equivalent ADSs outstanding
after the offering.
(3) Includes 116,666 equivalent ADSs subject to options that are exercisable
currently or within 60 days of January 31, 2000. If the underwriters
allotment option is exercised in full, these 9,193,350 equivalent ADSs
would represent approximately 16.8% of the equivalent ADSs outstanding
after the offering.
(4) Includes 97,103 equivalent ADSs subject to options that are exercisable
currently or within 60 days of January 31, 2000. If the underwriters'
overallotment option is exercised in full, these 50,503 equivalent ADSs
would represent approximately 0.1% of the equivalent ADSs outstanding
after the offering.
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<PAGE>
(5) Includes 69,643 equivalent ADSs subject to options that are exercisable
currently or within 60 days of January 31, 2000. If the underwriters'
overallotment option is exercised in full, these 591,573 equivalent
ADSs would represent approximately 1.1% of the equivalent ADSs outstanding
after the offering.
(6) Includes 82,250 equivalent ADSs subject to options that are exercisable
currently or within 60 days of January 31, 2000. If the underwriters'
overallotment option is exercised in full, these 473,570 equivalent
ADSs would represent approximately 0.9% of the equivalent ADSs outstanding
after the offering.
(7) Represents 56,250 equivalent ADSs subject to options that are exercisable
currently or within 60 days of January 31, 2000. If the underwriters'
overallotment option is exercised in full, these 56,250 equivalent
ADSs would represent approximately 0.1% of the equivalent ADSs outstanding
after the offering.
(8) Includes 56,250 equivalent ADSs subject to options that are exercisable
currently or within 60 days of January 31, 2000. If the underwriters'
over-allotment option is exercised in full, these 56,250 equivalent
ADSs would represent approximately 0.1% of the equivalent ADSs outstanding
after the offering.
(9) Includes 1,001 equivalent ADSs subject to options that are exercisable
currently or within 60 days of January 31, 2000. If the underwriters' over
allotment is exercisable in full, these 5,469 ADSs would represent
approximately 0.0% of the equivalent ADSs outstanding after the offering.
(10) Includes 2,500 equivalent ADSs subject to options that are exercisable
currently or within 60 days of January 31, 2000. If the underwriters'
overallotment option is exercised in full, these 2,840 equivalent
ADSs would represent approximately 0.0% of the equivalent ADSs outstanding
after the offering.
(11) Includes 1,917,254 equivalent ADSs held by RSA Security, of which Mr.
Bidzos is a director and vice chairman, 2,500 equivalent ADSs subject to
options that are exercisable currently or within 60 days of January 31,
2000, and 166,666 equivalent ADSs held by Tolmi L.L.C. in trust for Mr.
Bidzos personally. Mr. Bidzos may be considered to have or share
investment and voting control over the equivalent ADSs owned by RSA
Security. Mr. Bidzos disclaims any beneficial interest in the equivalent
ADSs held by RSA Security. If the underwriters' overallotment option is
exercised in full, these 2,086,420 equivalent ADSs would represent
approximately 3.8% of the equivalent ADSs outstanding after the offering.
(12) Includes 2,500 equivalent ADSs subject to options that are exercisable
currently or within 60 days of January 31, 2000. If the underwriters'
overallotment option is exercised in full, these 2,500 equivalent ADSs
would represent approximately 0.0% of the equivalent ADSs outstanding
after the offering.
(13) Includes 2,000,000 equivalent ADSs held by HarbourVest International
Private Equity Partners III--Direct Fund L.P. (300,000 of which are being
sold by HarbourVest in this offering), of which Mr. Wadsworth is a general
partner, and 2,500 equivalent ADSs subject to options that are exercisable
currently or within 60 days of January 31, 2000. HarbourVest Partners, LLC
is the managing member or the general partner of HIPEP III--Direct
Associates LLC, which is the general partner of HarbourVest International.
Mr. Wadsworth is the general partner of HarbourVest Partners, LLC, and its
Managing Director. Mr. Wadsworth may be considered to have or share
investment and voting control over the equivalent ADSs owned by this
entity. Mr. Wadsworth disclaims any beneficial interest in the equivalent
ADSs held by HarbourVest International Private Equity Partners III L.P. in
excess of his pecuniary interest as a general partner. If the
underwriters' overallotment option is exercised in full, these 1,702,500
equivalent ADSs would represent approximately 3.1% of the equivalent ADSs
outstanding after the offering.
(14) Equivalent ADSs are held by Instove Limited, which in turn is owned by two
Jersey discretionary trusts, Hacke Trust and Belte Trust. Neither John
McGuire nor Cyril McGuire nor any of their family members are trustees or
beneficiaries of these trusts, but the trustees may, in their sole
discretion, select any beneficiaries. John McGuire and Cyril McGuire both
disclaim any beneficial interest in the equivalent ADSs held by Instove
Limited or the trusts. Instove Limited has granted the underwriters the
option to purchase up to 450,000 ADSs to cover over-allotments, if any. If
the underwriters' over-allotment option is exercised in full, after the
offering, Instove Limited will hold 6,411,216 equivalent ADSs,
representing 11.7% of the equivalent ADSs outstanding after the offering.
(15) If the underwriters' over-allotment option is exercised in full, after the
offering, Enterprise Ireland will hold 2,529,196 equivalent ADSs,
representing 4.6% of the equivalent ADSs outstanding after the offering.
(16) If the underwriters' over-allotment option is exercised in full, after the
offering, RSA Security, Inc. will hold 1,917,254 equivalent ADSs,
representing 3.5% of the equivalent ADSs outstanding after the offering.
(17) If the underwriters' over-allotment option is exercised in full, after the
offering, Pilgrim Baxter Hybrid Partners I will hold 850,000 equivalent
ADSs, representing 1.6% of the equivalent ADSs outstanding after the
offering.
(18) If the underwriters' over-allotment option is exercised in full, after the
offering, Dr. Hasso Plattner will hold 283,334 equivalent ADSs,
representing 0.5% of the equivalent ADSs outstanding after the offering.
(19) If the underwriters' over-allotment option is exercised in full, after the
offering, Galba Anstalt will hold 70,832 equivalent ADSs, representing
0.1% of the equivalent ADSs outstanding after the offering.
(20) If the underwriters' over-allotment option is exercised in full, after the
offering, Algonquin Trust will hold 56,666 equivalent ADSs, representing
0.1% of the equivalent ADSs outstanding after the offering.
(21) Includes 605,829 equivalent ADSs subject to options that are exercisable
currently or within 60 days of January 31, 2000. If the underwriters'
overallotment option is exercised in full, these 23,454,975 equivalent
ADSs would represent approximately 42.4% of the equivalent ADSs
outstanding after the offering.
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<PAGE>
RELATED PARTY TRANSACTIONS
On March 31, 1998, we licensed the source code for S/PAY and J/PAY from RSA
Security. S/PAY and J/PAY are security toolkit products which enable the user
to add cryptography functionality to other software products for securing e-
payment transactions. The license is exclusive for that portion of the source
code that implements and provides the functionality of the SET standard. Under
the terms of the agreement, we also received a royalty-free sublicensable
license to the object code of the licensed software. Our rights under the
license are subject to pre-existing rights of third-party licensees to license
portions of the tool kit products. In exchange for receiving the rights under
the license, we paid RSA Security a one-time payment of $2.5 million in cash.
In connection with the execution of this license, we and RSA Security also
entered into an agreement that specified joint marketing activities to be
undertaken by us and RSA Security.
On March 31, 1998, RSA Security, purchased 482,765 of our ordinary shares.
As part of the equity investment, we granted RSA Security the right to appoint
one member to our board of directors. James Bidzos, a director and vice
chairman of RSA Security, was initially appointed by RSA Security and currently
serves on our board. RSA Security's right to appoint one member to our board of
directors terminated upon the closing of our initial public offering.
On June 30, 1998, we closed the sale of 2,750,000 of our redeemable
convertible preference shares at a price of $6.00 per share. HarbourVest
Partners LLC purchased 1,000,000 redeemable convertible preference shares and
RSA Security purchased 500,000 redeemable convertible preference shares in this
transaction. As part of this transaction, we granted the investors the right to
appoint one member to our board of directors. Robert M. Wadsworth, a general
partner of HarbourVest Partners LLC, was initially appointed by the investors
and currently serves on our board. The investors' right to appoint one member
to our board of directors terminated upon the closing of our initial public
offering.
In August 1998, we entered into an agreement with VISA International. The
agreement confirmed and summarized the intentions of both parties concerning
the development of a strategic relationship to pursue opportunities in the
Internet marketplace. In connection with this agreement, we issued to VISA
International a warrant to purchase 250,000 ordinary shares, exercisable for a
two-year period. As part of this transaction, we granted VISA International the
right to appoint one member to our board of directors. Wolfgang Heinrich was
initially appointed by VISA International and currently serves on our board.
VISA International's right to appoint a board member terminate upon the closing
of this offering. Concurrent with the closing of the transactions with VISA
International, VISA International purchased 250,000 of our redeemable
convertible preference shares at a price of $6.00 per share.
From time to time, we have entered into development and marketing agreements
with Visa International and some of its affiliated entities. Under these
arrangements, we have developed products to meet the specific needs of Visa and
its members. In return, Visa has paid us development and services fees and has
agreed to promote these products to its members. Additionally, once we have
developed these products, we have entered into licensing arrangements with Visa
in which we have provided Visa licenses to use these products and additional
technical and support services.
In April 1999, we entered into a development and marketing agreement with
Visa International to develop a product meeting Visa's cash payment server
specifications.
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<PAGE>
In May 1999, we entered into a license agreement with Visa USA in which we
agreed to license one copy of PayGate Enterprise Gateway to Visa International.
The purpose of the license was to develop and test the product for merchants.
Visa paid us license and support fees plus additional royalties. Under the
agreement, we are required to place in escrow the current version of RSA S-Pay
source code and documentation. If we fail to provide a modification to the
source code to meet Visa's modified SET specifications within 90 days of Visa's
publication of these specifications or if we suffer a bankruptcy during the
term of the agreement, Visa will have access to the source code solely for use
under the license.
Effective September 1, 1998, we entered into a lease agreement with John and
Cyril McGuire under which we currently lease approximately 22,500 square feet
of space in a building located in Dublin, Ireland which is owned by John and
Cyril McGuire. The term of the lease is for a period of 25 years. Our rent
under the lease is IR(Pounds)401,514, or approximately $539,795 per year, which
was determined by a fair assessment of the local rental market by an
independent appraisal firm. The rent is to be reviewed by an independent
appraiser every five years and may be increased based on the independent
appraiser's assessment of the current rental market using rental rates for
similar properties in comparable locations. This lease agreement may be amended
from time to time by agreement among us and John and Cyril McGuire. We have the
right to terminate the lease on September 1, 2007.
Trintech Limited, one of our Irish subsidiaries, has issued shares of
special non-voting class to Huttoft Company, an unlimited company. Huttoft
Company is wholly-owned by John McGuire, Cyril McGuire, R. Paul Byrne and
Christopher Meehan, four of our executive officers, but is otherwise unrelated
to us. We own all of the voting securities of Trintech Limited. The shares held
by Huttoft Company do not entitle it to any share of the assets of Trintech
Limited in the event of a winding-up. We and Huttoft Company own all of the
outstanding securities of Trintech Limited. Trintech Limited has in the past
and may in the future declare and pay dividends to Huttoft Company, and Huttoft
Company may pay dividends to its shareholders out of these amounts. The amount
of any dividends paid to Huttoft Company will be determined by our board of
directors, subject to Irish law, in its discretion. We treat any dividends paid
by Trintech Limited to Huttoft Company as compensation expense for accounting
purposes. Any dividends which are declared and paid by Trintech Limited to
Huttoft Company would result in a reduction in profits available to us.
In March 1991, we entered into an agreement with some of our then existing
shareholders. This agreement was subsequently supplanted by a shareholders'
agreement entered into in September 1993 and again in November 1993. Enterprise
Ireland, John and Cyril McGuire were the only parties to this agreement who
remain shareholders in us. Under this agreement, each of John and Cyril McGuire
agreed to restrictions on his ability to compete with us for a period of one
year after their employment with us has been terminated for any reason.
Additionally, John McGuire, Cyril McGuire and Enterprise Ireland agreed to
provide each other with rights to participate in any sale of their shares to a
third party.
On January 31, 1997, we entered into a shareholders' agreement with John
McGuire, Cyril McGuire and Enterprise Ireland. This shareholders' agreement
provides Enterprise Ireland with the right to appoint one person to serve on
our board of directors for so long as it is a shareholder. This agreement also
requires that we provide Enterprise Ireland with information rights. Under a
letter agreement between Enterprise Ireland, John and Cyril McGuire and us
dated June 11, 1999, each of the amended March 1991 agreement and the January
1997 agreement terminated on the closing date of our initial public offering.
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<PAGE>
From time to time since December 1996, Enterprise Ireland has provided us
with grants in support of some of our projects for the purpose of increasing
employment in Ireland. These grants have totaled an aggregate of
IR(Pounds)942,320. These grants must be repaid if we fail to maintain the
projected employment for a period of five years from the date of receipt of the
grant.
We believe that the terms of all transactions with related parties are
comparable to those that would be attainable by us in the ordinary course of
business from unaffiliated third parties under similar circumstances.
As of January 31, 2000, we had granted share options to the following
directors and officers:
<TABLE>
<CAPTION>
Number of
Options (in
equivalent
Name ADSs)
---- -----------
<S> <C>
Kevin C. Shea................................................ 840,000
R. Paul Byrne................................................ 512,170
John Harte................................................... 450,000
Donald Marcotte.............................................. 300,000
Christopher P. Meehan........................................ 294,556
John F. McGuire.............................................. 200,000
Cyril P. McGuire............................................. 200,000
George L. Burne.............................................. 141,000
Noel Ryan.................................................... 24,000
Trevor Sullivan.............................................. 20,000
Robert Wadsworth............................................. 20,000
Wolfgang H. Heinrich......................................... 20,000
D. James Bidzos.............................................. 20,000
</TABLE>
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<PAGE>
DESCRIPTION OF SHARE CAPITAL
General
Upon the completion of this offering, our authorized share capital will be
US$297,000, divided into 100,000,000 ordinary shares, nominal value US$0.0027
per share, and 10,000,000 Series B preference shares, nominal value US$0.0027
per share. Our authorized capital is the number of shares available for
issuance by us under our memorandum and articles of association. As of January
31, 2000, 50,281,444 equivalent ADSs representing 25,140,722 ordinary shares
were issued and outstanding. None of our ordinary shares are currently held in
treasury. All of the ordinary shares issued and outstanding are registered
shares and not bearer shares, and are fully paid, duly authorized and validly
issued.
The following summarizes rights of holders of our ordinary shares and is
based upon the memorandum and articles of association which were approved by a
special resolution of our shareholders in a general meeting passed on August
23, 1999 and under applicable Irish corporate law. The summary does not purport
to be complete and is qualified in its entirety by reference to our memorandum
and articles of association, a copy of which has been filed as an exhibit to
the registration statement of which this prospectus forms a part.
In the following description, a shareholder or a holder of ordinary shares
is the person registered in our register of members as the holder of the
relevant ordinary share. The Bank of New York, as depositary, will be the
registered holder for those ordinary shares represented by ADSs.
Rights on a Liquidation or Winding-Up
Upon liquidation, dissolution or winding up, the assets remaining for
distribution to the holders of ordinary shares after payment of liabilities and
after provision has been made for each class of shares, if any, having
preference over the ordinary shares would be divided, equally, among the
holders of ordinary shares in proportion to the amounts paid up on the shares
held by them. A liquidator may, with the sanction of a special resolution of
our shareholders and any other sanction required by the Irish Companies Acts,
1963 to 1999, divide equally among the shareholders in cash or property the
whole or any part of our assets and may vest any assets in trustees upon trusts
for the benefit of contributories. However, no shareholders may be compelled to
accept any assets upon which there is a liability.
Dividends
Shareholders are entitled to receive dividends as may be recommended by the
board of directors and approved by our shareholders or any interim dividends
the board of directors may decide to pay. No dividends have been paid on the
ordinary shares in any of the five fiscal years immediately preceding the date
of this prospectus.
Under Irish law, we may only pay dividends out of profits legally available
for that purpose. Available profits are defined as our accumulated realized
profits, to the extent not previously distributed or capitalized, less our
accumulated realized losses, to the extent not previously written off in a
reduction or reorganization of capital. In addition, we may make a distribution
only if and to the extent that, at the time of the distribution, the amount of
our net assets is not less than the aggregate of our paid up share capital and
undistributable reserves.
If in the future dividends are, subject to Irish law, approved by our board
or by our shareholders, the dividends will be paid to the persons who hold our
securities on the date determined by our board. However, under our articles of
association, our directors may
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<PAGE>
resolve that we will not be required to pay dividends to a shareholder who has
not claimed these dividends within twelve years of their declaration if
resolved by the board of directors. Unclaimed dividends will be used by us as
decided by our board of directors.
Voting Rights
Each holder of ordinary shares is entitled to one vote for each share held
on all matters submitted to a vote of the shareholders. Under Irish law, a
majority of votes cast is required to pass ordinary resolutions; however, a 75%
majority of the votes cast is required to pass special resolutions. Examples of
special resolutions are resolutions to approve any amendment to our memorandum
or articles of association or to change our name. Variation of the rights
relating to any class of shares requires the approval of a special resolution
by the class in question. Shareholders do not have cumulative voting rights for
the election of directors. Holders of a majority of the ordinary shares
entitled to vote in any election of directors may therefore elect all of the
directors standing for election.
Shareholder Meetings
An annual general meeting of shareholders must take place in the Republic of
Ireland unless either the shareholders entitled to attend and vote at the
meeting unanimously consent in writing to the meeting being held elsewhere or a
resolution has been passed at the preceding annual general meeting providing
that the meeting be held elsewhere. Extraordinary general meetings of the
shareholders may be held either in the Republic of Ireland or outside the
Republic of Ireland. Annual and extraordinary general meetings may be called by
either the board of directors or at the request of shareholders holding not
less than one-tenth of our then outstanding voting share capital. Annual
general meetings must be held once every calendar year. However, not more than
fifteen months may elapse between these meetings. The Minister for Enterprise,
Trade and Employment for the Republic of Ireland may, on the application of any
shareholder, call or direct the calling of an annual general meeting if the
meeting is not held within the required time period.
Irish company law requires at least 14 days' written notice of a meeting,
except that an annual general meeting or a meeting convened for the passing of
a special resolution requires at least 21 days' written notice. In limited
circumstances, general meetings can be called on shorter notice. Further, in
circumstances prescribed by law, extended, or 28 days, notice must be given for
a general meeting. Shareholders' notices will be published in one German
national newspaper approved for official notices by the Frankfurt Stock
Exchange as long as ADRs are listed in Germany.
Three or more shareholders present in person or by proxy entitled to vote
upon the business to be transacted and, together holding not less than one
third of our outstanding voting shares, constitute a quorum at shareholders
meetings. A vote which takes into account all votes which may be cast at that
meeting by shareholders attending as opposed to a show of hands at any
shareholders meeting may be demanded by any of the following:
. the chairman of the meeting
. at least three shareholders present, in person or by proxy, who are
entitled to vote at the meeting
. any shareholder or shareholders present, in person or by proxy,
representing not less than one-tenth of the total voting rights of all
the shareholders entitled to vote at the meeting
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. any shareholder or shareholders present, in person or by proxy, holding
shares conferring the right to vote at the meeting being shares on which
there have been paid up sums in the aggregate equal to not less than
one-tenth of the total sum paid up on all the shares conferring that
right.
Issuance of Shares
Under our articles, our board of directors may issue ordinary shares up to
the authorized but unissued share capital without obtaining shareholder
approval. However, Irish company law requires that this authority expire after
five years unless once again extended by our shareholders. Also, our
shareholders may at any time by ordinary resolution renew, alter or revoke this
authority. Our articles provide that the authority of our board expires on
August 22, 2004 unless extended by our shareholders. These authorized but
unissued ordinary shares may be utilized for a variety of corporate purposes,
including future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans.
Preemptive Rights
In general, Irish company law prohibits companies from issuing any shares or
rights to subscribe for or to convert any securities into shares for any
consideration without first offering those shares, on a pro rata basis, to the
existing shareholders. These requirements may be disapplied for a period of up
to five years under a company's articles of association or by a special
resolution passed by a company's shareholders. Our articles contain a provision
disapplying these preemptive rights for all of our authorized but unissued
shares for the five year period ending on August 22, 2004. This disapplication
may be renewed, varied or revoked at any time by a special resolution of our
shareholders.
In addition, due to the restrictions on the offer and sale of securities in
the United States under U.S. securities laws and regulations, any offer of new
ordinary shares to existing shareholders on the basis of their preemptive
rights might not be opened to holders of ADRs.
Share Certificates
Shareholders are entitled to certificates within two months of the date of
issuance of their shares, in a form as may be prescribed by law and by the
board of directors, certifying the number and class of shares owned by the
shareholder. Each certificate shall have our corporate seal affixed to it.
Transfers of Ordinary Shares
Except as otherwise established by rules adopted by the board of directors,
and subject to applicable law, ordinary shares may be transferred on our books
by the surrender to us or to our transfer agent, of a properly stamped and duly
executed stock transfer form, a duly executed certificate representing the
ordinary shares and, if executed under a power of attorney, a properly executed
written power of attorney, together with any proof of authority or the
authenticity of signature as we or our transfer agent may otherwise reasonably
request.
Registration Rights
Under the terms of two investors' rights agreements, as of May 4, 2000, the
holders of an aggregate of 6,000,000 equivalent ADSs have the right to require
us on no more than two occasions to register all or a portion of their ordinary
shares. These holders may also require us on no more than two additional
occasions to register all or a portion of their ordinary
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shares on a Form S-3 registration statement when that form becomes available to
us. Additionally, as of May 4, 2000, these holders, plus the holders of up to
an additional 917,254 equivalent ADSs, are entitled to piggyback registration
rights in connection with any registration under the U.S. Securities Act of our
securities for our own account or the account of other security holders. If we
propose to register any ordinary shares under the U.S. Securities Act, the
holders of these piggyback registration rights are entitled to receive notice
of the registration and to include their shares in the registration.
These registration rights are subject to conditions and limitations
including the right of the underwriters in any underwritten offering to limit
the number of shares held by security holders with registration rights to be
included in the registration. The registration rights for any holder terminate
when the shares held by the holder represent less than one percent of our
outstanding shares and may be sold under Rule 144 promulgated under the U.S.
Securities Act, during any three-month period. We are generally required to
bear all of the expenses of all the registrations under these investor rights
agreements, except underwriting discounts and commissions. Registration of any
of the ordinary shares held by security holders with registration rights would
result in these shares becoming freely tradable without restriction under the
U.S. Securities Act immediately upon effectiveness of the registration. The
investors' rights agreements also contain commitments by us to indemnify the
holders of registration rights, subject to specified limitations.
Derivative Action Suits
Under Irish company law, our shareholders do not generally have standing to
maintain proceedings arising from wrongs suffered by us. There are, however,
exceptions available under equitable principles on a case-by-case basis. For
example, controlling shareholders cannot perpetrate fraud on the minority
shareholders or commit an act that is illegal or outside the scope of corporate
authority. Additionally, if we attempt to act on the strength of a decision by
a simple majority, where particular decisions call for more than a simple
majority, an individual shareholder may bring suit. In cases where controlling
shareholders do not institute proceedings in our name, one or more of the
aggrieved minority shareholders may apply to the court to bring a derivative
action. A minority shareholder may also initiate proceedings in our name in
limited circumstances.
Class Action Suits
In contrast to a derivative action, Irish company law permits an action by a
shareholder in his own right on the basis of the infringement of his personal
rights. A shareholder may commence a suit in a representative capacity for
himself as well as other similarly affected consenting shareholders.
Additionally, under Irish company law, any shareholder who claims that our
affairs are being conducted, or that the powers of our directors are being
exercised, in a manner oppressive to his interests as a shareholder, may apply
to the Irish courts for an appropriate order.
Interlocking and Interested Directors
Irish company law requires each of our directors to declare the nature of
any direct or indirect interest which the director may have in a proposed
contract with us at a meeting of the directors before the board votes to
approve the contract. An interested director must generally abstain from a vote
on any contract or arrangement or any other proposal in which he has an
interest. Our articles allow the shareholders, by ordinary resolution, to
suspend or relax these provisions to any extent either generally or for any
particular contract, arrangement or transaction.
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If any question arises at any directors' meeting regarding the materiality
of a director's interest in a proposed transaction or the right of a director
to vote on the proposal and the question is not resolved by the director
voluntarily agreeing to abstain from voting, the chairman of the relevant
meeting has the authority to decide the matter. Additionally, our shareholders
may, by ordinary resolution, ratify any transaction not duly authorized by
reason of a contravention of our articles of association.
Irish law also regulates various types of transactions between us and our
directors or any person connected with any of our directors. These provisions
require shareholder approval for long-term employment contracts with directors
and for the purchase or sale by us of assets from or to a director or any
person connected with any of our directors. Additionally, we may not make loans
to, or enter into credit transactions as creditors for, a director or persons
connected to directors or give guarantees or provide security in connection
with these matters, except in limited circumstances.
Irish Mergers and Competition Legislation and Other Anti-Takeover Provisions
Irish Mergers and Competitive Legislation. Irish law requires prospective
purchasers of our voting securities to provide advance notice of an acquisition
of our shares to the minister for Enterprise, Trade and Employment of Ireland
if, after an acquisition, that person would control more than 25% of our voting
securities and specific financial thresholds are exceeded. Subject to several
exceptions, the person must also notify the minister of any subsequent
acquisition of voting securities. Under Irish law, title to the shares
concerned will not pass unless either clearance for an acquisition is obtained
from the minister or the prescribed statutory period following notification of
the acquisition lapses without the minister having made an order.
In addition, under Irish competition legislation, proposed mergers and
acquisitions which might be anti-competitive in nature may require prior
notification to, and approval of, the Irish Competition Authority. Further,
third parties may file a complaint with the Irish Competition Authority or
institute court proceedings seeking relief, including injunctions and exemplary
damages, for a merger or acquisition which would be prohibited under the
relevant legislation.
For purposes of the Irish mergers and competition legislation described
above, the acquisition of ADSs would generally be treated in the same manner as
an acquisition of ordinary shares.
Provisions of our Memorandum and Articles of Association Concerning
Control. Several provisions of our memorandum and articles of association,
which are described in these paragraphs, may have an anti-takeover effect and
may delay, defer or prevent a tender offer or takeover attempt that a
shareholder might consider in its best interests, including those attempts that
might result in a premium over the market price for the ADSs.
German Antitakeover Law. In compliance with the admission regulations of the
Neuer Markt segment of the Frankfurt Stock Exchange, we have adopted the
takeover code recommended by the Stock Exchange Expert Commission at the German
Federal Ministry of Finance. This takeover code, while not having the force of
law, is complied with by those companies listed on the Neuer Markt segment of
the Frankfurt Stock Exchange which acknowledge it.
Presentation of Financial Statements to Shareholders
Our board of directors is required to present to our shareholders at each
annual general meeting our statutory financial statements and a report by the
directors on our state of affairs.
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Purchase of Own Shares
Under our articles, we may purchase our own shares, including redeemable
shares, only out of distributable profits. Additionally, in the case of a
purchase other than on a stock exchange, as recognized under the Irish company
law, the purchase must first be authorized by special resolution of our
shareholders and, in the case of a purchase on a stock exchange, the purchase
must first be authorized by ordinary resolution.
Irish Stamp Duty
For a discussion of the tax imposed on the transfer of ordinary shares, see
"Taxation--Irish Stamp Duty."
Prohibition on Financial Assistance to Purchase Shares
Irish company law prohibits us from giving any direct or indirect financial
assistance to any person, whether by means of a loan, guarantee, the provision
of security or other form of financial assistance, for the purpose of
purchasing or subscribing for any of our shares.
Options and Warrants
As of January 31, 2000, options to purchase up to 3,611,327 ordinary shares
(7,222,654 equivalent ADSs) were outstanding, with exercise prices ranging from
$0.78 to $30.00 per equivalent ADS. Of these outstanding options, 3,310,827
ordinary shares (6,621,654 equivalent ADSs) are subject to options under the
1997 scheme and 300,500 ordinary shares (601,000 equivalent ADSs) are subject
to options under the directors and consultants scheme. In addition, as of
January 31, 2000, a warrant to purchase up to 250,000 ordinary shares (500,000
equivalent ADSs) at an exercise price of $3.00 per equivalent ADS was
outstanding.
Listing
The ADSs representing the previous and the new ordinary shares have been
approved for quotation on the Nasdaq National Market and approved for listing
on the regulated market of the Frankfurt Stock Exchange with trading on the
Neuer Markt. The new ADSs will be officially traded beginning on May 8, 2000 on
the Neuer Markt.
Transfer Agent, Registrar and Paying Agent
The transfer agent and registrar for our ordinary shares is IRG Registrars,
Dublin, Ireland. The transfer agent and registrar for the ADSs will be The Bank
of New York. The paying agent for the ADSs in Germany is Deutsche Bank
Aktiengesellschaft, who will coordinate with The Bank of New York to fulfill
its obligations as paying agent.
Deliverability and Clearing
The ADSs will be represented by one or more ADRs deposited with The
Depository Trust Company. On or about May 9, 2000, the ADRs will be deposited
with The Depository Trust Company. The ADSs are expected to be accepted for
clearance through The Depository Trust Company and Clearstream Banking AG
(formerly "Deutsche Borse Clearing AG"). The ADSs may be credited at the option
of investors either to the Depository Trust Company or the Clearstream Banking
account or to the accounts of participants with The Depository Trust Company or
Clearstream Banking.
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The German securities identification number of the ADSs is 925534. The
international securities identification code of the ADSs is US8966821014. The
CUSIP number of the ADSs is 896682101.
Rights of Dissenting Shareholders
The Irish Companies Acts require that any arrangements or compromises
between us and a class of our shareholders, or class of our creditors, relating
to types of reconstructions, amalgamations, capital reorganizations or
takeovers be approved at a meeting of our shareholders and by the sanction of
the courts. Once approved and sanctioned, all shareholders of the relevant
class are bound by the terms of the scheme and a dissenting shareholder would
have no dissenters rights. The Irish Companies Acts also provide that where a
takeover offer is made for our shares and, within four months of the date of
the offer, the person making the offer has acquired or contracted to acquire
not less than 80% in value of our shares, the person may, before the expiration
of six months after the date of the offer, by notice compulsorily require our
shareholders who have not accepted the offer to transfer their shares on the
terms of the offer. A dissenting shareholder may apply to court within one
month of the date on which a notice was given to object to the compulsory
transfer or its terms. However, in the absence of a showing of fraud or
oppression, the court is unlikely to prevent the compulsory transfer from
taking effect, but it may vary the terms of the transfer. Irish law does not
generally provide for appraisal rights.
Series B Preference Shares
Following the closing of this offering, our board of directors will, subject
to the normal resolution on the issuances of shares, have the authority,
without further action by our shareholders, to issue up to 10,000,000 shares of
preference shares in one or more series. The board also will have the authority
subject to Irish law to fix the designations, powers, preferences, privileges
and relative, participating, optional or special rights and the qualifications,
limitations or restrictions of any preference shares issues, including dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the ordinary
shares. Our board of directors, without shareholder approval, will be able to
issue preference shares with voting, conversion or other rights that could
adversely affect your voting power and other rights. These preference shares
could thus be issued quickly with terms that could delay or prevent a change in
control of us or make removal of our management more difficult. Additionally,
the issuance of these preference shares may decrease the market price of the
ADSs. We have no present plans to issue any preference shares.
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
To facilitate ownership of interests in our ordinary shares and trading in
the United States and Germany, ADSs relating to the ordinary shares shall be
issued by a depositary in New York to you and to other persons who deposit the
ordinary shares with the depositary. The ADSs will be represented by ADRs.
The ADR is the receipt which represents the number of ADSs to which you are
entitled. You will not own our ordinary shares directly unless you withdraw the
ordinary shares that you deposit. As a holder of ADRs, your rights will be
governed by the deposit agreement between us, The Bank of New York, as
depositary, and the registered holders of ADRs and the owners of a beneficial
interest in ADSs. The following is a summary of the material provisions of the
deposit agreement. For more complete information, you should read the entire
agreement and the ADR. The deposit agreement has been filed as an exhibit to
the registration statement of which this prospectus is a part. Copies of the
deposit agreement and our articles of association are also available for
inspection at the corporate trust office of The Bank of New York, currently
located at 101 Barclay Street, New York, New York 10286, and at the principal
office of Allied Irish Bank, as the custodian, currently located at Carrisbrook
House, Ballsbridge, Dublin 4, Ireland. The Bank of New York's principle
executive office is located at 101 Barclay Street, New York, New York 10286.
American Depositary Receipts
The Bank of New York, as depositary, will issue the ADRs. Each ADR will
represent ownership interests in, or the right to receive, one-half of one
ordinary share which we will deposit with Allied Irish Bank, as the custodian,
in Ireland. Each ADR will also represent securities, cash or other property
deposited with the depositary, as a result of a distribution we may make on the
ordinary shares, but which are not distributed to ADR holders. The
circumstances in which the depositary will deliver to you distributions we make
on the ordinary shares are described below.
You may hold ADRs either directly or indirectly through your broker or other
financial institution. If you hold ADRs directly, you are an ADR holder. The
ADR will be in physical form if held by you directly, and may be in book-entry
or electronic form if held by a broker or other financial institution on your
behalf. This description assumes you hold your ADRs directly. If you hold your
ADRs indirectly, you must rely on the procedures of your broker or other
financial institution to assert your rights described in this section. You
should consult with your broker or financial institution to find out what those
procedures are.
Because the depositary will actually own the ordinary shares, you must rely
on it to exercise the rights of a shareholder. The obligations of the
depositary are described in the deposit agreement.
The deposit agreement and the ADRs are generally governed by New York law.
Dividends and Other Distributions
The depositary has agreed to pay to you the cash dividends or other
distributions it or the custodian receives on shares or other deposited
securities, after deducting its fees and expenses. You will receive these
distributions in proportion to the number of shares your ADRs represent. You
must hold the ADRs on the date established by us to be eligible for dividends
and other distributions. If we do not establish the date, the depositary may
establish it to determine who is eligible.
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For a discussion of the cash dividends or other distributions we may make on
the ordinary shares, including distributions as a result of our liquidation,
dissolution or winding-up, see "Description of Share Capital--Rights on a
Liquidation or Winding-Up," and "--Dividends."
Cash. The depositary will convert any cash dividend or other cash
distribution we pay on the shares into U.S. dollars or euro, if it can do so on
a reasonable basis and can transfer the U.S. dollars to the United States or
euro to Germany. If that is not possible or if any approval from the government
of the Ireland is needed and cannot be obtained, the agreement allows the
depositary to distribute U.S. dollars or euro only to those ADR holders to whom
it is possible to do so. It will hold the currency it cannot convert into U.S.
dollars or euro for the account of the ADR holders who have not been paid. It
will not invest the currency it cannot convert and it will not be liable for
any interest.
Before making a distribution, the depositary will deduct any withholding
taxes that must be paid under Irish law. For U.S. holders, it will distribute
only whole U.S. dollars and cents and will round fractional cents down to the
nearest whole cent, and for German holders, it will distribute only whole euro
and cents and will round fractional cents down to the nearest whole cent. If
the exchange rates fluctuate during a time when the depositary cannot convert
the Irish currency, you may lose some or all of the value of the distribution.
Ordinary shares. The depositary may distribute new ADRs representing any
ordinary shares which we distribute as a dividend or free distribution, if we
furnish it promptly with satisfactory evidence that it is legal to do so. The
depositary will distribute new ADRs in proportion to the number of ADRs you
already own. The depositary will only distribute whole ADRs. It will sell
ordinary shares which would require it to issue a fractional ADR and distribute
the net proceeds in the same way as it does with cash. If the depositary does
not distribute additional ADRs, each ADR will also represent the new ordinary
shares.
Rights to receive additional shares. If we offer holders of our securities
any rights to subscribe for additional ordinary shares or any other rights, the
depositary has discretion to determine how these rights become available to you
as a holder of ADRs. We must first instruct the depositary to do so and furnish
it with satisfactory evidence that it is legal to do so. The depositary could
decide it is not legal or practical to make the rights available to you, or it
could decide that it is only legal or practical to make the rights available to
some but not all holders of the ADRs. The depositary may decide to sell the
rights. If the depositary decides it is practical to sell the rights, the
depositary will sell the rights and distribute the proceeds in the same way as
it does with cash. If the depositary decides that it is not legal or practical
to make the rights available to you or to sell the rights, the rights that are
not distributed or sold could lapse. In that case, you will receive no value
for them. The depositary is not responsible for a failure in determining
whether or not it is legal or practical to distribute the rights. However, the
depositary is liable for damages if it acts negligently or in bad faith.
If the depositary makes rights available to you, it will exercise the rights
and purchase the ordinary shares on your behalf. The depositary will then
deposit the ordinary shares and issue ADRs to you. It will only exercise rights
if you pay it the exercise price and any other charges the rights require you
to pay.
U.S. or German securities laws may restrict the sale, deposit, cancellation,
and transfer of the ADRs issued after exercise of rights. For example, you may
not be able to trade the new ADRs freely in the United States. In this case,
the depositary may issue the new ADRs under a separate restricted deposit
agreement which will contain the same provisions as the deposit agreement,
except for changes needed to put the restrictions in place.
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Other Distributions. The depositary will send to you anything else we
distribute on deposited securities by any means it thinks is legal, fair and
practical. If it cannot make the distribution in that way, the depositary has a
choice. It may decide to sell what we distributed and distribute the net
proceeds, in the same way as it does with cash. Or, it may decide to hold what
we distributed, in which case ADRs will also represent the newly distributed
property.
The depositary is not responsible if it decides that it is unlawful or
impractical to make a distribution available to any ADR holders. We have no
obligation to register ADRs, ordinary shares, rights or other securities under
the U.S. Securities Act or the German securities laws. We also have no
obligation to take any other action to permit the distribution of ADRs,
ordinary shares, rights or anything else to ADR holders. This means you may not
receive the distributions we make on our ordinary shares or any value for them
if it is illegal or impractical for us to make them available to you.
Deposit, Withdrawal and Cancellation
Method for the depositary to issue ADRs. The depositary will issue ADRs if
you or your broker deposit ordinary shares or evidence of rights to receive
ordinary shares with the custodian. Upon payment of its fees and expenses and
of any taxes or charges, such as stamp taxes or stock transfer taxes or fees,
the depositary will register the appropriate number of ADRs in the names you
request and will deliver the ADRs at its office to the persons you request.
Method for an ADR Holder to cancel ADRs and obtain ordinary shares. You may
turn in your ADRs at the depositary's office. Upon payment of its fees and
expenses and of any taxes or charges, such as stamp taxes or stock transfer
taxes or fees, the depositary will deliver (1) the underlying ordinary shares
to an account designated by you to the extent legally permissible and (2) any
other deposited securities underlying the ADR at the office of the custodian.
Or, at your request, risk and expense, the depositary will deliver the ordinary
shares at its office.
Voting Rights
You do not have the right as an ADR holder to attend our meetings. You may
instruct the depositary to vote the shares underlying your ADRs. You could
exercise your right to vote directly if you withdraw the ordinary shares.
However, you may not know about the meeting enough in advance to withdraw the
ordinary shares.
When we notify the depositary of an upcoming vote, the depositary will
notify you of the upcoming vote and arrange to deliver our voting materials to
you. The materials will describe the matters to be voted on, explain how you,
if you hold the ADRs on a date specified by the depositary, may instruct the
depositary to vote the ordinary shares or other deposited securities underlying
your ADRs as you direct and to request a poll for each matter for which you
gave directions. The materials will also include a statement that, if you do
not give the depositary instructions, the depositary may give a discretionary
proxy to a person that we designate. For your instructions to be valid, the
depositary must receive them in writing on or before a date specified by the
depositary. The depositary will try, as far as practical, subject to Irish law
and the provisions of our articles of association, to vote or to have its
agents vote the ordinary shares or other deposited securities as you instruct.
The depositary will only vote or attempt to vote as you instruct.
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If you do not give the depositary instructions, you will be considered to
have instructed the depositary to give a discretionary proxy to a person
designated by us. However, no instruction will be deemed to have been given,
and the depositary will not give a discretionary proxy, if the matter to be
voted upon:
. is a matter not submitted to shareholders by means of a proxy statement
comparable to that specified in the U.S. proxy rules;
. is the subject of a counter-solicitation, or is part of a proposal made
by a shareholder which is being opposed by our management;
. is related to a merger or consolidation, except in limited circumstances
involving a merger between us and a wholly-owned subsidiary;
. authorizes mortgaging of property;
. authorizes or creates indebtedness or increases the authorized amount of
indebtedness;
. authorizes or creates preference shares or increases the authorized
amount of existing preference shares;
. alters the terms or conditions of any shares then outstanding or
existing indebtedness;
. involves waiver or modification of preemptive rights, except when our
proposal is to waive these rights for shares being offered under share
option or purchase plans involving the additional issuance of not more
than 5% of our outstanding ordinary shares;
. alters voting provisions or the proportionate voting power of a class of
shares, or the number of its votes per share, except where cumulative
voting provisions govern the number of votes per share for election of
directors and our proposal involves a change in the number of its
directors by not more than 10% or not more than one;
. changes existing quorum requirements for shareholder meetings;
. authorizes issuance of ordinary shares, or options to purchase ordinary
shares, to our directors, officers, or employees in an amount which
exceeds 5% of the total amount of the class outstanding. However, when
no plan is amended to extend its duration, we shall factor into the
calculation the number of ordinary shares that remain available for
issuance, the number of ordinary shares subject to outstanding options
and any ordinary shares being added. Should there be more than one plan
being considered at the same meeting, all ordinary shares will be
aggregated;
. authorizes (a) a new profit-sharing or special remuneration plan, or a
new retirement plan, the annual cost of which will amount to more than
10% of average annual income before taxes for the preceding five years,
or (b) the amendment of an existing plan which would bring its costs
above 10% of the five-year average annual income before taxes. Should
there be more than one plan being considered at the same meeting, all
costs are aggregated; exceptions may be made in cases of: (a) retirement
plans based on agreement or negotiations with labor unions or which have
been or are to be approved by labor unions, and (b) any related
retirement plan for benefit of non-union employees having terms
substantially equivalent to the terms of a union-negotiated plan, which
is submitted for action of shareholders concurrently with a union-
negotiated plan;
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. changes our purposes or powers to an extent which would permit us to
change to a materially different line of business and it is our stated
intention to make such a change;
. authorizes the acquisition of property, assets, or a company, where the
consideration to be given has a fair value of 20% or more of the market
value of our previously outstanding ADSs and ordinary shares;
. authorizes the sale or other disposition of assets or earning power of
20% or more of those existing before the transaction;
. authorizes a transaction not in the ordinary course of business in which
an officer, director or substantial security holder has a direct or
indirect interest; or
. reduces earned surplus by 51% or more, or reduces earned surplus to an
amount less than the aggregate of three years' ordinary share dividends
computed at the current dividend rate.
We cannot assure you that you will receive the voting materials in time to
ensure that you can instruct the depositary to vote your shares. In addition,
the depositary and its agents are not responsible for failing to carry out
voting instructions or for the manner of carrying out voting instructions. This
means that you may not be able to exercise your right to vote and there may be
nothing you can do if your ordinary shares are not voted as you requested.
Fees and Expenses
ADR holders must pay: For:
$ 5.00 or less per 100 ADSs Each issuance of an ADR,
including as a result of a
distribution of ordinary shares
or rights or other property
Each cancellation of an ADR,
including if the deposit
agreement terminates
$ 0.02 or less per ADS Any cash payment
Registration or transfer fees Transfer and registration of
ordinary shares on the share
register of the foreign
registrar from your name to the
name of the depositary or its
agent when you deposit or
withdraw ordinary shares
Expenses of the depositary Conversion of Irish pounds to
U.S. dollars or euros
Expenses of the depositary Cable, telex and facsimile
transmission expenses, if
expressly provided in the
deposit agreement
Taxes and other governmental As necessary
charges the depositary or
custodian have to pay on any
ADR or ordinary share
underlying an ADR, for
example, stock transfer
taxes, stamp duty or
withholding taxes
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Payment of Taxes
The depositary may deduct the amounts of taxes owed from any payments to
you. It may also sell deposited securities, by public or private sale, to pay
any taxes owed. You will remain liable if the proceeds of the sale are not
enough to pay the taxes. If the depositary sells deposited securities, it will,
if appropriate, reduce the number of ADRs to reflect the sale and pay to you
any proceeds, or send to you any property remaining after it has paid the
taxes.
Reclassifications, Recapitalizations and Mergers
<TABLE>
<CAPTION>
If we: Then:
<S> <C>
. Change the nominal or par The cash, shares or other securities
value of our ordinary shares received by the depositary will become
deposited securities.
. Reclassify, split up or Each ADR will automatically represent
consolidate any of the its equal share of the newly deposited
deposited securities securities.
. Distribute securities on the The depositary will, when we ask them
ordinary shares that are not to, distribute some or all of the
distributed to you securities it received, or cash or
other consideration in lieu of the
securities.
</TABLE>
<TABLE>
<CAPTION>
If we: Then:
<S> <C>
. Recapitalize, reorganize, It may also issue new ADRs or ask you
merge, liquidate, sell all or to surrender your outstanding ADRs in
substantially all of our exchange for new ADRs representing the
assets, or take any similar new deposited securities.
action
</TABLE>
Amendment and Termination
Amendment of the Deposit Agreement. We may agree with the depositary to
amend the deposit agreement and the ADRs without your consent for any reason.
If the amendment adds or increases fees or charges, except for taxes and other
governmental charges or expenses of the depositary, or prejudices an important
right of ADR holders, it will only become effective 30 days after the
depositary notifies you of the amendment. At the time an amendment becomes
effective, you are considered, by continuing to hold your ADR, to agree to the
amendment and to be bound by the ADRs and the amended deposit agreement.
Termination of the Deposit Agreement. The depositary will terminate the
deposit agreement if we ask to do so. The depositary may also terminate the
deposit agreement if it has told us that it would like to resign and we have
not appointed a new depositary bank within 90 days. In both cases, the
depositary must notify you at least 30 days before termination.
After termination, the depositary and its agents will be required to do only
the following under the deposit agreement:
(1) advise you that the deposit agreement is terminated,
(2) collect distributions on the deposited securities, and
(3) deliver ordinary shares and other deposited securities upon
cancellation of ADRs.
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One year after termination, the depositary will, if practical, sell any
remaining deposited securities by public or private sale. After that, the
depositary will hold the money it received on the sale, as well as any other
cash it is holding under the deposit agreement for the pro rata benefit of the
ADR holders that have not surrendered their ADRs. It will not invest the money
and has no liability for interest.
Limitations on Obligations and Liability to ADR Holders
Limitations on our Obligations and the Obligations of the Depositary;
Limitations on Liability to Holders of ADRs. The deposit agreement expressly
limits our obligations and the obligations of the depositary. It also limits
our liability and the liability of the depositary. We and the depositary:
. are only obligated to take the actions specifically described in the
deposit agreement without negligence or bad faith;
. are not liable if either of us is prevented or delayed by law or
circumstances beyond our control from performing our obligations under
the deposit agreement;
. are not liable if either of us exercises discretion permitted under the
deposit agreement;
. have no obligation to become involved in a lawsuit or other proceeding
related to the ADRs or the deposit agreement on your behalf or on behalf
of any other party; and
. may rely upon any documents we believe in good faith to be genuine and
to have been signed or presented by the proper party.
In the agreement, we agree to indemnify the depositary from any liability
which may arise out of acts performed or omitted by the depositary other than
those arising out of the depositary's bad faith or negligence.
Requirements for Depositary Actions
Before the depositary will issue or register transfer of an ADR, make a
distribution on an ADR, or permit withdrawal of ordinary shares, the depositary
may require:
. payment of stock transfer or other taxes or other governmental charges
and transfer or registration fees charged by third parties for the
transfer of any ordinary shares or other deposited securities;
. production of satisfactory proof of the identity and genuineness of any
signature of other information it considers necessary; and
. compliance with regulations it may establish, from time to time,
consistent with the deposit agreement, including presentation of
transfer documents.
The depositary may refuse to deliver, transfer or register transfers of ADRs
generally when the transfer books of the depositary, our transfer books or
those of The Depository Trust Company, Clearstream Banking or the foreign
registrar are closed or at any time if the depositary or we think it is
advisable to do so.
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Your Right to Receive the Shares Underlying your ADRs
You have the right to cancel your ADRs and withdraw the underlying ordinary
shares at any time except:
. When temporary delays arises because: (1) the transfer books are closed
by us or the depositary; (2) the transfer of ordinary shares is blocked
to permit voting at a shareholders' meeting; or (3) we are paying a
dividend on the ordinary shares;
. When you or other ADR holders seeking to withdraw ordinary shares owe
money to pay fees, taxes and similar charges; or
. When it is necessary to prohibit withdrawals to comply with any laws or
governmental regulations that apply to ADRs or to the withdrawal of
ordinary shares or other deposited securities.
This right of withdrawal may not be limited by any other provision of the
deposit agreement.
Pre-Release of ADRs
In limited circumstances, subject to the provisions of the deposit
agreement, the depositary may issue ADRs before deposit of the underlying
ordinary shares. This is called a pre-release of the ADR. The depositary may
also deliver ordinary shares upon cancellation of pre-released ADRs, even if
the ADRs are cancelled before the pre-release transaction has been closed out.
A pre-release is closed out as soon as the underlying ordinary shares are
delivered to the depositary. The depositary may receive ADRs instead of
ordinary shares to close out a pre-release. The depositary may pre-release ADRs
only under the following conditions:
(1) before or at the time of the pre-release, the person to whom the
pre-release is being made must represent to the depositary in writing that
it or its customer owns the ordinary shares or ADRs to be deposited;
(2) the pre-release must be fully collateralized with cash or other
collateral that the depositary considers appropriate; and
(3) the depositary must be able to close out the pre-release on not more
than five business days' notice. In addition, the depositary will limit the
number of ADRs that may be outstanding at any time as a result of pre-
release, although the depositary may disregard the limit from time to time,
if it thinks it is appropriate to do so.
Disclosure of Interests
By purchasing ADRs, you agree to comply with our articles of association and
the laws of the Republic of Ireland regarding any disclosure requirements
regarding ownership of ordinary shares, all as if the ADRs were, for this
purpose, the ordinary shares they represent. By purchasing ADRs, you also agree
to be bound by provisions of the deposit agreement mandating compliance with
the disclosure requirements of Irish company law.
As a public company, the Irish Companies Act, 1990, and our memorandum and
articles of association will permit us and our directors to request information
from you related to your ownership of the ADRs issued by us. Irish law and our
memorandum and articles of association impose penalties for failing to comply
with the disclosure requirements, including the possibility of having the
voting rights of the ordinary shares underlying the ADSs withdrawn, losing the
right to distributions or criminal penalties.
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To facilitate compliance with the notification requirements, ADR holders may
deliver any notification to the depositary, and the depositary will, as soon as
practicable, forward the notification to us and, to the extent practicable and
as permitted by applicable law, any authorities in the Republic of Ireland as
specified by the ADR holder.
Information Regarding the Depositary
The depositary is The Bank of New York, a New York banking corporation
established in 1784. It does not have a limited life. It does not have a
registration number or a registered office. Its principal executive and
administrative offices are located at 101 Barclay Street, New York, New York
10286.
If the depositary becomes insolvent, the deposited securities which are
represented by ADSs would be distributed to the ADR holders entitled to them
after surrender of the holders' ADRs, payment of the fees of the depository,
and payment of any applicable taxes or governmental charges, as permitted by
the terms of the ADRs. Under those circumstances, the deposited securities are
not subject to the claims of the depositary's creditors.
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SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of our ADSs in the public market could
adversely affect prevailing market prices from time to time. In particular,
after legal restrictions on resale described below expire, a substantial amount
of our ADSs will be able to be sold in the public market. Sales of substantial
amounts of our ADSs also could adversely affect our ability to raise equity
capital in the future.
Upon completion of the offering, we will have outstanding an aggregate of
54,281,444 equivalent ADSs, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options or warrants after
January 31, 2000. Of these shares, the 6,000,000 ADSs sold in this offering are
freely tradable, unless they are purchased by any of our affiliates. In
general, our affiliates include our directors, officers and 10% shareholders.
These affiliates may generally only resell our shares in compliance with the
limitations of Rule 144 described below.
Restricted securities may be sold in the public market in the United States
only if registered or if they qualify for an exemption from registration under
Section 4(1) of the Securities Act or under Rules 144 or 701 under the
Securities Act. The restricted securities also may be sold in the public market
outside the United States under Rule 904 under the Securities Act. These rules
are summarized below. As a result of the agreements describe below, these
restricted securities are eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
Approximate
ADSs
eligible
Date for sale Comment
---- ----------- --------------------------------------
<S> <C> <C>
Upon effectiveness......... 23,800,402 Freely tradable shares and shares
eligible for sale under Rule 144,
144(k) or 701 that are not subject to
the 90 day lockup (including ADSs sold
in the offering)
91 days after the date of
the
prospectus................. 30,480,376 Lockup released; freely tradable
shares and shares eligible for sale,
under Rule 144, 144(k) or 701
</TABLE>
In addition, as of January 31, 2000, there were outstanding options to
purchase up to 3,611,327 ordinary shares (7,222,654 equivalent ADSs) which will
be eligible for sale in the public market following the offering from time to
time, subject to becoming exercisable and, in the case of the options mentioned
in the following paragraph, the expiration of agreements with the underwriters
described in the following paragraph.
All of our officers and directors (other than one of our outside directors),
the selling shareholders in this offering, and certain additional shareholders
have entered into agreements with the underwriters. Under these agreements, our
officers and directors (other than one of our outside directors) and Instove
Limited, Enterprise Ireland, Deutsche Bank AG, Fleet Boston Robertson Stephens
Inc. and Chase Securities Inc. have agreed not to offer, sell, contract to sell
or dispose of, or enter into any transaction having an economic effect similar
to that of a sale of, any ordinary shares held by such persons for a period of
90 days after the date of this prospectus, without the prior written consent of
Deutsche Bank AG. In addition, other than as described in the preceeding
sentence, each of the selling shareholders has agreed not to offer, sell,
contract to sell or dispose of, or enter into any transaction having an
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economic effect similar to that of a sale of, 50% of the ordinary shares held
by such shareholders for a period of 90 days after the date of the prospectus,
without the prior consent of Deutsche Bank AG. In either case, this consent may
be given at any time without public notice. The total number of ordinary shares
subject to the agreements described above is 15,240,188 (30,480,376 equivalent
ADSs). We have entered into a similar agreement, except that we may issue, and
grant options or warrants to purchase, ADSs or ordinary shares or any
securities convertible into, exercisable for or exchangeable for ADSs or
ordinary shares, upon the exercise of outstanding options and warrants and
under the existing stock option and stock purchase plans.
In general, under Rule 144 shareholders who have beneficially owned
restricted shares for at least one year, including the holding period of any
prior owner except one of our affiliates, would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of one
percent of the number of outstanding equivalent ADSs, which will equal
approximately 542,814 ADSs immediately after the offering, or the average
weekly trading volume in the shares during the four calendar weeks immediately
preceding the sale. Sales under Rule 144 are also subject to provisions
governing the manner of sale and requiring notice and publicly available
information about us. Under Rule 144(k), a person who has not been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares to be sold for at least two years, is entitled to
sell the shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144. Therefore, unless shares
are otherwise restricted, and subject to the agreements with the underwriters
described above, 144(k) shares may be sold immediately upon the completion of
the offering.
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchases shares from us under
Rule 701 in connection with a compensatory stock or option plan or other
written agreement is eligible to resell those shares, unless contractually
restricted, 90 days after the effective date of the registration statement in
reliance on Rule 144, but without compliance with some of restrictions,
including the holding period, contained in Rule 144.
Rule 904 under the Securities Act provides that ADS representing ordinary
shares owned by any person, other than persons deemed to be affiliates by
virtue of their significant shareholdings in us, may be sold without
registration outside of the United States. To do so, the sale generally must be
made to a person outside the United States, effected outside the United States
and without directed selling efforts made in the United States. In general,
this means that the ADSs representing ordinary shares, including restricted
ordinary shares and ordinary shares held by several of our directors and
officers who do not own a significant percentage of the ordinary shares
outstanding, may be sold without registration on the Neuer Markt or outside of
the United States.
We have filed a Form S-8 registration statement under the Securities Act to
register ordinary shares reserved for issuance under our share option plans.
ADSs represented by ordinary shares issued upon exercise of options are
immediately available for sale in the public market, subject to Rule 144 volume
limitations applicable to affiliates.
Some of our shareholders have the right to cause us to register their
ordinary shares.
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THE GERMAN EQUITY MARKET
The Frankfurt Stock Exchange and the Neuer Markt
The Frankfurt Stock Exchange is the most significant of the eight German
stock exchanges and accounted for approximately 80% of the turnover in traded
shares in Germany in 1999. The aggregate annual turnover of the Frankfurt Stock
Exchange in 1999 of approximately DM 7.975 trillion for both equity and debt
instruments, made it the fourth largest stock exchange in the world behind the
New York Stock Exchange, London and Tokyo in terms of turnover. The calculation
of the aggregate annual turnover of the Frankfurt Stock Exchange is based on
the Frankfurt Stock Exchange's practice of separately recording the sale and
purchase components involved in any trade. As of December 31, 1999, the equity
securities of 3,265 corporations, including more than 2,000 foreign
corporations, were traded on the Frankfurt Stock Exchange.
The Neuer Markt segment of the Frankfurt Stock Exchange is a new trading
segment that was launched in March 1997. It is designed for innovative, small
to mid-size companies in high growth industries or in traditional industries
that have an international orientation and that are willing to provide active
investor relations. The Frankfurt Stock Exchange requires that the issuer make
a presentation, and it may reject the issuer if it considers the issuer
inappropriate for the Neuer Markt. Issuers are requested to provide investors
on an ongoing basis with information such as annual and quarterly reports,
including cash flow statements, and a corporate action timetable. This
information is required to be submitted in English and German as well as in
electronic form, thus enabling the stock exchange to disseminate corporate
information over the Internet page entitled "Company Information" at
http://www.neuer-markt.de.
Trading on the Neuer Markt
Trading of shares listed on the Neuer Markt takes place on the floor of the
stock exchange, but is computer-aided. Shares listed on the Neuer Markt can
also be traded on a computer-aided system called Xetra. Trading takes place on
every business day between 9:00 a.m. and 5:30 p.m., Frankfurt time. Trading
within the Xetra system is done by banks and brokers who have been admitted to
trading on at least one of Germany's stock exchanges. Xetra is integrated into
the Frankfurt Stock Exchange and is subject to its rules and regulations.
Markets in listed securities are generally of the auction type, but listed
securities also change hands in inter-bank dealer markets off the Frankfurt
Stock Exchange. Price formation is determined by open bid by state-appointed
specialists who are themselves exchange members, but who do not, as a rule,
deal with the public. Prices of shares traded on the Neuer Markt are displayed
continuously during trading hours. At the half-way point of each trading day, a
single standard quotation is determined for all shares. The members'
association of the Frankfurt Stock Exchange publishes a daily list of prices
which contains the standard prices of all traded securities, as well as their
highest and lowest quotations during the past year.
Transactions on the Frankfurt Stock Exchange, including transactions within
the Xetra system, are settled on the second business day following trading.
Transactions off the Frankfurt Stock Exchange for large volumes or if one of
the parties is foreign are generally also settled on the second business day
following trading, unless the parties have agreed upon a different date.
Following an amendment to the conditions of German banks for securities
trading, customers' orders to buy or sell listed securities must be executed on
a stock exchange, unless the customer instructs otherwise. Trading can be
suspended by the Frankfurt Stock Exchange if orderly stock exchange trading is
temporarily endangered or if a suspension is in the public interest.
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A specific feature of the Neuer Markt is the introduction of the obligatory
designated sponsor. The designated sponsor is an entity admitted for trading at
the Frankfurt Stock Exchange which provides additional liquidity by quoting
prices for the buying and selling of shares on request. Each issuer on the
Neuer Markt has to nominate at least two designated sponsors which will not
only ensure that there is sufficient liquidity for its shares, but also serve
as consultants on all stock market related matters for the issuer.
Trading on German stock exchanges is monitored by regulatory agencies
including the Federal Supervisory Office for Securities Trading.
The ADSs have been admitted for listing on the Neuer Markt. Since September
24, 1999, our ADSs have been traded on the Neuer Markt under the symbol TTP.
The Neuer Markt is still a relatively new market. Therefore, an active trading
market for the ADSs may not develop on the Neuer Markt or the Neuer Markt may
experience problems in settlement or clearance as trading develops. Any delays
or problems could adversely affect the market price of the ADSs. Persons
proposing to trade the ADSs on the Neuer Markt should inform themselves about
the potential costs of trading on this market.
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<PAGE>
TAXATION
The following is a general summary of important tax considerations derived
from the laws of the Republic of Ireland, Germany and the federal law of the
United States relating to the purchase, ownership and disposition of ADSs or
ordinary shares by U.S. holders, German holders and Irish holders. For the
purposes of this discussion, a U.S. holder means an individual citizen or
resident of the United States for U.S. federal income tax purposes, a
corporation or partnership created or organized under the laws of the United
States, or any of the states comprising the United States, an estate the income
of which is subject to U.S. federal income taxation regardless of its source,
or a trust, the administration of which is subject to the primary supervision
of a court within the United States and regarding which one or more U.S.
persons have the authority to control all substantial decisions of the trust.
For purposes of this discussion, a German holder means an individual with his
residence or usual place of stay in Germany as well as a corporation with its
registered seat or management in Germany, or permanent establishment in
Germany, which is maintained by a shareholder not subject to unlimited tax
liability or is usually at the shareholder's disposal, and an Irish holder
means any person who is a resident or is ordinarily resident in Ireland or who
is carrying on a trade in Ireland through a branch or agency.
This summary is of a general nature only and does not discuss all aspects of
Irish, German and U.S. taxation that may be relevant to a particular investor.
In particular, the following summary does not address the tax treatment of U.S.
holders or Irish holders who own, actually or constructively, 10% or more of
our outstanding voting stock. Nor does this summary address classes of U.S.
holders, such as broker-dealers, insurance companies, tax-exempt organizations,
financial institutions, persons subject to the alternative minimum tax and
persons who do not hold ADSs as capital assets. These particular investors not
addressed in this summary may be subject to special rules.
Prospective purchasers of ADSs are advised to consult their own tax advisors
regarding the U.S. federal, state and local tax consequences, as well as
regarding the tax consequences in Germany and the Republic of Ireland and other
jurisdictions, of the purchase, sale and ownership of ADSs applicable in their
particular tax situations.
The statements of Irish, German and U.S. tax laws described below are based
on the laws in force and as interpreted by the relevant taxation authorities as
of the date of this prospectus and are subject to any changes in Irish, German
or U.S. law, or in the interpretation of these laws by the relevant taxation
authorities, or in the double taxation conventions among any two of the
Republic of Ireland, Germany and the United States occurring after that date.
The discussion regarding Irish taxation matters is based on the various Irish
taxes acts, finance acts and other relevant legislation, judicial decisions,
statements of practice and revenue practices in force at this time, all of
which are subject to change, possibly with retrospective effect. The discussion
regarding U.S. federal income taxation matters is based on the provisions of
the Internal Revenue Code of 1986, as amended, final, temporary and proposed
U.S. treasury regulations promulgated under the U.S. code and administrative
and judicial interpretations of the U.S. code, all as in effect as of the date
of this prospectus and all of which are subject to change, possibly with
retroactive effect.
On January 11, 2000, the German Federal Ministry of Finance published the
draft "Business Tax Reform and Tax Reduction Act," or the "Draft Bill". Most of
the proposed changes will be implemented with effect from January 1, 2001.
According to the Draft Bill, the current split rate of corporate income tax
will be replaced by a flat tax rate of 25%. The top marginal personal income
tax rate on ordinary income of
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currently 51% will be reduced--over several years--to 45% by 2005. Trade tax
and solidarity surcharge will remain unchanged. The cornerstone of the Draft
Bill is a fundamental reform of the structure of German business taxation,
including the transfer from the current corporate full imputation tax system to
a system referred to as "Half Income System" as well as an option for
partnerships to be treated as corporations for tax purposes. Other notable
changes include an unconditional participation exemption for capital gains on
the disposition of shares by a corporation which will come into effect on
January 1, 2002.
The German Federal Government adopted the Draft Bill on February 9, 2000
with only few changes. It will now be submitted to the German Federal
Parliament and, after having passed the German Federal Parliament, to the
German Federal Council of States. The proposed changes are put into parentheses
in the following sections:
Our Taxation
Republic of Ireland Taxation. Companies which are resident in the Republic
of Ireland are subject to Irish corporation tax on their total profits wherever
arising and whether or not remitted to the Republic of Ireland. It is the
present intention of our directors to manage and control us from Ireland so
that we will be regarded as resident in Ireland for Irish tax purposes. The
standard rate of Irish corporation tax on trading income is currently 24% but
this is to be reduced by 4% each year until January 1, 2003, with the rate
applying as and from that date being 12.5%. Non-trading income is taxed at the
rate of 25%.
There is also a reduced rate of corporation tax in Ireland of 10% which
applies to income from the sale of goods manufactured in Ireland and from other
activities considered to be the manufacture of goods in Ireland. The electronic
PoS and software activities of Trintech Technologies, Inc., one of our
subsidiaries, qualifies for the 10% rate of tax until December 31, 2010. After
that date, our income will be taxable at the then current standard rates
appropriate for trading income and non-trading income.
Irish tax law also provides that a company which is resident in Ireland and
which is not resident elsewhere shall be entitled to have any income from a
qualifying patent disregarded for taxation purposes provided several conditions
are fulfilled. The legislation does not provide a termination date for this
relief. One of our subsidiaries currently has income qualifying for this
exemption.
Irish capital duty is payable at 1% on our issue of shares.
United States Taxation. Under the 1997 Convention, we will not be subject to
the U.S. income tax unless we engage in a trade or business in the United
States through a permanent establishment. We currently operate in the United
States through our wholly-owned U.S. subsidiary, Trintech, Inc. We expect to be
able to conduct our business activities in a manner that will not result in our
being considered to be engaged in a trade or business or to have a permanent
establishment in the United States, even though Trintech, Inc. is a U.S.
taxpayer.
German Taxation. The tax treatment of ADSs includes some unresolved
questions, since ADSs are comparatively new instruments in Germany. Therefore
no court decisions or letters of the fiscal authorities exist in Germany
dealing with special questions of ADSs.
Potential investors should be aware that for purposes of German law,
ownership of the ADSs is not considered legal ownership of the underlying
ordinary shares. However, the economic and other rights associated with owning
ADSs are similar to those associated with owning the underlying ordinary shares
directly. Therefore, there are no tax benefits associated with, and in
principle no differences regarding the German tax treatment of dividends or
capital gains resulting from, holding ADSs instead of ordinary shares.
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Foreign companies are subject to German trade tax if trade is established
through a permanent establishment or a representative in Germany. Since 1998,
trade tax has no longer been levied on the capital but only on the profits of
the foreign companies. The applicable tax rate depends on the municipality in
which the permanent establishment or representative is located.
Foreign companies without a registered seat or place of management in
Germany are also subject to limited corporation tax liability on their domestic
income. The general corporation tax rate amounts to 40% (25%) according to sec.
23 para 1 Corporation Tax Law. A solidarity surcharge of 5.5% is also levied on
the amount of corporation tax, as a result of which the aggregate tax totals
42.2%.
Profit transferred abroad after the application of trade and corporation tax
are not subject to withholding tax.
We currently only operate in Germany through our wholly owned subsidiary
Trintech GmbH, Neu-Isenburg. Therefore we believe that Trintech Group, Dublin,
Ireland is not subject to German trade or corporation tax.
Taxation of Dividends
Republic of Ireland Taxation. We currently intend to retain future earnings,
if any, to fund the development and growth of our business. Should we begin
paying dividends, unless exempted, all dividends paid by us will be subject to
Irish withholding tax at the rate of 22%. An individual holder of ordinary
shares resident in a relevant territory, being a country with which Ireland has
a double tax treaty, which includes the United States, or in a member state of
the European Union other than Ireland, will be exempt from withholding tax
provided he makes the requisite declaration. Corporate holders of ordinary
shares ultimately controlled by residents of a relevant territory or the
principal class of shares of which, or of a 75% parent, is traded on a stock
exchange in a relevant territory will be exempt from withholding tax provided
the appropriate declaration is made. Corporate holders of ordinary shares
resident in a relevant territory which are not controlled by Irish residents
and corporate holders wholly owned by two or more companies, the shares of each
of which are traded on a stock exchange in a relevant territory will be exempt
from withholding tax provided that the appropriate declaration is made. A
holder of ADRs will be exempt from withholding tax if it is beneficially
entitled to the dividend and if its address on the register of ADRs maintained
by the depositary is in the United States. Additionally, the depositary must be
authorized by the Irish Revenue Commissioners as a qualifying intermediary for
this exemption to apply. Where such a withholding is made it will satisfy the
liability to Irish tax of the shareholder except in circumstances where an
Irish resident or ordinarily resident individual holder of ordinary shares may
have an additional liability.
A charge to Irish social security taxes and other levies can arise for
individuals. An individual who is neither resident nor ordinarily resident in
Ireland can only incur this liability if that individual also carries on a
trade or profession in Ireland. However, under the social welfare agreement
between Ireland and the United States, an individual who is liable for U.S.
social security contributions can normally claim an exemption from these taxes
and levies.
United States Taxation. For U.S. federal income tax purposes, the gross
amount, which includes the amount of the tax credit described below, of any
dividend paid, to the extent of our current or accumulated earnings and profits
as determined based on U.S. tax principles, will be included in a U.S. holder's
gross income and treated as foreign source dividend income. These dividends
will not be eligible for the dividends received deduction allowed to
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U.S. corporations. The amount of any distribution that exceeds earnings and
profits will be treated first as a nontaxable return of capital, reducing the
U.S. holder's basis in its shares, and then as capital gain. The amount
includable in income will be the U.S. dollar value of the payment based on the
exchange rate on the date of payment regardless of whether the payment is in
fact converted into U.S. dollars. Generally, gain or loss, if any, resulting
from currency fluctuations during the period from the date any dividend is paid
to the date the payment is converted into U.S. dollars will be treated as
ordinary income or loss.
The U.S. Internal Revenue Service, has ruled privately that a U.S. holder
will be eligible for a U.S. foreign tax credit under Article XIII of the 1949
Convention for the Irish tax imposed on a dividend paid by an Irish company.
The same result should occur under the 1997 Convention. Although private letter
rulings are not binding authority and are directed only to the taxpayer who
requests them, they are considered persuasive in determining the position of
the IRS. The amount of the allowable credit is likely to be determined by
applying a statutorily defined formula. To the extent that any distribution is
made by us out of profits taxed in the Republic of Ireland at the standard
rate, the allowable tax credit amount should be equal to 11/89ths of the net
distribution. To the extent that the distribution is paid out of profits
taxable in the Republic of Ireland at the reduced 10% rate, the allowable tax
credit amount should be equal to 1/18th of the net distribution.
If the U.S. holder is a U.S. partnership, trust or estate, the allowable tax
credit amount will be available only to the extent that the income derived by
the partnership, trust or estate is subject to U.S. tax as the income of a
resident either in its hands or in the hands of its partners or beneficiaries.
German Taxation. Dividends paid on ordinary shares or ADSs held as German
business assets are subject to trade tax. German holders of at least 10%
ordinary shares might benefit from a participation exemption for trade tax
purposes.
Profits distributed by us are subject to German income or corporation tax,
if they are paid to:
(a) a shareholder or ADS holder subject to unlimited tax liability, including
individuals with their residence or usual place of stay in Germany as well
as corporations with their registered seat or management in Germany, or
(b) a permanent establishment in Germany which is maintained by a shareholder
not subject to unlimited tax liability or is usually at the shareholder's or
ADS holder's disposal.
These dividend payments are subject to German corporation tax at the rate of
40% (25%) or the German progressive income tax, in each case plus a solidarity
surcharge of 5.5%. Profits transferred after the deduction of taxes as
described in clause (b) are not subject to withholding tax. Holders of at least
10% ordinary shares might benefit from a participation exemption for
corporation tax purposes. (Pursuant to the Draft Bill, it is planned that
dividends were tax exempt without any holding periods or participation ratios,
provided that they are derived by a corporation, effective January 1, 2001.
However, 5% of the dividend amount which are deemed to be non tax-deductible
business expenses under current law will still be treated as non tax-
deductible.)
If a withholding tax is levied in Ireland on dividend distributions paid by
us, Irish withholding tax in an amount of 18% can be credited against that
portion of the German income or corporation tax attributable to the dividend
payment. It is, however, unclear regarding whether ADSs holders may avail
themselves of this tax credit because only the legal shareholder typically has
the right to take a credit for foreign withholding tax. If the
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withholding tax amount actually withheld exceeds the German income tax
attributable to the dividend payment, the tax credit is restricted to the
latter amount. Instead of the tax credit, the withholding actually withheld may
be deducted from taxable income.
German holders who are individuals may, as of the year 2000, claim a tax-
exempt amount for income from capital assets of DM3,000 or, for married couples
filing a joint income tax return, DM 6,000. These German holders can also
deduct from their dividend income costs resulting from the purchase, custody
and ownership of the ordinary shares or ADSs, in particular the fees of custody
and refinancing. These costs may, without evidence, be deducted for tax
purposes from the profits from dividends, to the amount of DM100 per year or
DM200 in the case of married couples filing a joint income tax return.
Taxation of Capital Gains
Republic of Ireland Taxation. A person who is not an Irish holder will not
be subject to Irish capital gains tax on the disposal of ordinary shares or
ADSs provided that the ordinary shares or ADSs are quoted on a recognized stock
exchange. Nasdaq and the Neuer Markt are recognized stock exchanges. Irish
holders will be liable to Irish tax on capital gains arising on the disposal of
the ordinary shares or ADSs. The capital gain will generally be calculated by
reference to the difference between the purchase price and the sale price of
the ordinary shares or ADSs. The usual indexation relief and other reliefs and
allowances may be available in computing the liability of the shareholder.
United States Taxation. Subject to the discussion of the passive foreign
investment companies, or PFIC, below, a U.S. holder's sale or exchange of ADSs
generally will result in the recognition of capital gain or loss by the U.S.
holder in an amount equal to the difference between the amount realized and the
U.S. holder's tax basis in the ADSs sold. Gain or loss realized on the sale of
ADSs by non-corporate U.S. holders will be subject to a maximum rate of U.S.
federal income tax of 20%, provided the ADSs were held for more than 12 months
as capital assets. In general, any capital gain or loss recognized by a U.S.
holder upon the sale or exchange of ADSs will be treated as U.S. source income
or loss for U.S. foreign tax credit purposes. The deductibility of capital
losses is subject to limitations. A U.S. holder's tax basis in its ADSs will
generally be the purchase price paid for its ADSs by the U.S. holder. A U.S.
holder that is liable for both Irish and U.S. tax on gain on the disposal of
the ordinary shares will generally be entitled, subject to limitations and
under the 1997 Convention, to credit the amount of Irish capital gains or
corporate tax paid for the gain on the sale against the U.S. holder's U.S.
federal income tax liability for this gain.
German Taxation. Capital gains realized from the sale of ordinary shares or
ADSs which were held as business assets by a German holder are subject to
taxation without any special regulations. The conversion of ADSs into ordinary
shares should not be a taxable event for German tax purposes. The conversion
should qualify as a replacement of the sole economic against the legal and
economic ownership. There are no German tax court decisions addressing the
exchange or conversion of foreign depositary receipts into foreign shares.
Capital gains deriving from the sale of ordinary shares or ADSs held as
private assets are only subject to taxation if:
(a) the sale takes place within one year of purchase or, after this period
has expired, the holder had, at any time during the five years preceding the
sale, a participation of at least 10% (1%) directly or indirectly in the
case of ADSs, in us, or
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(b) the ordinary shares or ADSs were received in return for a tax privileged
contribution in kind.
The conversion of ADSs into ordinary shares should not be a taxable event in
either case, although there are some uncertainties regarding German tax
treatment of the conversion by private individuals as described above.
Passive Foreign Investment Company Considerations
We will be classified as a PFIC for U.S. federal income tax purposes if we
satisfy either of the following two tests:
(a) 75% or more of our gross income for the taxable year is passive income,
or
(b) on average for the taxable year, 50% or more of the value of our assets
produce or are held for the production of passive income.
We do not believe that we satisfy either of the tests for PFIC status. We
also do not believe that we will satisfy either of the tests for PFIC status
immediately after completion of this offering. If we are a PFIC for any taxable
year, a U.S. holder would be required to
(a) pay an interest charge together with tax calculated at maximum ordinary
income rates on any "excess distribution", which is defined to include gain
on a sale or other disposition of ADSs,
(b) if a qualified electing fund election is made by the U.S. holder, to
include in their taxable income enumerated undistributed amounts of our
income, or
(c) if an election is made by the U.S. holder to mark our shares to market,
to include as ordinary income each year the excess, if any, of the fair
market value at the end of the year of our shares held by the U.S. holder
over its adjusted basis in the shares, and to recognize additional gain, if
any, on the sale or other disposition of the shares as ordinary income for
that year. The U.S. holder will be allowed to claim a deduction as an
ordinary loss for the excess, if any, of the adjusted basis of the shares
over their fair market value at the end of the year or over their final sale
or disposition price, to the extent of the net amount of previously included
income resulting from the mark to market election. The U.S. holder's basis
in our ordinary shares will be adjusted to reflect any income or less
amounts.
Each U.S. holder should consult his own tax advisor regarding the
advisability of making the qualified electing fund election mentioned in
paragraphy (b) above.
U.S. Information Reporting and Backup Withholding
Any dividends paid, or proceeds on a sale of, ADSs to or by U.S. holders may
be subject to U.S. information reporting, and the 31% U.S. backup withholding
tax may apply unless the holder (1) is an exempt recipient, or (2) provides a
U.S. taxpayer identification number, certifies that no loss of exemption from
backup withholding has occurred and otherwise complies with any applicable
backup withholding requirements. Any amounts withheld under
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the U.S. backup withholding tax rules will be allowed as a refund or credit
against the U.S. holder's U.S. federal income tax, provided the required
information is furnished to the U.S. IRS.
Irish Capital Acquisition Tax and Probate Tax
A gift or inheritance of ordinary shares or ADRs will be within the charge
to capital acquisitions tax, regardless of where the donor or the
donee/successor in relation to the gift or inheritance is domiciled, resident
and ordinarily resident. The capital acquisitions tax is charged at a rate of
20% on the taxable value of the gift or inheritance above a tax-free threshold.
This tax-free threshold is determined by the amount of the current benefit and
of previous benefits within the charge to the capital acquisitions tax and the
relationship between the former holder and the successor. Gifts and
inheritances between spouses are not subject to the capital acquisitions tax.
There is also a probate tax which is charged at 2% on the value of the estates
of deceased persons which exceed a specified threshold. To the extent that they
pass under a will or an intestacy, ordinary shares or ADRs would be within the
charge to this tax.
The Estate Tax Convention between Ireland and the United States generally
provides for Irish capital acquisitions tax paid on inheritances in Ireland to
be credited, in whole or in part, against tax payable in the United States, in
the case where an inheritance of ordinary shares or ADRs is subject to both
Irish capital acquisitions tax and US federal estate tax. The Estate Tax
Convention does not apply to Irish capital acquisitions tax paid on gifts.
Irish Stamp Duty
It is assumed for the purpose of this paragraph that ADRs are dealt in on a
stock exchange in the United States recognized by the Irish taxing authorities.
Under current Irish law, no stamp duty will be payable on the acquisition of
ADRs by persons purchasing ADRs or on any subsequent transfer of an ADR. A
transfer of ordinary shares, including transfers effected through CREST,
wherever executed and whether on sale, in contemplation of a sale or by way of
a gift, will attract duty at the rate of 1% of the consideration given or, in
the case of a gift or where the purchase price is inadequate or
unascertainable, on the market value of the ordinary shares. Transfers of
ordinary shares which are not liable to duty at the rate of 1%, such as
transfers under which there is no change in beneficial ownership, may attract a
fixed duty of IR(Pounds)10.
The transfer by a holder to the depositary or custodian of ordinary shares
for deposit in return for ADRs and a transfer of ordinary shares from the
depositary or custodian in return for the surrender of ADRs will be stampable
at the rate of 1% if the transfer of the ordinary shares relates to a sale or
contemplated sale or any other change in the beneficial ownership under Irish
law of the ordinary shares. If, however, the transfer of the ordinary shares is
a transfer under which there is no change in the beneficial ownership under
Irish law of the ordinary shares being transferred, a fixed duty of
IR(Pounds)10 may be payable on the transfer.
The person accountable for payment of stamp duty is the recipient or, in the
case of a transfer by way of a gift or for a consideration less than the market
value, all parties to the transfer. Stamp duty is normally payable within 30
days after the date of execution of the transfer. Late or inadequate payment of
stamp duty will result in a liability to interest, penalties and fines.
The Irish Revenue Commissioners are prepared to exempt from Irish stamp duty
the transfer of ADRs dealt in on the Neuer Markt as long as the ADRs are also
dealt in on the Nasdaq National Market.
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Other Taxes in Germany
Wealth Tax. At present, for assessment periods as of January 1, 1997, there
is no wealth tax levied in Germany.
Inheritance and Gift Tax. The transfer of ordinary shares or ADSs to another
person as a gift or due to death is only subject to German inheritance and gift
tax if:
(a) the former holder, or the new holder has, at the time of the passing of
the assets, his residence or usual place of stay in Germany or before this
time has been a German citizen not living abroad for more than five years,
without having a residence in Germany, or
(b) the ordinary shares or ADSs were part of the former holder's business
assets, for which a permanent establishment was maintained in Germany or a
permanent representative was commissioned.
Other Taxes. If a purchase, sale or other alienation of ordinary shares or
ADSs is executed, no German capital transfer, tax, sales tax, stamp duty or
similar tax will be incurred.
Real estate transfer tax may be incurred if 95% of the ordinary shares or
ADSs are transferred to one shareholder or if there is a unification of 95% of
the ordinary shares or ADSs at the level of a shareholder, provided we or one
of our direct or indirect subsidiaries hold German real estate.
EXCHANGE CONTROL REGULATIONS
Republic of Ireland. Irish exchange control regulations ceased to apply from
and after December 31, 1992. Except as indicated below, there are no
restrictions on non-residents of the Republic of Ireland dealing in domestic
securities which includes shares or depositary receipts of Irish companies such
as us and dividends and redemption proceeds are freely transferable to non-
resident holders of the securities.
The Financial Transfers Act, 1992 of Ireland was enacted in December 1992.
This act gives power to the Minister for Finance of Ireland to make provision
for the restriction of financial transfers between the Republic of Ireland and
other countries. Financial transfers are broadly defined and include all
transfers which would be movements of capital or payments within the meaning of
the treaties governing the European Communities. The acquisition or disposal of
ADSs issued by an Irish incorporated company and associated payments may fall
within this definition. In addition, dividends or payments on redemption or
purchase of shares and payments on a liquidation of an Irish incorporated
company would fall within this definition. Currently, orders under this act
prohibit any financial transfer to or by the order of or on behalf of residents
of the Federal Republic of Yugoslavia, reconstituted in 1991 as Serbia and
Montenegro, or Iraq unless permission for the transfer has been given by the
Central Bank of Ireland.
We do not anticipate that Irish exchange controls or orders under the
Financial Transfers Act, 1992 will have a material effect on our business.
For the purposes of the orders relating to Iraq and the Federal Republic of
Yugoslavia, reconstituted in 1991 as Serbia and Montenegro, a resident of those
countries is a person living in these countries, a body corporate or entity
operating in these countries and any person acting on behalf of any one of
these persons.
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Any transfer of, or payment for, an ordinary share or ADS involving the
government of any country which is currently the subject of United Nation
sanctions, any person or body controlled by any government or country under
United Nations sanctions, or any person acting on behalf of these governments
or countries, may be subject to restrictions required under these sanctions as
implemented into Irish law. Angola is currently the subject of United Nation
sanctions.
Federal Republic of Germany. At present, the Federal Republic of Germany
does not restrict the export or import of capital, except for investments in
countries such as Iraq and Libya as required by resolutions adopted by the
United Nations and the European Union. However, for statistical purposes only,
every individual or corporation residing in Germany, a resident, must report to
the German Federal Central Bank, subject only to several immaterial exceptions,
any payment received from or made to an individual or a corporation resident
outside Germany, or a non-resident, if a payment exceeds DM 5,000 or the
equivalent in a foreign currency. In addition, residents must report any claims
against or any liabilities payable to non-residents if these claims or
liabilities, in the aggregate, exceed DM 3 million or the equivalent in a
foreign currency during any one month.
Furthermore, residents must periodically report investments which it may
make in a non-resident enterprise if at least 10% of the share capital or of
the voting rights of the non-resident enterprise is attributable to the
resident or any of its non-resident affiliates. However, this reporting
requirement does not apply if the total assets of the non-resident enterprise
do not exceed DM 1.0 million or, if less than 50% of the share capital or
voting rights of the non-resident enterprise are attributable to the resident
or any of its non-resident affiliates, do not exceed DM 10.0 million.
A non-resident affiliate is a non-resident entity of which more than 50% of
the share capital or voting rights are attributable to a resident. Moreover,
enterprises resident in Germany must periodically report investments which are
made in them if at least 10% of the share capital or of the voting rights of
the resident enterprise are attributable to one or more non-residents or any of
their resident affiliates. However, this reporting requirement does not apply
if the total assets of the resident enterprise do not exceed DM 1.0 million or,
if less than 50% of the share capital or voting rights of the resident
enterprise are attributable to one or more non-residents or any of their
resident affiliates, do not exceed DM 10.0 million. A resident affiliate is a
resident entity of which more than 50% of the share capital or voting rights
are attributable to a non-resident.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank AG,
Donaldson, Lufkin & Jenrette Securities Corporation, FleetBoston Robertson
Stephens Inc. and Chase Securities Inc. have agreed to purchase from us the
following numbers of ADSs.
<TABLE>
<CAPTION>
Number of
Underwriters ADSs
------------ ---------
<S> <C>
Deutsche Bank AG .................................................. 2,400,000
Donaldson, Lufkin & Jenrette Securities Corporation................ 1,200,000
FleetBoston Robertson Stephens Inc................................. 1,200,000
Chase Securities Inc............................................... 1,200,000
---------
Total............................................................ 6,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
depend on the satisfaction of the conditions contained in the underwriting
agreement, and that the underwriters will purchase all of the ADSs offered by
us under this prospectus if any of these shares are purchased.
We have been advised by the representatives that the underwriters propose to
offer the ADSs to the public at the public offering price presented on the
cover page of this prospectus and to dealers at a price less a concession not
in excess of $0.63, or approximately (Euro)0.71, per ADS to other dealers.
After the public offering, the offering price and other selling terms may be
changed by the representatives.
We and one of our shareholders have granted the underwriters an option,
exercisable not later than 30 days after the date of this prospectus, to
purchase up to 900,000 additional ADSs at the public offering price less the
underwriting discount presented on the cover page of this prospectus. To the
extent that the underwriters exercise their option, each of the underwriters
will have a commitment to purchase approximately the same percentage of ADSs
available under the option that the number of ADSs to be purchased by it in the
above table bears to 6,000,000, and we and the selling shareholders will be
obligated under the option to sell the same number of ADSs to the underwriters.
The underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the ADSs offered by us under this prospectus. If
purchased, the underwriters will offer the additional ADSs on the same terms as
those on which the 6,000,000 ADSs are being offered.
We and the selling shareholders have agreed to indemnify the underwriters
against liabilities, including liabilities under the Securities Act, arising
from breaches of representations.
All of our officers and directors (other than one of our outside directors),
the selling shareholders in this offering and certain additional shareholders
have entered into agreements with the underwriters. Under these agreements, our
officers and directors (other than one our outside director) and Instove
Limited, Enterprise Ireland, Deutsche Bank AG, FleetBoston Robertson Stephens
Inc. and Chase Securities Inc. have agreed not to offer, sell, contract to sell
or dispose of, or enter into any transaction having an economic effect similar
to that of a sale of, any ADSs or ordinary shares held by such persons for a
period of 90 days after the date of this prospectus, without the prior written
consent of Deutsche Bank AG. In addition, other than as described in the
preceding section, each of the selling shareholders has agreed not to offer,
sell, contract to sell or dispose of, or enter into any transaction having an
economic effect similar to that of a sale, of 50% of the ordinary shares held
by such shareholder for a period of 90 days after the date of the prospectus,
without the prior written consent of Deutsche Bank AG. In either case, this
consent may be given at any time without public notice. The total number of
ordinary shares subject to the agreements described above is 15,240,188
(30,480,376 equivalent
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ADSs). We have entered into a similar agreement, except that we may issue and
grant options or warrants to purchase ADSs or ordinary shares or any securities
convertible into, exercisable for, or exchangeable for ADSs or ordinary shares,
upon the exercise of outstanding options and warrants and under the existing
stock option and stock purchase plans.
The representatives have advised us that, under Regulation M of the U.S.
federal securities laws, participants in the offering may engage in
transactions which might stabilize or maintain the market price of the ADSs at
a level above that which might otherwise prevail in the open market. These
transactions include the following:
. Stabilizing bids. A stabilizing bid is a bid for or the purchase of the
ADSs on behalf of the underwriters for the purpose of fixing or
maintaining the price of the ADSs.
. Syndicate covering transaction. A syndicate covering transaction is the
bid for or the purchase of the ADSs on behalf of the underwriters to
reduce a short, or over-sold, position incurred by the underwriters in
connection with the offering.
. Penalty bid. A penalty bid is an arrangement permitting the
representatives to reclaim the selling concession otherwise owed an
underwriter or syndicate member in connection with the offering if the
ADSs originally sold by that underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and
has therefore not been effectively placed by that underwriter or
syndicate member.
The representatives have advised us that these transactions may be effected
in different ways, including on the Neuer Markt or the Nasdaq National Market.
These transactions, if commenced, may be discontinued at any time.
The representatives have also advised us that the underwriters and dealers
may engage in passive market making transactions in the ADSs in accordance with
Regulation M of the U.S. federal securities laws. In general, a passive market
maker may not bid for or purchase the ADSs at a price that exceeds the higher
independent bid. In addition, the net daily purchases made by any passive
market maker generally may not exceed 30% of its average daily trading volume
in the ADSs during a specified two-month prior period or 200 ADSs, whichever is
greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may have the effect of stabilizing or maintaining the market price of
the ADSs at a level above that which might otherwise prevail in the open
market. Underwriters and dealers are not required to engage in passive market
making and may discontinue these activities at any time.
LEGAL MATTERS
The validity of the ordinary shares represented by the ADSs offered by us
under this prospectus will be passed upon by A&L Goodbody, Solicitors, Dublin,
Ireland, our Irish counsel. Some legal matters under United States law
regarding this offering will be passed upon by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California, our U.S. counsel. Some
legal matters under the law of the Republic of Germany regarding this offering
will be passed upon by Oppenhoff & Radler, member of Linklaters & Alliance,
Frankfurt, Germany, our German counsel. Legal matters regarding this offering
will be passed upon for the underwriters by Brobeck Hale and Dorr, London,
England. Wilson Sonsini Goodrich & Rosati may rely upon A&L Goodbody,
Solicitors regarding matters governed by Irish law, and upon Oppenhoff &
Radler, member of Linklaters & Alliance, regarding matters governed by German
law. As of May 4, 2000, investment partnerships composed of some current and
former members of and persons associated with Wilson Sonsini Goodrich & Rosati,
as well as some individual attorneys of Wilson Sonsini Goodrich & Rosati,
beneficially owned an aggregate of 15,336 equivalent ADSs.
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EXPERTS
The consolidated financial statements of Trintech Group PLC as of January
31, 1998, 1999 and 2000 and for each of the three years in the period ended
January 31, 2000 appearing in this prospectus have been audited by Ernst &
Young, independent auditors, as stated in their report appearing in this
prospectus. The auditors are located at Harcourt Centre, Harcourt Street,
Dublin, Ireland.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the U.S. Securities and Exchange Commission a
registration statement on Form F-1 under the Securities Act for the ordinary
shares represented by the ADSs offered by this prospectus. This prospectus does
not contain all of the information included in the registration statement and
the exhibits and schedules to the registration statement. For further
information about us and the ordinary shares represented by the ADSs offered by
this prospectus, reference is made to the registration statement and the
exhibits and schedules filed as a part of the registration statement.
Statements made in this prospectus concerning the contents of any contract or
any other document summarize only the material information about the contract
or other document. These statements are qualified in their entirety by
reference to the copy of each these contracts or other document filed as an
exhibit to the registration statement. The registration statement, including
exhibits and schedules attached to the registration statement, may be inspected
without charge at the Commission's principal office in Washington, D.C., and
copies of all or any part of the registration statement may be obtained from
the Public Reference Room of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and at 7 World Trade Center, 13th Floor, New York, New York 10048 after payment
of fees prescribed by the Commission.
We will furnish the depositary referred to under "Description of American
Depositary Shares" with annual reports in English, which will include a review
of operations and annual audited consolidated financial statements prepared in
conformity with U.S. GAAP. Upon receipt of the reports, the depositary will
promptly mail these reports to all registered holders of ADSs. We will also
furnish to the depositary in English all notices of shareholders' meetings and
other reports and communications that are made generally available to its
shareholders. The depositary will make notices, reports and communications
available to holders of ADSs in the manner we request and will mail to all
record holders of ADSs a notice containing a summary of the information
contained in any notice of a shareholders' meeting received by the depositary.
We are subject to the reporting requirements of the U.S. Securities Exchange
Act of 1934 applicable to foreign private issuers. In connection with the
Exchange Act, we will file reports, including annual reports on Form 20-F, and
other information with the Commission. In addition, we will submit to the
Commission quarterly reports, which will include unaudited quarterly condensed
consolidated financial information, on Form 6-K for the first three quarters of
each fiscal year and file our annual report on Form 20-F within the time period
prescribed under Section 13 of the Exchange Act for filing domestic issuers of
quarterly reports on Form 10-Q and annual reports on Form 10-K. These reports
and other information may be obtained, upon written request, from The Bank of
New York, as depositary at its corporate trust office located at 101 Barclay
Street, New York, New York 10286. These reports and other information may also
be inspected and copied at prescribed rates at the public reference facilities
maintained by at Public Reference Room of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at
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Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and at 7 World Trade Center, 13th Floor, New York, New York 10048 after payment
of fees prescribed by the Commission. Although the rules of the Nasdaq National
Market require us to solicit proxies from our shareholders, we are not subject
to the proxy solicitation requirements of Section 14 of the Exchange Act, and
our officers, directors and 10% beneficial owners are not subject to the
beneficial ownership reporting requirements or the short-swing profits recovery
rules of Section 16 of the Exchange Act.
104
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INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
OF TRINTECH GROUP PLC
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Changes in Redeemable Convertible Preference
Shares and
Shareholders' Equity (Net Capital Deficiency)............................ F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to the Consolidated Financial Statements............................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders,
Trintech Group PLC
We have audited the accompanying consolidated balance sheets of Trintech
Group PLC and subsidiaries as of January 31, 1998, 1999 and 2000 and the
related consolidated statements of operations, changes in redeemable
convertible preference shares and shareholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Trintech Group PLC and its subsidiaries at January 31, 1998, 1999 and 2000,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States.
Ernst & Young
Dublin, Ireland
March 16, 2000
F-2
<PAGE>
TRINTECH GROUP PLC
CONSOLIDATED BALANCE SHEETS
(U.S dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
January 31,
--------------------------
1998 1999 2000
------- ------- --------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................... $ 272 $ 1,691 $ 10,862
Marketable securities.............................. -- 7,178 48,830
Accounts receivable, net of allowance for doubtful
accounts of $98, $241 and $330 respectively....... 4,017 4,073 7,799
Inventories (note 4)............................... 893 1,055 840
Value added taxes.................................. 420 407 192
Prepaid expenses and other current assets.......... 662 1,299 1,332
------- ------- --------
Total current assets.............................. 6,264 15,703 69,855
Property and equipment, net (notes 7 and 8)........ 739 2,058 3,190
Other assets--software development costs........... -- 2,500 1,250
------- ------- --------
Total assets...................................... $ 7,003 $20,261 74,295
======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank overdraft..................................... $ -- $ 411 $ --
Accounts payable................................... 2,009 1,459 4,082
Accrued payroll and related expenses............... 235 583 871
Other accrued liabilities.......................... 512 1,571 2,677
Value added taxes.................................. 517 372 460
Warranty reserve................................... 922 876 556
Deferred revenue................................... 620 994 3,406
------- ------- --------
Total current liabilities......................... 4,815 6,266 12,052
------- ------- --------
Capital lease due after more than one year (note
7)................................................ 67 142 409
Government grants repayable and related loans (note
15)............................................... 479 793 718
Series A redeemable convertible preference shares,
$0.0027 par value nil, 3,000,000 and nil shares
authorized at January 31, 1998, 1999 and 2000
respectively nil, 2,960,000 and nil shares issued
and outstanding at January 31, 1998, 1999 and 2000
respectively...................................... -- 17,760 --
Series B preference shares, $0.0027 par value nil,
nil and 10,000,000 authorized at January 31, 1998,
1999 and 2000 respectively
None issued and outstanding....................... -- -- --
Shareholders' equity:
Ordinary Shares, $0.0027 par value: 100,000,000
shares authorized; 15,689,715, 16,227,445 and
25,140,722 shares issued and outstanding at
January 31, 1998, 1999 and 2000 respectively...... 45 47 71
Additional paid-in capital......................... 4,547 4,781 84,286
Accumulated deficit................................ (2,601) (9,474) (21,585)
Accumulated other comprehensive income............. (349) (54) (1,656)
------- ------- --------
Total shareholders' equity (net capital
deficiency)...................................... 1,642 (4,700) 61,116
------- ------- --------
Total liabilities and shareholders' equity........ $ 7,003 $20,261 $ 74,295
======= ======= ========
</TABLE>
See accompanying notes
F-3
<PAGE>
TRINTECH GROUP PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Year ended January 31,
----------------------------------
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Product.................................. $ 10,824 $ 14,554 $ 18,457
License.................................. 4,101 4,477 9,158
Service.................................. 1,721 2,002 2,629
---------- ---------- ----------
Total revenue.......................... 16,646 21,033 30,244
---------- ---------- ----------
Cost of revenue:
Product.................................. 8,352 10,851 12,034
License.................................. 334 648 2,981
Service.................................. 1,008 2,414 2,242
---------- ---------- ----------
Total cost of revenue.................. 9,694 13,913 17,257
---------- ---------- ----------
Gross margin.............................. 6,952 7,120 12,987
Operating expenses:
Research and development................. 1,729 3,676 8,892
Sales and marketing...................... 2,474 5,921 8,849
General and administrative............... 2,530 4,347 7,336
Stock compensation....................... -- -- 2,068
---------- ---------- ----------
Total operating expenses............... 6,733 13,944 27,145
---------- ---------- ----------
Income (loss) from operations............. 219 (6,824) (14,158)
Interest income, net..................... 18 272 1,208
Exchange gain (loss), net................ (12) (321) 842
---------- ---------- ----------
Income (loss) before provision for income
taxes.................................... 225 (6,873) (12,108)
Provision for income taxes (note 13)..... (50) -- (3)
---------- ---------- ----------
Net Income (loss)......................... $ 175 $ (6,873) $ (12,111)
========== ========== ==========
Basic net income (loss) per Ordinary
Share.................................... $ 0.01 $ (0.43) $ (0.63)
========== ========== ==========
Shares used in computing basic net income
(loss) per Ordinary Share................ 15,688,335 16,157,831 19,309,964
========== ========== ==========
Diluted net income (loss) per Ordinary
Share.................................... $ 0.01 $ (0.43) $ (0.63)
========== ========== ==========
Shares used in computing diluted net
income (loss) per Ordinary Share......... 15,749,161 16,157,831 19,309,964
========== ========== ==========
Basic net income (loss) per equivalent
ADS...................................... $ 0.01 $ (0.21) $ (0.31)
========== ========== ==========
Diluted net income (loss) per equivalent
ADS...................................... $ 0.01 $ (0.21) $ (0.31)
========== ========== ==========
</TABLE>
See accompanying notes
F-4
<PAGE>
TRINTECH GROUP PLC
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERENCE SHARES
AND
SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(U.S. dollars in thousands, except share data)
<TABLE>
<CAPTION>
Number of Total
Redeemable Redeemable Accumulated Shareholders'
Convertible Convertible Number of Additional Other Equity (net
Preference Preference Ordinary Ordinary Paid-in Accumulated Comprehensive capital
Shares Shares Shares Shares Capital Deficit Income deficiency)
----------- ----------- ---------- -------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31,
1997.................... -- $ -- 15,685,575 $45 $ 4,543 $ (2,776) $ (73) $ 1,739
Issuance of Ordinary
Shares on exercise of
options (a)............. -- -- 4,140 0 4 -- -- 4
Net income.............. -- -- -- -- -- 175 -- 175
Currency translation
adjustment.............. -- -- -- -- -- -- (276) (276)
--------
Comprehensive income
(loss).................. -- -- -- -- -- -- -- (101)
---------- -------- ---------- --- ------- -------- ------- --------
Balance at January 31,
1998.................... -- -- 15,689,715 45 4,547 (2,601) (349) 1,642
Issuance of Ordinary
Shares.................. -- -- 482,765 2 1,998 -- -- 2,000
Issuance of Ordinary
Shares on exercise of
options (a)............. -- -- 14,965 0 20 -- -- 20
Issuance of Convertible
Redeemable Preference
Shares (b).............. 3,000,000 18,000 -- -- -- -- -- --
Conversion of Redeemable
Convertible Preference
Shares to Ordinary
Shares (b).............. (40,000) (240) 40,000 0 240 -- -- 240
Issuance of Warrant to
Visa.................... -- -- -- -- 163 -- -- 163
Expenses of share
issues.................. -- -- -- -- (2,187) -- -- (2,187)
Net loss................ -- -- -- -- -- (6,873) -- (6,873)
Currency translation
adjustment.............. -- -- -- -- -- -- 295 295
--------
Comprehensive income
(loss).................. -- -- -- -- -- -- -- (6,578)
---------- -------- ---------- --- ------- -------- ------- --------
Balance at January 31,
1999.................... 2,960,000 17,760 16,227,445 47 4,781 (9,474) (54) (4,700)
Conversion of Redeemable
Convertible Preference
Shares to Ordinary
Shares (b).............. (2,960,000) (17,760) 2,960,000 8 17,752 -- -- 17,760
Issuance of Ordinary
Shares on exercise of
options (a)............. -- -- 65,679 0 145 -- -- 145
Issuance of Ordinary
Shares for Cash......... -- -- 5,887,598 16 63,086 -- -- 63,102
Expense of share
issues.................. -- -- -- -- (3,546) -- -- (3,546)
Stock compensation...... -- -- -- -- 2,068 -- -- 2,068
Net loss................ -- -- -- -- -- (12,111) -- (12,111)
Currency translation
adjustment.............. -- -- -- -- -- -- (1,602) (1,602)
--------
Comprehensive income
(loss).................. -- -- -- -- -- -- -- (13,713)
---------- -------- ---------- --- ------- -------- ------- --------
Balance at January 31,
2000.................... 0 $ 0 25,140,722 $71 $84,286 $(21,585) $(1,656) $ 61,116
========== ======== ========== === ======= ======== ======= ========
</TABLE>
- ----
(a) See note 12 to these statements
(b) See note 10 to these statements
F-5
<PAGE>
TRINTECH GROUP PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
Year ended January 31,
-------------------------
1998 1999 2000
------ ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss).................................. $ 175 $(6,873) $(12,111)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization..................... 339 566 2,277
Stock compensation................................ -- 83 2,148
(Profit) on disposal of marketable securities..... -- (159) (919)
Purchase of marketable securities................. -- (64,227) (302,167)
Sale of marketable securities..................... -- 57,208 261,434
Effect of changes in foreign currency exchange
rates............................................ (254) 252 (1,611)
Changes in operating assets and liabilities:
Inventories..................................... (94) (102) 75
Accounts receivable............................. (2,292) 151 (4,536)
Prepaid expenses and other assets............... (153) (515) (252)
Value added tax receivable...................... (178) 35 181
Accounts payable................................ 794 (647) 2,913
Accrued payroll and related expenses............ 38 331 362
Deferred revenues............................... 254 333 2,591
Value added tax payable......................... 317 (175) 148
Warranty reserve................................ 275 (99) (213)
Government grants repayable and related loans... 139 283 50
Other accrued liabilities....................... (55) 948 1,242
------ ------- --------
Net cash (used in) provided by operating
activities........................................ (695) (12,607) (48,388)
------ ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................. (458) (1,636) (1,904)
Sale of property and equipment..................... 31 27 14
Purchase of capitalized software development
costs............................................. -- (2,500) --
------ ------- --------
Net cash used in investing activities.............. (427) (4,109) (1,890)
------ ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital leases............... (37) (86) (127)
Issuance of ordinary shares........................ 4 2,020 63,247
Issuance of convertible redeemable preference
shares............................................ -- 18,000 --
Expenses of share issue............................ -- (2,187) (3,546)
Proceeds (repayments) of loans from directors...... (222) -- --
Proceed (repayments) under bank overdraft
facility.......................................... (172) 405 (388)
------ ------- --------
Net cash provided by (used in) financing
activities........................................ (427) 18,152 59,186
------ ------- --------
Net increase (decrease) in cash and cash
equivalents....................................... (1,549) 1,436 8,908
Effect of exchange rate changes on cash and cash
equivalents....................................... (78) (17) 263
Cash and cash equivalents at beginning of period... 1,899 272 1,691
------ ------- --------
Cash and cash equivalents at end of period......... $ 272 $ 1,691 $ 10,862
====== ======= ========
Supplemental disclosure of cash flow information
Interest paid..................................... $ 19 $ -- $ 6
====== ======= ========
Taxes paid........................................ $ 20 $ -- $ 3
====== ======= ========
Supplemental disclosure of non-cash flow
information:
Acquisition of property and equipment under
capital leases................................... $ 108 $ 217 $ 434
====== ======= ========
</TABLE>
See accompanying notes
F-6
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
Trintech Group PLC is organized as a public limited company under the laws
of Ireland. Trintech Group PLC and its wholly-owned subsidiaries (collectively,
the "Company") operate in two market segments: electronic PoS systems that
securely process card payment transactions in a physical point-of-sale ("PoS")
environment and e-payment software products that securely process on-line card-
payment transactions over private and public networks, including the Internet.
The Company also provides related development and professional services,
including project management, implementation and training services. The
Company's major customers, based on revenues earned, are banks and other
financial transaction processors in Germany. The Company also earns significant
revenues from similar customers in other European countries, the Americas and
the rest of the world.
In March 1998 the Company completed a private placement of $2 million in
ordinary shares and in August 1998 the Company completed a private placement of
$18 million in Series A Redeemable Convertible Preference Shares.
In August 1999, 5,800,000 American Depositary Shares ("ADS") representing
5,800,000 Ordinary shares were sold in an initial public offering (the "IPO").
Simultaneous with that sale, the underwriters elected to exercise their over-
allotment option to purchase an additional 87,598 ADS representing 87,598
Ordinary Shares.
Trintech converted all its Redeemable Convertible Preferred Shares into
Ordinary Shares on the completion of its IPO.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the United States
and include the Company and its wholly-owned subsidiaries in Ireland, the
United Kingdom, the Cayman Islands, Germany and the United States after
eliminating all material inter-company accounts and transactions.
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying footnotes. Actual results could differ from
those estimates.
Vulnerabilities due to Certain Concentrations
A small number of customers have historically accounted for a significant
portion of the Company's revenues. The loss of any of the Company's major
customers or delays in orders by any such customers could have a material
adverse effect on the Company's business and results of operations.
F-7
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Organization and Summary of Significant Accounting Policies (Continued)
The Company uses two manufacturers for its PoS system products. While the
Company has alternative manufacturing sources, if either manufacturer increased
cost or ceased manufacturing the Company may not be able to rapidly obtain
alternative capacity at a comparable price. Failure to obtain an adequate
supply of products on a timely basis would delay product delivery to customers,
which may have a material adverse effect on the Company's business and results
of operations.
Companies Acts, 1963 to 1999
The financial information relating to Trintech Group PLC and its
subsidiaries included in this document does not comprise statutory financial
statements as referred to in Section 19 of the Companies (Amendment) Act, 1986,
copies of which are required by that Act to be annexed to the company's annual
return lodged with the Registrar of Companies. The auditors have made reports
without qualification under Section 193 of the Irish Companies Act, 1990 in
respect of all such financial statements. Copies of statutory financial
statements of the Company as an individual entity for the years ended January
31, 1998 and January 31, 1999 have been so annexed to the relevant annual
returns, and a copy of the group statutory financial statements for the year
ended January 31, 2000 will be annexed to the relevant annual return in due
course.
Translation of Financial Statements of Foreign Entities
The Irish pound ("IR(Pounds)") is the functional currency of the Company and
the Company's subsidiaries in Ireland. The US dollar ("US$") is the functional
currency of the Company's subsidiaries in the United States and the Cayman
Islands. The United Kingdom pound sterling (Sterling) is the functional
currency of the Company's UK subsidiary and the Deutsche mark is the functional
currency of the Company's subsidiary in Germany. Transaction gains or losses
arising on changes in the exchange rates between functional currencies and
foreign currencies are included in net income (loss) for the period.
The Company's assets and liabilities are translated to US dollars, the
reporting currency, at the exchange rate at the balance sheet date. Revenues,
costs and expenses are translated to US dollars at average rates of exchange
prevailing during the periods. Translation adjustments arising are reported as
a component of shareholders' equity.
Revenue Recognition
The Company's revenue is derived from product sales, license fees and
charges for services.
The Company recognizes product revenue from the sale of electronic PoS
system products upon shipment.
For Fiscal Years 1999 and 2000, the Company followed the revenue recognition
criteria of Statement of Position 97-2 ("SOP 97-2"), as amended by SOP 98-4 and
SOP 98-9 issued by the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants for its license revenue. The adoption
of SOP 97-2 did not have a material effect on the Company's operating results.
F-8
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Organization and Summary of Significant Accounting Policies (Continued)
Under the terms of SOP 97-2 where an arrangement to deliver software does
not require significant production, modification or customization, the Company
recognizes license revenue when all of the following criteria are met:
. persuasive evidence of an arrangement exists;
. delivery has occurred;
. vendor's fee is fixed or determinable; and
. collectibility is probable.
For Fiscal Year 1998, the Company followed the revenue recognition criteria
set out in SOP 91-1. Accordingly, the Company recognized license revenue on
shipment, provided that it had no significant related obligations or collection
uncertainties remaining.
The Company recognizes technical support revenue ratably over the term of
the support agreement, generally twelve months.
The Company recognizes service revenue when earned. Service revenue is
derived from consultancy, educational and training and customization and
implementation services. Services are provided primarily on a time and
materials basis for which revenue is recognized in the period that the services
are provided. Where contracts for services extend over a number of accounting
periods and are not being provided on a time and materials basis the revenue is
accounted for in conformity with the percentage-of-completion contract
accounting method. Percentage-of-completion is measured using output measures,
primarily arrangement milestones where such milestones indicate progress to
completion, or input measures using the allocation of time spent to date as a
proportion of total time allocated to the contract.
Cost of Revenue
Cost of product revenue includes outsourced manufacturing costs, and
packaging, documentation, labor and other costs associated with packaging and
shipping electronic PoS system products. Cost of license revenue includes
shipping, software documentation, labor, third-party license fees and other
costs associated with the delivery of software products from which license
revenue is derived and the cost of providing after-sale support and maintenance
services to customers. Cost of service revenue includes labor, travel and other
non-recoverable costs associated with the delivery of services to customers.
Cash and Cash Equivalents
The Company considers all highly liquid investments with insignificant
interest rate risk and purchased with a maturity of three months or less to be
cash equivalents.
Marketable Securities
Marketable securities consist of commercial paper, corporate bonds and U.S.
government agency fixed income securities. Marketable securities are stated at
market value, and by policy, the Company invests in high grade marketable
securities. All marketable securities are defined as trading securities under
the provisions of Statement of Financial Account Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115"), and
unrealized holding gains and losses are reflected in earnings.
F-9
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Organization and Summary of Significant Accounting Policies (Continued)
Research and Development
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards Number 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion
of a working model. Development costs incurred by the Company between
completion of the working model and the point at which the product is ready for
general release have been insignificant. Through January 31, 2000, all research
and development costs have been expensed.
On March 31, 1998, Trintech Technologies Limited, a subsidiary of the
Company purchased technology for US$2.5 million from RSA Data Security, a
wholly owned subsidiary of Security Dynamics, under the terms of the RSA
Technology License Agreement. The technology comprised a license to the source
code and a royalty-free sublicensable license to the object code, for S/PAY and
J/PAY. S/PAY and J/PAY are encryption technology toolkits that implemented and
provided the functionality of certain elements of the SET 0.0 standard, and the
license is exclusive as to the SET portions of the source code. The purchase of
this technology has been accounted for as expenditure on a product enhancement
that has reached technological feasibility and accordingly has been
capitalized. The capitalized costs are being amortized to income on the sales
curve or straight line methods, whichever gives the greater amortization, over
the two year period from February 1, 1999 following the achievement of the SET
mark in January 1999 and the general availability of the enhanced product from
that date.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization are
computed using the straight-line method over estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Motor vehicles, computer and office equipment, furniture and
fixtures......................................................... 3 years
</TABLE>
Net Income (Loss) per Ordinary Share
Basic and diluted earnings per share is calculated in accordance with
statement of Financial Accounting Standards No. 128 "Earnings per Share"
("Statement 128"). All earnings per share amounts for all periods have been
presented in conformity with the requirements of Statement 128.
Concentration of Credit Risk
The Company sells its products primarily to banks and financial transaction
processors throughout the world. While a small number of customers have
historically accounted for a significant portion of the Company's revenue,
management believes that these customers are credit worthy and, accordingly,
minimal credit risk exists with respect to these customers. The Company
performs ongoing credit evaluations on its customers and maintains reserves for
potential credit losses. To date such losses have been within management's
expectations. The Company had an allowance for doubtful accounts of
approximately US$98,000, US$241,000 and US$330,000 at January 31, 1998, 1999
and 2000 respectively. The Company generally requires no collateral from its
customers.
F-10
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Organization and Summary of Significant Accounting Policies (Continued)
The Company invests its excess cash in low-risk, short-term deposit accounts
with high credit-quality banks in the United States, Germany and Ireland. At
January 31, 2000 US$48,830,000 was invested in marketable securities held for
trading purposes, comprised of US$19,550,000 in corporate bonds and
US$29,280,000 in U.S. government agency securities, under the management of a
financial institution. The Company performs periodic evaluations of the
relative credit standing of all of the financial institutions dealt with by the
Company, and considers the credit risk to be minimal.
Employment Grants
Employment grants are credited to the income statement when earned and
offset against the related payroll expense in two equal installments, the first
on the creation of the job, and the second six months following the creation of
the job.
Marketing Grants and related loans
Marketing grants and related loans received are accounted for in accordance
with the terms of the agreement for the specific grant/loan. This is either as
a 50% offset against the relevant expenditure on developing an overseas market
and a 50% loan to be repaid at rates linked to future revenues earned in the
related markets, or as a 100% loan to be repaid at rates linked to future
revenues earned in the related markets. All loan amounts are credited to a
balance sheet liability account as the Company believes they will have to be
repaid in the future.
Accounting for Income Taxes
The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws which will be in effect
when the differences are expected to reverse.
Foreign Exchange Contracts
From time to time one of the Company's Irish subsidiaries enters into
foreign exchange contracts as a hedge against accounts receivable in currencies
other than its functional currency. Market value gains and losses are
recognized, and the resulting credit or debit offsets foreign exchange losses
or gains included in Exchange gain (loss), net in the statement of operations.
Stock Compensation
The Company has elected to follow Accounting Principles Board Opinion Number
25, "Accounting for Stock Issued to Employees", ("APB 25") and related
interpretations in accounting for its stock options. FASB Statement Number 123,
"Accounting for Stock-Based Compensation", ("SFAS 123"), requires that
companies electing to continue using the intrinsic value method make pro-forma
disclosures of net earnings and earnings per share as if the fair value based
method of accounting had been applied. See Note 12 for the fair value
disclosures required under SFAS 123.
F-11
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Organization and Summary of Significant Accounting Policies (Continued)
Under APB 25, the Company has not recognized compensation expense during the
years ended January 31, 1998, 1999 and 2000 respectively, as the Company
believes the exercise price of the Company's share options at the date of grant
was equal to or greater than the estimated fair value of the underlying shares
on the date of grant.
The Company has followed the provisions of SFAS 123 and EITF 96-18
"Accounting for Equity Instruments that are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services", in accounting
for warrants and options issued to nonemployees. The Company has adopted the
fair value method as prescribed by SFAS 123 in determining the fair value of
the warrants issued and the resultant compensation expense. The Company has
recognized compensation expense of US$0, US$83,000 and US$2,148,000 during the
years ended January 31, 1998, 1999 and 2000 respectively in respect of warrants
issued to nonemployees.
Advertising and Promotion Expense
All costs associated with advertising are expensed as incurred. Advertising
and promotion expense was US$215,000, US$919,000 and US$1,125,000 for the years
ended January 31, 1998, 1999 and 2000, respectively.
Inventories
Inventories are stated at the lower of cost or market.
Warranty Reserves
The Company maintains reserves for future warranty claims arising from past
sales of product. The Company makes provision for such costs when revenue is
recorded from product sales.
Recent Accounting Pronouncements
In 1998, The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133")
which was originally required to be adopted for fiscal years commencing after
June 15, 1999 but has now been deferred to fiscal years commencing after June
15, 2000. SFAS 133, requires all derivatives to be recorded in the balance
sheet at fair value and establishes "special accounting" for the following
three different types of hedges: hedges of changes in the fair value of assets,
liabilities or firm commitments ("referred to as fair value hedges"), hedges of
the variable cash flows of forecasted transactions ("cash flow hedges") and
hedges of foreign currency exposures of net investments in foreign operations
("forwards"). Forwards that are not hedges must be adjusted to fair value
through income. If the forwards are hedges, depending on the nature of the
hedges, changes in their fair values will either be offset against the change
in the fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The Company has not yet determined what the
effect of SFAS 133 will be on the earnings and financial position of the
Company. Because SFAS 133 allows certain foreign currency transactions to be
accounted for as hedges, the Company may change its policies towards the
management of certain foreign currency exposures. Any changes that may occur
would be to reduce the Company's exposure to foreign currency risks.
F-12
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Cash and Marketable Securities
<TABLE>
<CAPTION>
January 31,
--------------
1998 1999 2000
---- ---- ----
(U.S. dollars
in thousands)
<S> <C> <C> <C>
Restricted Cash............................................. $ -- $ -- $161
==== ==== ====
</TABLE>
Marketable securities are considered to be trading securities per SFAS 115
and are carried on the balance sheet at their market value.
<TABLE>
<CAPTION>
January 31, 1999
--------------------
Unrealized
Gain Market
Cost (Loss) Value
------ ------ ------
(U.S. dollars in
thousands)
<S> <C> <C> <C>
U.S. Government Agency Securities.................... $3,152 $ 3 $3,155
Corporate bonds...................................... 4,028 (5) 4,023
------ --- ------
Total.............................................. $7,180 $(2) $7,178
====== === ======
</TABLE>
<TABLE>
<CAPTION>
January 31, 2000
--------------------------
Unrealized Market
Cost Gain Value
------- ---------- -------
(U.S. dollars in
thousands)
<S> <C> <C> <C>
U.S. Government Agency Securities.............. $29,120 $160 $29,280
Corporate bonds................................ 19,385 165 19,550
------- ---- -------
Total........................................ $48,505 $325 $48,830
======= ==== =======
</TABLE>
The change in unrealized gain (loss) included in net income (loss) is as
follows:
<TABLE>
<CAPTION>
Year ended
January 31,
--------------
1999 2000
------ ------
(U.S. Dollars
in thousands)
<S> <C> <C>
Unrealized (loss) at beginning of period.................. $ -- $ (2)
Included in income (loss) in the period................... (2) 327
------ ------
Unrealized gain (loss) of end of period................... $ (2) $ 325
====== ======
</TABLE>
3. Revolving Credit Facility: Bank Overdraft Facility and Overdrafts
The Company currently has a secured overdraft facility of IR(Pounds)650,000
(approximately US$808,000) from Bank of Ireland. This overdraft is secured by a
debenture over the assets of Trintech Group PLC, Trintech Limited and Trintech
Technologies Limited to a value of IR(Pounds)650,000. Advances under the
facility bear interest at the Bank's AA overdraft rate, 5.94% as at January 31,
2000. As of January 31, 2000 there was US$0 outstanding under the facility. The
facility does not have a stated expiration date, but all amounts drawn
thereunder are repayable on demand.
F-13
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Inventories
<TABLE>
<CAPTION>
January 31,
-----------------------------
1998 1999 2000
------------------- ---------
(U.S. dollars in thousands)
<S> <C> <C> <C>
Raw materials................................. $ 398 $ 333 $ 78
Finished goods................................ 495 722 762
-------- ---------- --------
Total....................................... $ 893 $ 1,055 $ 840
======== ========== ========
</TABLE>
5. Foreign Exchange Contracts and Fair Value of Financial Instruments
At January 31, 2000, the Company had a contract maturing in February 2000
and a contract maturing in May 2000 each to sell 1,000,000 US dollars and
receive euro. The fair value of the contracts at January 31, 2000 was
US$100,000 negative. At January 31, 1998, the Company had contracts maturing in
February 1998 to sell 500,000 Deutsche marks and receive Irish pounds. The fair
value of the contract at January 31, 1998 was $2,000 negative.
<TABLE>
<CAPTION>
January 31,
-------------------------------------------------
1998 1999 2000
-------------- --------------- ----------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
-------- ----- -------- ------ -------- -------
(U.S. dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non Derivatives
Cash and cash equivalents.. $272 $272 $1,691 $1,691 $10,862 $10,862
Marketable Securities
trading................... $-- $-- $7,178 $7,178 $48,830 $48,830
Derivatives
Foreign currency forward
contracts................. $-- $ (2) $ -- $ (2) $ -- $ (100)
</TABLE>
The carrying amounts in the table are included in the statements of
financial position under the indicated captions.
6. Operating Lease Commitments
The Company's significant operating leases are for the premises in Dublin,
Ireland; Frankfurt, Germany; San Mateo, California; Austin, Texas; and
Princeton, New Jersey. In Dublin, the Company leases the new corporate
headquarters from John and Cyril McGuire, officers and directors of the
Company. The new facility is held under a lease expiring in 2023, with rent
reviews every five years and an option to exit in 2007. The rent paid by the
company was determined after completion of a survey of the rental market, and
the terms of the lease are no less favorable than those that could be obtained
in arms-length transactions. The Frankfurt facility is under a five year lease
which expires in 2004. The San Mateo facility is under a 5 year lease which
expires in 2004. The Austin facility is under a two year lease which expires in
2001. The Princeton facility is under a five year lease which expires in 2003.
Rent expense under all operating leases was approximately, US$345,000,
US$574,000 and US$1,236,000 for the years ended January 31, 1998, 1999, and
2000, respectively.
F-14
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Operating Lease Commitments (Continued)
Future minimum lease payments under the operating leases as of January 31,
2000, are as follows (U.S. dollars in thousands):
<TABLE>
<S> <C>
Year ending January 31,
2001............................................................. $1,518
2002............................................................. 1,492
2003............................................................. 1,428
2004............................................................. 1,254
2005............................................................. 860
Thereafter....................................................... 1,035
------
Total minimum lease payments..................................... $7,587
======
</TABLE>
7. Capital Leases
The following is an analysis of the property acquired under capital leases,
and included in property and equipment, by major classes:
<TABLE>
<CAPTION>
Asset balances at January 31,
-------------------------------
1998 1999 2000
--------- --------- ---------
(U.S. dollars in thousands)
<S> <C> <C> <C>
Computers and office equipment............ $ 291 $ 309 $ 705
Motor vehicles............................ 51 36 62
Fixtures and fittings..................... 25 14 12
--------- --------- ---------
Total cost.............................. 367 359 779
Accumulated depreciation.................. (263) (118) (218)
--------- --------- ---------
Total, net.............................. $ 104 $ 241 $ 561
========= ========= =========
</TABLE>
The following is a schedule by year of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments as of January 31, 2000 (U.S. dollars in thousands):
<TABLE>
<S> <C>
Year ending January 31,
2001............................................................... $175
2002............................................................... 164
2003............................................................... 123
2004............................................................... 88
2005............................................................... 83
----
Total minimum lease payments....................................... 633
Less: Amount representing interest................................. (68)
----
Present value of net minimum lease payments.......................... $565
====
</TABLE>
The current portion and non-current portion of present value of net minimum
lease payments as of January 31, 2000 was US$156,000 and US$409,000,
respectively.
F-15
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
January 31,
-------------------------
1998 1999 2000
------- ------- -------
(U.S. dollars in
thousands)
<S> <C> <C> <C>
Computers and office equipment.................. $ 1,482 $ 2,233 $ 3,938
Motor vehicles.................................. 251 82 162
Fixtures and fittings........................... 84 766 919
------- ------- -------
Total cost...................................... 1,817 3,081 5,019
Accumulated depreciation........................ (1,078) (1,023) (1,829)
------- ------- -------
Property and equipment, net..................... $ 739 $ 2,058 $ 3,190
======= ======= =======
</TABLE>
9. Redeemable Preference Shares
At January 31, 1997 the Company's authorized share capital included 200,000
redeemable preference shares at a par value of IR(Pounds)1 each.
On January 31, 1997, pursuant to the Company's Articles of Association, the
181,062 redeemable preference shares, then in issue, were redeemed at par, for
a consideration of IR(Pounds)181,062 (approximately US$288,000) out of the
proceeds of a new issue of ordinary shares on that date.
On November 21, 1997 the Company cancelled the authorized redeemable
preference shares.
The redeemable preference shares conferred on the holders thereof upon a
winding up of the Company the right to a repayment of capital in priority to a
repayment of capital to the holders of ordinary shares in the capital of the
Company. Such redeemable preference shares did not, however, confer upon the
holders thereof any further rights to participate in the assets of the Company.
The preference shares conferred on the holders thereof the rights to receive
notice of and to attend all general meetings of the Company, but not the right
to vote on any resolution proposed thereof, nor the right to receive a
dividend, from the Company.
10. Shareholders' Equity and Redeemable Convertible Preference Shares
The Company's authorized share capital comprises 100,000,000 Ordinary shares
of US$0.0027 par value per share and 10,000,000 Series B Redeemable Convertible
Preference Shares of US$0.0027 par value per share.
The Company previously had authorized share capital of IR(Pounds)206,000
comprising 100,000,000 Ordinary shares of IR(Pounds)0.002 par value per share
and 3,000,000 Series A Redeemable Convertible Preference Shares of
IR(Pounds)0.002 par value per share. On August 23, 1999 in connection with the
re-registration of the Company as a public limited company, the Company re-
organised its share capital into Ordinary shares and Series A Redeemable
Convertible Preference Shares of US$0.0027 par value per share in the following
manner:
The authorised share capital was first reduced from IR(Pounds)206,000 to
IR(Pounds)38,431 by the cancellation of 83,744,574 authorised and unissued
Ordinary Shares of IR(Pounds)0.002 each and 40,000 Series A Redeemable
Convertible Preference Shares of IR(Pounds)0.002 each.
F-16
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Shareholders' Equity and Redeemable Convertible Preference Shares
(Continued)
The authorised share capital was then increased to IR(Pounds)38,431 plus
US$278,100 by the creation of 100,000,000 Ordinary shares of US$0.0027 each
and 3,000,000 Redeemable Convertible Preference Shares of US$0.0027 each.
The 16,255,426 Ordinary shares of IR(Pounds)0.002 each in issue at that
date were converted to redeemable shares and these shares, together with
the 2,960,000 Series A Redeemable Convertible Preference Shares of
IR(Pounds)0.002 each were redeemed out of the proceeds of a fresh issue of
16,255,426 Ordinary shares of US$0.0027 each and 2,960,000 Series A
Redeemable Convertible Preference Shares of US$0.0027 each.
The authorised share capital was then reduced to US$278,100 by the
cancellation of the authorised shares of IR(Pounds)0.002 each which had
been redeemed.
On the closing of the initial public offering of the Company's shares the
authorised share capital was reduced to US$270,000 by the cancellation of the
3,000,000 Series A Redeemable Convertible Preference Shares of US$0.0027 each.
Immediately thereafter the authorised share capital was increased to
US$297,000 by the creation of 10,000,000 Series B Preference Shares of
US$0.0027 each which may be issued with such special, qualified, preferred,
deferred or other rights or privileges or conditions as to capital, dividends,
rights of voting or other matters as the Directors may decide.
The accompanying financial statements have given effect to this re-
organisation.
Dividends may only be declared and paid out of profits available for
distribution determined in accordance with accounting principles generally
accepted in Ireland and applicable Irish company law.
During 1998, in connection with the issuance of the Series A Redeemable
Convertible Preference Shares and certain strategic marketing agreements with
VISA International, the Company issued a warrant to purchase 250,000 of the
Company's Ordinary Shares at a price of US$6 per share. The warrant is fully
exercisable upon the date of issuance and expires two years from the date of
the strategic marketing agreement.
The Company has determined the fair value of the warrant at the time of
issuance using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk free interest rate of 6%; dividend yields of
0%; volatility factors of the expected market price of the Company's ordinary
shares of 0.325; and a weighted-average expected life of the option of two
years. The determined value of the warrant was debited to prepaid expenses and
other current assets and is being charged to marketing expenses over the two
year term of the strategic marketing agreement. The Company amortised US$83,000
and US$80,000 of the value of the warrant to sales and marketing expense in the
years ended January 31, 1999 and 2000, respectively.
During 1999, in connection with a strategic alliance with MasterCard, the
Company issued options to purchase 50,000 shares of the Company's Ordinary
Shares at prices ranging from US$11.55 to US$12.50. The options vest eighteen
months from the date of grant and expire two years from the date of issuance.
F-17
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Shareholders' Equity and Redeemable Convertible Preference Shares
(Continued)
The Company has determined the fair value of the options at the period end
using a Black-Scholes option pricing model with the following weighted-average
assumptions: risk free interest range of 5.5%; divided yields of 0%; volatility
factors of the expected market price of the Company's ordinary shares of 0.4;
and a weighted-average expected life of the options of 1.34 years. The Company
recorded US$587,000 in stock compensation related to these options in the year
ended January 31, 2000.
Also in 1999, in connection with the formation of the Company's Advisory
Board, the Company issued options to purchase 60,000 shares of the Company's
Ordinary Shares at an exercise price of US$11.36 to each of the three Advisory
Board Members. The options vest ratably over 4 years and expire after seven
years from the date of grant.
The Company has determined the fair value of the options at the period end
using a Black-Scholes option pricing model with the following weighted-average
assumptions: risk free interest rate of 5.5%; dividend yields of 0%; volatility
factors of the expected market price of the Company's ordinary shares of 0.4;
and a weighted-average expected life of the options of 1.16 years. The company
recorded US$1,481,000 in stock compensation related to these options in the
year ended January 31, 2000.
The holders of the Series A Redeemable Convertible Preference Shares were
entitled to receive a dividend, when and if declared by the Board of Directors,
on an equal basis with the holders of Ordinary Shares. There were no dividends
declared or payable by the Company in any of the years presented. At January
31, 1998, 1999 and 2000 the Company did not have any profits available for
distribution.
The Series A Redeemable Convertible Preference Shares were redeemable on a
change of control and accordingly were classified outside shareholders' equity
at their redemption value.
The Series A Redeemable Convertible Preference Shares were convertible at
any time at the option of the holder into Ordinary Shares at the then effective
conversion price. The Series A Redeemable Convertible Preference Shares
automatically converted into Ordinary Shares: upon the closing of a firmly
underwritten public offering under the Securities Act of 1933 (IPO) of Ordinary
Shares of the Company at a per share price not less than US$10.50 per share and
for a total offering of not less than US$20 million; or at such time as the
Company received the consent of not less than two-thirds of the holders of the
Series A Redeemable Convertible Preference Shares; or in the event that fewer
than one-third of the originally issued Series A Redeemable Convertible
Preference Shares remained outstanding.
Each Series A Redeemable Convertible Preference Share had a number of votes
equal to the number of Ordinary Shares then issuable upon conversion of such
Series A Redeemable Convertible Preference Shares. Upon liquidation, the
holders of the Series A Redeemable Convertible Preference Shares were entitled
to receive a per share amount equal to the Original Purchase Price plus any
declared but unpaid dividends, before any distribution was made to the holders
of the Ordinary Shares.
In August 1998, 40,000 Series A Redeemable Convertible Preference Shares
were converted to 40,000 Ordinary Shares at a conversion price of US$6 each. In
September 1999, the remaining 2,960,000 Series A Redeemable Convertible
Preference Shares were converted to 2,960,000 Ordinary Shares.
F-18
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Net Income (Loss) Per Ordinary Share
<TABLE>
<CAPTION>
Year ended January 31,
---------------------------------
1998 1999 2000
---------- ---------- ----------
(U.S. dollars in thousands
except share and per share data)
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted net income
(loss) per ordinary share--Income (loss)
available to ordinary shareholders......... $ 175 $ (6,873) $ (12,111)
Denominator:
Denominator for basic earnings per share--
weighted average Ordinary Shares........... 15,688,335 16,157,831 19,309,964
Effect of employee stock options............ 60,826 -- --
---------- ---------- ----------
Denominator for diluted net income (loss)
per Ordinary Share......................... 15,749,161 16,157,831 19,309,964
---------- ---------- ----------
Basic net income (loss) per Ordinary Share.. $ 0.01 $ (0.43) $ (0.63)
---------- ---------- ----------
Diluted net income (loss) per Ordinary
Share...................................... $ 0.01 $ (0.43) $ (0.63)
---------- ---------- ----------
ADSs used in computing basic net income
(loss) per equivalent ADS.................. 31,376,670 32,315,662 38,619,928
---------- ---------- ----------
ADSs used in computing diluted net income
(loss) per equivalent ADS.................. 31,498,322 32,315,662 38,619,928
---------- ---------- ----------
</TABLE>
12. Employee Benefit Plans
The Company has elected to follow Accounting Principles Board Opinion Number
25, "Accounting for Stock Issued to Employees", ("APB 25") and related
interpretations in accounting for its stock options because, as discussed
below, the alternative fair value accounting provided for under FASB Statement
Number 123, "Accounting for Stock-Based Compensation", ("SFAS 123"), requires
use of option valuation models that were not developed for use in valuing stock
options. Under APB 25, the Company has not recognized compensation expense
during the years ended January 31, 1998, 1999 and 2000, respectively, as the
Company believes the exercise price of the Company's share options at the date
of grant was equal to or greater than the estimated fair value of the
underlying shares on the date of grant.
The Company established a share option scheme in January 1990, which was
available to all employees of the Company. Options granted under this scheme
generally had a three year vesting period. All options granted under this
scheme were granted prior to 1994. There are no options outstanding under the
scheme. This scheme was terminated in October 1998.
In May 1997 the Company established the Trintech Group Limited Share Option
1997 Scheme (the "1997 Scheme"). The 1997 Scheme initially provided for the
issuance of up to 1,200,000 of the Company's Ordinary Shares. In June 1998,
Trintech's Board of Directors and shareholders approved an amendment to the
1997 Scheme, providing for an increase in the number of Ordinary Shares that
may be issued under the 1997 Scheme to an aggregate of 2,200,000. In July 1999,
Trintech's Board of Directors and shareholders approved an amendment to the
1997 Scheme, providing for an increase in the number of Ordinary Shares that
may be issued under the 1997 Scheme to an aggregate of 3,700,000. All options
granted have a seven year term and generally commence vesting at a rate of one
twelfth of the total
F-19
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Employee Benefit Plans (Continued)
During 1998, the Company's Board of Directors and shareholders also approved
the Directors and Consultants Share Option Scheme which provides for the grant
of options to purchase a maximum of 200,000 Ordinary Shares of the Company to
non-employee directors and consultants of the Company. In July 1999, Trintech's
Board of Directors and shareholders approved an amendment to the 1998 Scheme,
providing for an increase in the number of Ordinary Shares that may be issued
under the 1998 Scheme to an aggregate of 600,000.
In August, 1999, the Company obtained shareholder approval for the
establishment of the Trintech 1999 employee savings related share option scheme
for our Irish employees. The Company may issue an aggregate of 350,000 shares
under the 1999 savings related scheme. The scheme will be adopted shortly by
the board following the receipt of approval by the Irish Revenue Commissioners.
The 1999 savings related scheme applies to all of the Company's qualifying
Irish employees and is intended to be an approved scheme under Schedule 12A to
the Taxes Consolidation Act 1997 of the Republic of Ireland. The eligible
employees may apply for an option to purchase ordinary shares at a discount of
15% to the market value of ordinary shares on the last day on which the
ordinary shares were traded before grant. Participants must enter into approved
savings arrangements the purpose of which is to fund the cost of the exercise
of the option. As of January 31, 2000 no shares had been issued under this
plan.
On August 23, 1999, the Company obtained shareholder approval for the
establishment of the Trintech 1999 employee share purchase plan for Trintech's
U.S. employees. The Company may issue an aggregate of 350,000 ordinary shares
under the 1999 share purchase plan. The 1999 share purchase plan is intended to
qualify under Section 423 of the Code and contains consecutive, overlapping,
twenty-four month offering periods. Each offering period includes four six-
month purchase periods. The offering periods generally start on the first
trading day on or after March 1 and September 1 of each year. The 1999 share
purchase plan permits participants to purchase common stock through payroll
deductions of up to 15% of the participant's compensation. As of January 31,
2000 no shares had been issued under this plan.
In the fourth quarter of fiscal year 2000, the Company recorded a stock
compensation charge of US$2.1 million in relation to stock options granted at
market value to the members of Trintech's advisory board and to a strategic
alliance partner with the Company.
Pro forma information regarding net income is required by SFAS 123, and has
been determined as if the Company had accounted for its stock options under the
fair value method of SFAS 123. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1998, 1999 and 2000: risk free
interest rate of 6%, 5% and 6% respectively; dividend yields of 0%; volatility
factors of the expected market price of the Company's ordinary shares for
options granted following the initial public offering of 0.4 and volatility
factors of 0.001 (to approximate to the minimum value method appropriate for
non-public companies) for options granted prior to the initial public offering
and a weighted-average expected life of the option of three years.
The Black-Scholes option model was developed for use in estimating the fair
value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input
F-20
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Employee Benefit Plans (Continued)
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.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows for the years ended January 31, 2000 (in
thousands of U.S. dollars):
<TABLE>
<CAPTION>
Year ended January 31,
-----------------------
1998 1999 2000
----- ------- --------
<S> <C> <C> <C>
Pro forma net income (loss)...................... $ 115 $(7,014) $(12,835)
===== ======= ========
Pro forma net income (loss) per ordinary share
Basic.......................................... $0.01 $ (0.43) $ (0.66)
Diluted........................................ $0.01 $ (0.43) $ (0.66)
Pro forma net income (loss) per equivalent ADS
Basic.......................................... $0.00 $ (0.22) $ (0.33)
Diluted........................................ $0.00 $ (0.22) $ (0.33)
</TABLE>
A summary of the Company's stock option activity and related information for
the years ended January 31, 1998, 1999 and 2000 follows:
<TABLE>
<CAPTION>
January 31, 1998 January 31, 1999 January 31, 2000
------------------ -------------------- --------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Options price Options price Options price
------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of Period.............. 31,651 $1.00 912,393 $2.12 1,486,681 $ 3.40
Granted................. 903,420 $2.15 756,220 $4.59 2,471,358 16.36
Lapsed.................. (18,538) $1.78 (166,967) $2.02 (281,033) 7.45
Exercised............... (4,140) $1.00 (14,965) $1.34 (65,679) 2.41
------- ----- --------- ----- --------- ------
Outstanding at end of
period................. 912,393 $2.12 1,486,681 $3.40 3,611,327 $11.96
======= ===== ========= ===== ========= ======
Exercisable at end of
period................. 23,573 $1.00 129,257 $2.27 438,116 $ 3.79
======= ===== ========= ===== ========= ======
</TABLE>
<TABLE>
<CAPTION>
Weighted- Weighted- Weighted-
average average average
Fair exercise Fair exercise Fair exercise
Value price Value price Value price
----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average fair value of
options granted during the
year for options whose
exercise price exceeds the
market price of the Ordinary
Shares on the date of grant.. $0.26 $2.20 $ -- $ -- $ -- $ --
Weighted-average fair value of
options granted during the
year for options whose
exercise price equals the
market price of the Ordinary
Shares on the date of grant.. $0.45 $2.14 $0.83 $4.59 $3.91 $16.36
</TABLE>
F-21
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Employee Benefit Plans (Continued)
Exercise prices for options outstanding as of January 31, 2000 ranged from
$1.55 to $60.00 per share. The breakdown of outstanding options at January 31,
2000 by price range is as follows:
<TABLE>
<CAPTION>
Weighted average Options Options
Price range remaining life (years) outstanding exercisable
----------- --------------------- ----------- -----------
<S> <C> <C> <C>
$ 1.55-- 2.99................. 4.57 758,390 306,235
$ 3.00-- 9.99................. 5.73 564,779 79,190
$10.00--11.49................. 6.42 1,219,125 46,908
$11.50--48.99................. 6.44 979,833 5,783
$49.00--60.00................. 6.93 89,200 --
--------- -------
3,611,327 438,116
========= =======
</TABLE>
Options have been granted in US dollars since September 1999, previously
options were granted in Irish pounds. The U.S. dollar equivalents for
disclosures above have been determined using the U.S. dollar rate at the date
of each grant.
13. Income Taxes
<TABLE>
<CAPTION>
Year ended January
31,
----------------------
1998 1999 2000
---- ------- --------
(U.S. dollars in
thousands)
<S> <C> <C> <C>
Income (loss) before provision for income taxes
consists of the following:
Ireland......................................... $161 $(2,887) $(16,172)
Foreign......................................... 64 (3,986) 4,604
---- ------- --------
Total......................................... $225 $(6,873) $(12,108)
==== ======= ========
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended
January 31,
--------------
1998 1999 2000
---- ---- ----
(U.S. dollars
in thousands)
<S> <C> <C> <C>
Current:
Ireland..................................................... $50 $ -- $ 3
Foreign..................................................... -- -- --
--- ---- ---
Total current............................................. $50 $ -- $ 3
=== ==== ===
Deferred:
Ireland..................................................... $-- $ -- $--
Foreign..................................................... -- -- --
--- ---- ---
Total deferred............................................ $-- $ -- $--
=== ==== ===
Total provision for income taxes.......................... $50 $ -- $ 3
=== ==== ===
</TABLE>
F-22
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Income Taxes (Continued)
The provision for income taxes differs from the amount computed by applying
the statutory income tax rate to income before taxes. The sources and tax
effects of the differences are as follows:
<TABLE>
<CAPTION>
Year ended January
31,
-----------------------
1998 1999 2000
----- ------- -------
(U.S. dollars in
thousands)
<S> <C> <C> <C>
Income taxes computed at the Irish statutory income
tax rate of 38% for 1998, 31.66% for 1999 and
27.66% for 2000................................... $ 82 $(2,176) $(3,349)
Income (losses) from Irish manufacturing operations
(taxed) relieved at lower rates................... 159 657 2,456
Income (losses) subject to (relieved at) higher
rates of tax...................................... (4) (504) 707
Income (losses) subject to (relieved at) lower
rates of tax...................................... (15) -- --
Operating losses utilized.......................... (9) -- (1,530)
Operating losses not utilized...................... 61 2,477 1,737
Income not subject to tax.......................... (302) (648) (1,003)
Foreign withholding tax............................ 21 -- --
Non-deductible expenses............................ 57 194 345
Non-deductible stock compensation.................. -- -- 640
----- ------- -------
Total provision for income taxes................. $ 50 $ -- $ 3
===== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year ended January
31,
---------------------
1998 1999 2000
----- ------ ------
(U.S. dollars in
thousands)
<S> <C> <C> <C>
Deferred tax assets
Net operating loss carryforwards...................... $ 965 $3,584 $3,305
----- ------ ------
Total deferred tax assets............................. 965 3,584 3,305
Valuation allowance................................... (965) (3,584) (3,305)
----- ------ ------
Net deferred tax assets............................... -- -- --
===== ====== ======
</TABLE>
At January 31, 2000, the Company had Irish manufacturing, German, U.S. and
U.K. net operating loss carryforwards of approximately US$20,661,000,
US$295,000, US$2,660,000 and US$111,000 respectively. The utilization of these
net operating loss carryforwards is limited to the future profitable operations
of the Company in the related tax jurisdictions in which such carryforwards
arose. The Irish, German and U.K. losses carry forward indefinitely. The U.S.
loss carryforwards will expire in 2014 if not previously utilized. 100%
valuation allowances have been provided against the net operating loss
carryforwards because of the history of operating losses in the related tax
jurisdictions.
14. Segment Information
Operating segments are identified as components of an enterprise about which
separate discrete financial information is available that is evaluated by the
chief operating decision maker or decision making group to make decisions about
how to allocate resources and
F-23
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Segment Information (Continued)
assess performance. The Company's chief operating decision maker is the Chief
Executive Officer. To date, the Company has viewed its operations as
principally two segments:
Year ended January 31, 1998
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
Licenses Segments All Consolidated
Product & Services Total Other Total
------- ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
Revenue..................... 10,824 5,822 16,646 -- 16,646
Cost of Sale................ 8,352 1,342 9,694 -- 9,694
Gross Profit................ 2,472 4,480 6,952 -- 6,952
Operating Expenses.......... 783 2,204 2,987 3,746 6,733
Operating Profit (Loss)..... 1,689 2,276 3,965 (3,746) 219
Non-operating Income
(expense), net............. -- -- -- (44) (44)
------ ------ ------ ------- -------
Net Income (Loss)........... 1,689 2,276 3,965 (3,790) 175
====== ====== ====== ======= =======
Segment Assets.............. 3,146 1,764 4,910 2,093 7,003
====== ====== ====== ======= =======
Year ended January 31, 1999
(U.S. dollars in thousands)
<CAPTION>
Licenses Segments All Consolidated
Product & Services Total Other Total
------- ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
Revenue..................... 14,554 6,479 21,033 -- 21,033
Cost of Sale................ 10,851 3,062 13,913 -- 13,913
Gross Profit................ 3,703 3,417 7,120 -- 7,120
Operating Expenses.......... 1,913 6,260 8,173 5,771 13,944
Operating Profit (Loss)..... 1,790 (2,843) (1,053) (5,771) (6,824)
Non-operating Income
(expense), net............. -- -- -- (49) (49)
------ ------ ------ ------- -------
Net Income (Loss)........... 1,790 (2,843) (1,053) (5,820) (6,873)
====== ====== ====== ======= =======
Segment Assets.............. 3,708 1,420 5,128 15,133 20,261
====== ====== ====== ======= =======
Year ended January 31, 2000
(U.S. dollars in thousands)
<CAPTION>
Licenses Segments All Consolidated
Product & Services Total Other Total
------- ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
Revenue..................... 18,457 11,787 30,244 -- 30,244
Cost of Sale................ 12,034 3,973 16,007 1,250 17,257
Gross Profit................ 6,423 7,814 14,237 (1,250) 12,987
Operating Expenses.......... 3,410 14,770 18,180 8,965 27,145
Operating Profit (Loss)..... 3,013 (6,956) (3,943) (10,215) (14,158)
Non-operating Income
(expense), net............. -- -- -- 2,047 2,047
------ ------ ------ ------- -------
Net Income (Loss)........... 3,013 (6,956) (3,943) (8,168) (12,111)
====== ====== ====== ======= =======
Segment Assets.............. 4,695 3,944 8,639 65,656 74,295
====== ====== ====== ======= =======
</TABLE>
F-24
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Segment Information (Continued)
The Company only reports direct operating expenses under the control of the
Chief Operating Decision Maker in the Segmental Information disclosed. The
Company does not report indirect operating expenses, depreciation and
amortization, interest income (expense), income taxes, capital expenditures, or
identifiable assets by industry segment, other than inventories and accounts
receivable, to the Chief Executive Officer.
The following tables reconcile segment income (loss) before income taxes to
consolidated income (loss) before income taxes and segment assets to
consolidated total assets.
<TABLE>
<CAPTION>
Year ended January
31,
-----------------------
1998 1999 2000
------ ------ -------
<S> <C> <C> <C>
Total income (loss) before taxes for reportable
segments............................................ 3,965 (1,053) (3,943)
Unallocated amounts:
Central overheads.................................. (3,407) (5,205) (7,938)
Depreciation and amortization...................... (339) (566) (2,277)
Interest income (expense), net..................... 18 272 1,208
Exchange gain (loss), net.......................... (12) (321) 842
------ ------ -------
Income (loss) before income taxes.................. 225 (6,873) (12,108)
------ ------ -------
Total assets for reportable segments............. 4,910 5,128 8,639
Unallocated amounts:
Cash............................................... 272 1,691 10,862
Marketable securities.............................. -- 7,178 48,830
Value added taxes.................................. 420 407 192
Prepaid expenses and other current assets.......... 662 1,299 1,332
Property and equipment, net........................ 739 2,058 3,190
Software development costs......................... -- 2,500 1,250
------ ------ -------
Total Assets..................................... 7,003 20,261 74,295
====== ====== =======
</TABLE>
The distribution of net revenue by geographical area was as follows:
<TABLE>
<CAPTION>
January 31,
--------------------
1998 1999 2000
------ ------ ------
(U.S. dollars in
thousands)
<S> <C> <C> <C>
Germany................................................... 11,242 14,724 18,005
United States of America.................................. 835 368 3,600
Ireland................................................... 2,465 2,435 3,085
Europe (excluding Germany and Ireland).................... 1,858 2,130 2,640
Rest of World (excluding United States of America)........ 246 1,376 2,914
------ ------ ------
Total................................................. 16,646 21,033 30,244
====== ====== ======
</TABLE>
F-25
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Segment Information (Continued)
<TABLE>
<CAPTION>
January 31,
------------------
1998 1999 2000
---- ------ ------
(U.S. dollars in
thousands)
<S> <C> <C> <C>
Long lived Assets:
Country of Domicile:
Ireland.................................................... 506 4,107 3,233
Foreign Countries:
United States.............................................. 121 298 1,026
Germany.................................................... 91 153 181
Other...................................................... 21 -- --
---- ------ ------
Total.................................................... $739 $4,558 $4,440
==== ====== ======
</TABLE>
15. Government Grants and Related Loans
Under employment agreements between the Company and Enterprise Ireland (the
Irish Development Authority, Forbairt) the Company has offset against related
payroll expense amounts of US$252,000, US$249,000 and US $10,000 in the years
ended January 31, 1998, 1999 and 2000, respectively. Under the terms of the
agreements between the Company and Enterprise Ireland, these grants may be
repaid to Enterprise Ireland in certain circumstances, principally the failure
to maintain the related jobs for a period of five years from the payment of the
first installment of the related employment grant. The Company has complied
with the terms of the grant agreements through January 31, 2000.
Under research and development agreements between the Company and Enterprise
Ireland the Company has offset US$248,000, US$80,000 and US$174,000 against
related research and development expenditure for the years ended January 31,
1998, 1999 and 2000, respectively. Under the terms of the agreements between
the Company and Enterprise Ireland, these grants may be repaid to Enterprise
Ireland in certain circumstances, principally the disposal by the Company of
intellectual property arising from the grant aided research and development.
The Company has not disposed of any such intellectual property through January
31, 2000.
Under agreements between the Company and the Irish Trade Board, the Company
has offset against related sales and marketing expense amounts of US$139,000,
US$nil and US$nil in the years ended January 31, 1998, 1999 and 2000,
respectively. In the years ended January 31, 1998, 1999 and 2000 the Company
received US$139,000, US$530,000 and US$100,000 respectively in the form of non-
interest bearing loans which are repayable at rates linked to future revenues
earned in the related markets. The loan is repayable at a rate of 1.4% of total
export sales in the period January 1999 to December 2001 with payments to
commence in January 2000 and end in July 2002. If the repayments calculated as
a percentage of sales are not sufficient to repay the loans in full Enterprise
Ireland may write off the balance provided they are satisfied with the
information provided about the sales achieved. The Company has credited all
such loan amounts to the balance sheet liability account "Government Grants
repayable and related loans" as the Company believes such loans will be repaid
in full.
F-26
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. Selected Statement of Operating Data
The following customers accounted for more than 10% of revenue in any one of
the years ended January 31, 1998, 1999 and 2000 respectively.
<TABLE>
<CAPTION>
Year Ended
January 31
----------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Deutsche Verkehrs Bank Zentrale............................... -- 1% 11%
--- --- ---
Bank of Ireland............................................... 11% 11% 5%
--- --- ---
GRK........................................................... 10% 8% 1%
--- --- ---
Easycash...................................................... 12% 9% --
--- --- ---
Which......................................................... 26% 33% 20%
--- --- ---
</TABLE>
The customers identified in the above table all relate to the product
segment described in note 14.
17. Related Party Transactions
Huttoft Company, an unlimited company which is wholly-owned by certain
directors of the Company owns a special non-voting class of shares in Trintech
Limited, one of the Company's Irish subsidiaries. All of the voting shares in
the subsidiary are owned by the Company. The shares do not entitle the holders
thereof to receive any share of the assets of the Company on a winding up.
Trintech Limited may, from time to time, declare dividends to Huttoft Company
and Huttoft Company may declare dividends to its shareholders out of these
amounts. Any such dividends paid by Trintech Limited are treated as
compensation expense by the Company in its financial statements prepared in
accordance with generally accepted accounting principles in the United States
notwithstanding their legal form of dividends to minority interests in order to
correctly reflect the substance of the transactions.
The amount of dividends included in compensation expenses are as follows:
<TABLE>
<CAPTION>
Year ended January 31,
-------------------------------
1998 1999 2000
--------- --------- ---------
(U.S. dollars in thousands)
<S> <C> <C> <C>
215 241 312
--------- --------- ---------
</TABLE>
As described in Note 6 the Company leases the new corporate headquarters in
Dublin, Ireland from John and Cyril McGuire, officers and directors of the
Company. The rent paid by the company was determined after completion of a
survey of the rental market, and the terms of the lease are no less favorable
than those that could be obtained in arms-length transactions.
The Company has a strategic relationship with VISA International covering
Europe, the United States, Latin America and the Asia Pacific region. VISA
markets and recommends certain of the Company's products throughout the world.
Member organizations of VISA license products from the Company. In August 1998
VISA International subscribed $1,500,000 for 250,000 of the Series A Redeemable
Convertible Preference Shares and in September 1998
F-27
<PAGE>
TRINTECH GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. Related Party Transactions (Continued)
appointed a representative to the board of directors. In addition, in August
1998 the Company issued to VISA a warrant to purchase 250,000 ordinary shares
at a price of $6 per ordinary share exercisable for a two-year period. The
value of the warrant was determined to be $163,000, has been included in
prepaid sales and marketing costs and is being amortized rateable over the two
year period of the strategic agreement with VISA to pursue opportunities in the
Internet marketplace entered into at the time.
Revenues from the supply of products and services to VISA, and balances due
from VISA at the ends of the related accounting period were as follows:
<TABLE>
<CAPTION>
Year ended January 31,
-----------------------------
1998 1999 2000
--------- --------- ---------
(U.S. dollars in thousands)
<S> <C> <C> <C>
Revenues...................................... 1,157 1,777 2,005
Balances due from VISA........................ 53 414 399
</TABLE>
Trintech has entered into a number of development and marketing agreements
with VISA. The development agreements comprise the customization of certain
Trintech products to meet VISA specifications. The development element of such
arrangements are accounted for in accordance with the Company's revenue
recognition policy for services using the percentage-of-completion contract
accounting method. Trintech has no obligation to repay funds received under the
agreements and bears the financial risks and rewards of the development
projects as well as retaining title to the intellectual property rights of the
developed technology. The marketing agreements entered into between Trintech
and VISA have no accounting value.
On March 31, 1998 the Company licensed the source code for S/Pay and J/Pay
from RSA Data Security for a consideration of $2.5 million and entered into a
joint marketing activities agreement with RSA Data Security. On the same date,
Security Dynamics Technologies, Inc., the parent company of RSA Data Security
purchased 482,765 ordinary shares in the Company for $2 million and appointed a
representative to the Company's board of directors. On June 30, 1998 Security
Dynamics Technologies Limited purchased 500,000 Series A Redeemable Convertible
Preference Shares for $3 million.
During the year ended January 31, 1998, 1999 and 2000 respectively, the
Company incurred expenditure of $0, $50,000 and $0 on joint marketing
activities with RSA. There were no balances due to or from RSA or Security
Dynamics at any period end.
18. Subsequent Events
On March 10, 2000 the Company announced a two-for-one split of its issued
and outstanding ADSs. Basic and diluted net income (loss) per equivalent ADS is
therefore calculated using twice the weighted average number of ordinary shares
outstanding during the period. All amounts shown per equivalent ADS have been
retroactively adjusted to give effect to the split.
F-28
<PAGE>
ANNEX A:
ADDITIONAL INFORMATION REQUIRED
BY THE COMPANIES ACT, 1963 TO 1999
OF THE REPUBLIC OF IRELAND
AND THE EUROPEAN COMMUNITIES (TRANSFERABLE
SECURITIES AND STOCK EXCHANGE) REGULATIONS, 1992.
1. We were incorporated in Ireland as a private company on January 29, 1987
under registration number 119798. Our founders were John McGuire and Cyril
McGuire.
2. The directors whose names appear on page 56 through 58 of this document
accept responsibility for the information contained in this document. To the
best of the knowledge and belief of the directors, who have taken all
reasonable care to ensure that such is the case, the information contained in
this document is consistent with the facts and does not omit anything likely to
affect the import of such information.
3. Our articles of association provide that no share qualification shall be
required by a director.
4. Our articles of association provide with regard to the remuneration of
directors:
(a) The ordinary remuneration of the directors shall be determined from
time to time by an ordinary resolution of our shareholders and shall be
divisible, unless such resolution shall provide otherwise, among the
directors as they may agree or, failing agreement, equally, except that any
director who shall hold office for part only of the period in for which
such remuneration is payable shall be entitled only to rank in such
division for a proportion of the remuneration related to the period during
which he has held office.
(b) The directors shall also be entitled to be paid all travelling, hotel
and other expenses incurred by them for attending meetings of directors or
committees of directors or general meetings in connection with our
business.
(c) Any director who holds any executive office, including the office of
chairman or deputy chairman, or who serves on any committee or who
otherwise performs services which in the opinion of the directors are
outside the scope of the ordinary duties of a director may be paid such
extra remuneration by way of salary, commission or other form of
renumeration as the directors may determine.
(d) The directors on our behalf may pay a gratuity, pension or allowance
on retirement to any director who has held any other salaried office or
place of profit with us or to his widow or dependants, and may make
contributions to any fund and pay premiums for the purchase or provision of
any such gratuity, pension or allowance.
5. Our principal objects which are described in full in our memorandum and
articles of association include the acquisition and holding of shares and
stocks and the business of a holding and investment company generally.
6. Except as otherwise provided in this prospectus, in the opinion of the
directors the amount required to be provided for the matters specified in
paragraph 4 of the Third Schedule to the Companies Act, 1963, whether out of
the proceeds of the issue or through some other means, is nil.
7. The subscription lists are anticipated to be opened at 9:00 am Frankfurt
Time, on May 5, 2000 and may be closed at any time thereafter.
A-1
<PAGE>
8. At the date of this prospectus, options to purchase an aggregate of
3,537,752 ordinary shares (7,075,504 equivalent ADSs), including options held
by officers and directors to purchase 1,539,697 ordinary shares (3,079,394
equivalent ADSs), are outstanding. Additional information about these options
is as follows:
<TABLE>
<CAPTION>
Number of
Options Exercise
(in Ordinary Price per
Date of Grant Shares) Ordinary Share
--------------------------------------------- ------------ --------------
<S> <C> <C>
April 20, 1990............................... 10,931 IR(Pounds)0.67
May 28, 1997................................. 298,808 IR(Pounds)1.33
May 28, 1997................................. 200,000 IR(Pounds)1.46
September 11, 1997........................... 67,322 IR(Pounds)1.67
November 21, 1997............................ 88,900 IR(Pounds)1.67
February 5, 1998............................. 121,670 IR(Pounds)2.00
March 18, 1998............................... 81,770 IR(Pounds)2.40
April 22, 1998............................... 19,250 IR(Pounds)3.25
May 25, 1998................................. 31,200 IR(Pounds)3.60
June 19, 1998................................ 30,400 IR(Pounds)3.75
July 27, 1998................................ 59,250 IR(Pounds)3.75
September 11, 1998........................... 33,700 IR(Pounds)3.75
November 30, 1998............................ 88,700 IR(Pounds)3.75
January 11, 1999............................. 231,000 IR(Pounds)3.75
February 25, 1999............................ 67,700 IR(Pounds)3.75
May 27, 1999................................. 561,625 IR(Pounds)8.25
May 27, 1999................................. 135,000 IR(Pounds)8.25
June 11, 1999................................ 70,000 IR(Pounds)8.25
June 27, 1999................................ 31,000 IR(Pounds)8.25
August 27, 1999.............................. 502,000 US$ 11.00
August 27, 1999.............................. 40,000 US$ 11.00
September 23, 1999........................... 20,000 US$ 1.55
September 23, 1999........................... 647,000 US$ 11.55
September 28, 1999........................... 40,000 US$ 14.88
October 4, 1999.............................. 15,000 US$ 12.25
December 3, 1999............................. 276,833 US$ 43.25
December 16, 1999............................ 4,000 US$ 43.00
December 22, 1999............................ 27,500 US$ 49.50
January 5, 2000.............................. 19,500 US$ 50.00
January 12, 2000............................. 34,000 US$ 49.00
January 19, 2000............................. 6,200 US$ 51.00
January 26, 2000............................. 2,000 US$ 60.00
February 2, 2000............................. 17,500 US$ 58.50
February 9, 2000............................. 5,200 US$ 107.00
February 16, 2000............................ 15,500 US$ 92.00
February 23, 2000............................ 63,000 US$ 100.10
March 24, 2000............................... 66,000 US$ 100.00
May 3, 2000.................................. 23,000 US$ 52.00
</TABLE>
9. The number of ordinary and preference shares issued by us otherwise than
for cash within the preceding three years are as follows:
(a) On January 31, 1997, the shareholders of Trintech Limited were
allotted 167,971 of our ordinary shares in exchange for all of the ordinary
shares of Trintech Limited. Upon completion of the transaction, Trintech
Limited became one of our wholly owned subsidiaries.
A-2
<PAGE>
10. The financial information concerning us contained in this prospectus does
not constitute statutory accounts within the meaning of Section 19 of the
Companies Act 1986 of the Republic of Ireland. Our statutory accounts for the
financial years ended January 31, 1997, 1998, 1999 and 2000 have been delivered
to the Registrar of Companies of the Republic of Ireland. For each of those
statutory accounts, our independent auditors, Ernst & Young, have given reports
which were unqualified and did not contain a statement under Section 193 of the
Companies Act 1990.
11. In addition to the contracts described in the section entitled "Related
Party Transactions" of the document, the following contracts have been entered
into outside the ordinary course of business within the five years immediately
preceding the date of this document and are or may be material:
(a) Form of Global Underwriting Agreement
(b) Amended Memorandum and Articles of Association of Trintech Group PLC,
as adopted on September 22, 1999
(c) Form of Depositary Agreement among Trintech Group PLC, The Bank of
New York, as Depositary, and holders from time to time of American
Depositary Shares issued thereunder (including as an exhibit the form of
American Depositary Receipt) dated as of September 27, 1999, as amended on
March 16, 2000
(d) 1990 Trintech Group Limited Share Option Scheme
(e) 1997 Trintech Group Limited Share Option Scheme
(f) 1998 Trintech Group Limited Directors and Consultants Share Option
Scheme
(g) 1999 Employee Share Purchase Plan
(h) Form of Indemnification Agreement between Trintech, Inc. and its
directors and officers dated September, 1999
(i) Employment Agreement between Trintech Group Limited and John McGuire
dated April 1, 1996
(j) Employment Agreement between Trintech Group Limited and Cyril McGuire
dated April 1, 1996
(k) Employment Agreement between Trintech Group Limited and Christopher
Meehan dated November 2, 1995
(l) Employment Agreement between Trintech Group Limited and R. Paul Byrne
dated November 2, 1995
(m) 1999 U.S. Employee Share Purchase Plan
(o) Investors Rights Agreement by and among Trintech Group Limited,
Security Dynamics Technologies, Inc., John F. McGuire, Cyril P. McGuire,
Instove Limited, Jayness Limited and Vanspur Limited dated March 31, 1998
(p) Series A Convertible Preference Share Investors Rights Agreement by
and among Trintech Group Limited, the Investors (as defined therein), John
F. McGuire, Cyril P. McGuire, Instove Limited, Jayness Limited and Vanspur
Limited dated June 30, 1998
(q) Amendment No. 1 to the Investors Rights Agreement by and among
Trintech Group Limited, the Investors (as defined therein), John F.
McGuire, Cyril P. McGuire, Instove Limited, Jayness Limited and Vanspur
Limited
A-3
<PAGE>
(r) Credit Agreement between Trintech Group of Companies and The Bank of
Ireland dated November 12, 1997
(s) Debenture between Trintech Group Limited and The Bank of Ireland
dated April 23, 1998
(t) Software Source Code License Agreement between RSA Data Security,
Inc. and Trintech Manufacturing Ltd. dated March 31, 1998
(u) Marketing Agreement between RSA Data Security, Inc. and Trintech
Manufacturing Ltd. dated March 31, 1998
(v) Agreement between Visa International and Trintech Group Limited dated
August 27, 1998
(w) Marketing Agreement between SAP Aktiengesellschaft and Trintech Group
dated November 19, 1998
(x) Supply Agreement between Keltek Electronics Limited and Trintech
Group dated August 17, 1998
(y) Lease Agreement between John McGuire, Cyril McGuire and Trintech
Group dated September 1999
(z) Lease Agreement between 5 Independence Associates Limited Partnership
and Trintech, Inc. dated April 30, 1998
(aa) Amendment No. 1 to Lease Agreement between 5 Independence Associates
Limited Partnership and Trintech, Inc. dated August 4, 1998
(bb) Guaranty Agreement between 5 Independence Associates Limited
Partnership and Trintech Holdings Limited dated April, 1998
(cc) Office Lease Agreement between Sherlon Investments Corp. and
Trintech, Inc. dated December 12, 1997
(dd) Lease Agreement between Grund und Vermogensverwaltung Gmbh & Co KG
and Trintech GmbH dated June 13, 1996
(ee) Lease Agreement between Service Life & Casualty Ins. Co. and
Trintech, Inc. dated January 5, 1999
(ff) Lease Agreement between Lincoln Bascom Office Center and Trintech,
Inc. dated March 19, 1996
(gg) First Amendment to Office Building Lease between Lincoln Bascom
Office Center and Trintech, Inc. dated April 1, 1997
(hh) First Amendment to Office Lease Agreement between Sherlon
Investments Corp. and Trintech, Inc. dated February 10, 1999
(ii) Second Amendment to Office Building Lease between Lincoln Bascom
Office Center and Trintech, Inc. dated May 4, 1998
(jj) Third Amendment to Office Building Lease between Lincoln Bascom
Office Center and Trintech, Inc. dated May 21, 1998
(kk) Grant to Trintech Manufacturing Limited from Enterprise Ireland
dated December 3, 1996
(ll) Grant to Trintech Manufacturing Limited from Enterprise Ireland
dated December 3, 1996
A-4
<PAGE>
(mm) Grant to Trintech Manufacturing Limited from Enterprise Ireland
dated October 13, 1997
(nn) Grant to Trintech Manufacturing Limited from Enterprise Ireland
dated October 13, 1997
(oo) Development and Marketing Agreement between Trintech Group and Visa
International Service Association dated April 26, 1999
(pp) License Agreement between Trintech, Inc. and Visa U.S.A., Inc. dated
May 12, 1999
(qq) Master Joint Marketing Agreement between Trintech, Inc. and Compaq
Computer Corporation dated March 17, 1999
(rr) Employment Agreement between Trintech Group Limited and John Harte
dated August 1, 1999
(ss) Employment Agreement between Trintech Group PLC and Kevin C. Shea
dated September, 1999
(tt) Office Lease Agreement between Trintech, Inc. and The Joshua Group
dated August 16, 1999
(uu) Lease Agreement between Trintech, Inc. and Peninsula Office Park
Associates, L.P. dated May 28, 1999
(vv) First Amendment to the Lease between Trintech, Inc. and Peninsula
Office Park Associates, L.P. dated November 1, 1999
12. Copies of the underwriting agreements being the contract under which the
shares being offered are to be allotted will be available at the offices of A&L
Goodbody, I.F.S.C. North Wall Quay, Dublin 1, Ireland, during normal business
hours on any weekday (Saturdays excepted) within the period of 14 days
following the completion of this offering.
13. Our auditors are Ernst & Young, Ernst & Young Building, Harcourt Street,
Dublin 2, Republic of Ireland.
14. Ernst & Young, independent auditors, and A&L Goodbody Solicitors have
given and not withdrawn their written consent to the inclusion in this document
of the references to them in the form and context in which they appear.
15. A copy of this offer for sale has been delivered to the Registrar of
Companies in the Republic of Ireland for registration, each copy having
attached to it a copy of the consents mentioned above and each of the material
contracts mentioned above.
A-5
<PAGE>
16. The following are the names and addresses of the directors of Trintech
Group PLC:
<TABLE>
<CAPTION>
Name Address Description
---- ------- -----------
<S> <C> <C>
John F. McGuire......... c/o Trintech Building, South County Chief Executive Officer
Business Park, Leopardstown, Dublin 18. and Director
Cyril P. McGuire........ c/o Trintech Building, South County Executive Chairman
Business Park, Leopardstown, Dublin 18.
Kevin C. Shea........... c/o Trintech Building, South County Chief Operating Officer
Business Park, Leopardstown, Dublin 18 and Director
Christopher P. Meehan... c/o Trintech Building, South County Executive Vice
Business Park, Leopardstown, Dublin 18. President, Operations
and Director
R. Paul Byrne........... c/o Trintech Building, South County Chief Financial Officer
Business Park, Leopardstown, Dublin 18. and Director
Trevor D. Sullivan...... c/o Trintech Building, South County Director
Business Park, Leopardstown, Dublin 18.
B. James Bidzos......... c/o Trintech Building, South County Director
Business Park, Leopardstown, Dublin 18.
Wolfgang H. Heinrich.... c/o Trintech Building, South County Director
Business Park, Leopardstown, Dublin 18.
Robert N. Wadsworth..... c/o Trintech Building, South County Director
Business Park, Leopardstown, Dublin 18.
</TABLE>
17. The price at which ADSs are being offered to the public in this offering
would be payable in full on application.
18. The number of shares allotted by us and the amounts paid on the shares,
within the previous five years are as follows:
(a) all amounts were payable and paid on allotment:
<TABLE>
<CAPTION>
Class of Number of
Date Shareholder Shares Class of Shares Price per Share
---- ------------------- --------- --------------------- ----------------
<C> <C> <C> <S> <C>
January 28, 1997.... Employee 156,164 Ordinary IR(Pounds)0.0100
January 28, 1997.... Government Agency 11,807 Ordinary IR(Pounds)0.0100
January 31, 1997.... Government Agency 387,610 Ordinary IR(Pounds)1.1766
July 14, 1997....... Employee 4,140 Ordinary IR(Pounds)1.3300
March 31, 1998...... Technology Partner 482,765 Ordinary US$ 4.1428
April 22, 1998...... Employee 1,700 Ordinary IR(Pounds)1.3300
April 22, 1998...... Employee 1,700 Ordinary IR(Pounds)0.6369
June 30, 1998....... Venture Capitalists 2,583,333 Series A Convertible US$ 6.0000
Redeemable Preference
Share
July 30, 1998....... Venture Capitalists 166,667 Series A Convertible US$ 6.0000
Redeemable Preference
Share
August 18, 1998..... Venture Capitalists 40,000 Ordinary US$ 6.0000
August 27, 1998..... Technology Partner 250,000 Series A Convertible US$ 6.0000
Redeemable Preference
Share
September 11, 1998.. Employee 442 Ordinary IR(Pounds)2.0000
September 11, 1998.. Employee 800 Ordinary IR(Pounds)2.4000
September 11, 1998.. Employee 1,833 Ordinary IR(Pounds)1.6700
November 30, 1998... Employee 7,850 Ordinary IR(Pounds)0.6370
January 11, 1999.... Employee 1,570 Ordinary IR(Pounds)0.6370
February 25, 1999... Employee 4,800 Ordinary IR(Pounds)1.3300
February 25, 1999... Employee 2,000 Ordinary IR(Pounds)2.0000
April 12, 1999...... Employee 1,167 Ordinary IR(Pounds)1.6700
April 12, 1999...... Employee 1,798 Ordinary IR(Pounds)1.3300
</TABLE>
A-6
<PAGE>
<TABLE>
<CAPTION>
Class of Number of
Date Shareholder Shares Class of Shares Price per Share
- ------------------------ ------------- --------- ---------------------------- ----------------
<S> <C> <C> <C> <C>
April 12, 1999.......... Employee 300 Ordinary IR(Pounds)3.7500
May 28, 1999............ Employee 166 Ordinary IR(Pounds)1.9950
May 28, 1999............ Employee 5,287 Ordinary IR(Pounds)1.3300
May 28, 1999............ Employee 930 Ordinary IR(Pounds)2.0000
May 28, 1999............ Employee 998 Ordinary IR(Pounds)1.6700
May 28, 1999............ Employee 166 Ordinary IR(Pounds)1.3250
June 2, 1999............ Employee 83 Ordinary US$ 2.0000
July 6, 1999............ Employee 6,333 Ordinary US$ 1.6700
July 8, 1999............ Employee 83 Ordinary US$ 2.4000
August 12, 1999......... Employee 251 Ordinary US$ 2.0000
August 18, 1999......... Employee 167 Ordinary US$ 2.0000
August 19, 1999......... Employee 1,333 Ordinary US$ 1.3300
August 25, 1999......... Employee 666 Ordinary US$ 1.3300
August 26, 1999......... Employee 83 Ordinary US$ 4.3100
August 30, 1999......... Employee 1,140 Ordinary US$ 1.7700
August 30, 1999......... Employee 83 Ordinary US$ 4.7700
August 31, 1999......... Employee 333 Ordinary US$ 1.9000
September 15, 1999...... Employee 84 Ordinary US$ 2.6300
September 17, 1999...... Employee 83 Ordinary US$ 4.2900
September 17, 1999...... Employee 334 Ordinary US$ 1.7600
September 22, 1999...... Employee 1,016 Ordinary US$ 4.8000
September 28, 1999...... IPO Investors 5,800,000 Ordinary US$ 10.7175
October 7, 1999......... Employee 167 Ordinary US$ 3.2800
October 8, 1999......... Employee 2,764 Ordinary US$ 1.8000
October 14, 1999........ Employee 2,000 Ordinary US$ 2.2800
October 26, 1999........ IPO Investors 87,598 Ordinary US$ 10.7175
October 26, 1999........ Employee 10,840 Ordinary US$ 0.8500
October 28, 1999........ Employee 187 Ordinary US$ 2.6800
November 17, 1999....... Employee 333 Ordinary US$ 4.7600
November 17, 1999....... Employee 2,000 Ordinary US$ 2.2100
November 18, 1999....... Employee 83 Ordinary US$ 2.6300
November 24, 1999....... Employee 168 Ordinary US$ 2.5900
November 29, 1999....... Employee 833 Ordinary US$ 4.8000
November 30, 1999....... Employee 804 Ordinary US$ 1.7100
December 2, 1999........ Employee 500 Ordinary US$ 1.7000
December 15, 1999....... Employee 2,083 Ordinary US$ 3.0500
December 15, 1999....... Employee 1,333 Ordinary US$ 2.2100
December 17, 1999....... Employee 100 Ordinary US$ 1.7100
December 18, 1999....... Employee 1,042 Ordinary US$ 3.0800
December 22, 1999....... Employee 250 Ordinary US$ 3.0700
December 22, 1999....... Employee 83 Ordinary US$ 2.1400
December 22, 1999....... Employee 84 Ordinary US$ 4.1500
January 5, 2000......... Employee 500 Ordinary US$ 1.7500
January 11, 2000........ Employee 84 Ordinary US$ 4.5700
January 11, 2000........ Employee 625 Ordinary US$ 11.3600
January 19, 2000........ Employee 1,875 Ordinary US$ 5.3000
January 24, 2000........ Employee 4,000 Ordinary US$ 2.4300
January 26, 2000........ Employee 469 Ordinary US$ 11.3600
January 26, 2000........ Employee 63 Ordinary US$ 11.5500
January 28, 2000........ Employee 250 Ordinary US$ 4.5700
January 30, 2000........ Employee 63 Ordinary US$ 11.3600
January 30, 2000........ Employee 250 Ordinary US$ 5.3000
January 30, 2000........ Employee 63 Ordinary US$ 11.5500
February 1, 2000........ Employee 268 Ordinary US$ 2.0200
February 1, 2000........ Employee 1,418 Ordinary US$ 5.3000
</TABLE>
A-7
<PAGE>
<TABLE>
<CAPTION>
Class of Number of Price per
Date Shareholder Shares Class of Shares Share
- ------------------------ ----------- --------- ---------------------------- ----------
<S> <C> <C> <C> <C>
February 2, 2000........ Employee 600 Ordinary US$ 5.1400
February 2, 2000........ Employee 188 Ordinary US$ 4.5700
February 2, 2000........ Employee 3,398 Ordinary US$ 2.0200
February 2, 2000........ Employee 250 Ordinary US$11.3600
February 2, 2000........ Employee 1,167 Ordinary US$ 2.8100
February 2, 2000........ Employee 3,000 Ordinary US$ 3.2900
February 3, 2000........ Employee 250 Ordinary US$ 4.5700
February 4, 2000........ Employee 83 Ordinary US$ 5.3000
February 7, 2000........ Employee 1,875 Ordinary US$11.3600
February 7, 2000........ Employee 125 Ordinary US$11.5500
February 18, 2000....... Employee 333 Ordinary US$ 2.4300
February 23, 2000....... Employee 83 Ordinary US$ 2.4300
February 23, 2000....... Employee 83 Ordinary US$ 4.5700
February 28, 2000....... Employee 83 Ordinary US$ 2.8100
February 28, 2000....... Employee 104 Ordinary US$ 5.3000
February 28, 2000....... Employee 750 Ordinary US$ 5.1400
February 29, 2000....... Employee 3,125 Ordinary US$ 5.3000
March 22, 2000.......... Employee 13,618 Ordinary US$ 4.1200
March 23, 2000.......... Employee 10,625 Ordinary US$ 5.0600
March 24, 2000.......... Employee 6,688 Ordinary US$ 7.0000
March 27, 2000.......... Employee 500 Ordinary US$11.5600
March 28, 2000.......... Employee 1,155 Ordinary US$ 3.0800
March 29, 2000.......... Employee 4,900 Ordinary US$ 3.6600
March 30, 2000.......... Employee 700 Ordinary US$ 3.6600
March 31, 2000.......... Employee 250 Ordinary US$ 3.4200
April 4, 2000........... Employee 1351 Ordinary US$ 2.1000
April 5, 2000........... Employee 534 Ordinary US$ 5.2200
April 6, 2000........... Employee 23114 Ordinary US$ 3.4000
April 7, 2000........... Employee 1391 Ordinary US$ 2.8400
April 10, 2000.......... Employee 50 Ordinary US$ 3.3400
April 11, 2000.......... Employee 1568 Ordinary US$ 2.2200
April 12, 2000.......... Employee 149 Ordinary US$ 5.3000
April 13, 2000.......... Employee 18441 Ordinary US$ 5.0100
April 14, 2000.......... Employee 2041 Ordinary US$ 3.0000
April 17, 2000.......... Employee 8350 Ordinary US$ 4.3500
April 20, 2000.......... Employee 250 Ordinary US$ 5.1400
April 25, 2000.......... Employee 1583 Ordinary US$ 5.0600
April 26, 2000.......... Employee 166 Ordinary US$ 4.9400
</TABLE>
19. At a public offering price of US$22.56, the estimated amount of the
expenses of the offering, including estimated underwriting commissions and
discounts, is currently anticipated to be approximately US$8,993,557, of which
US$6,443,557 would be payable by us and approximately US$2,550,000 would be
payable by the selling shareholders. If the underwriters exercise in whole
their option to purchase additional ADSs from us and the selling shareholders,
the estimated amount of further expenses incurred, including estimated
underwriting commissions and discounts, is approximately US$1,147,500, of which
US$573,750 would be payable by us and approximately US$573,750 would be payable
by the selling shareholders. The net amount of the consideration estimated to
be received by us for the ADSs comprised in the offering is US$83,796,000.
20. We have previously paid no commissions in relation to procuring
subscriptions for shares and debentures other than commissions to underwriters.
A-8
<PAGE>
21. Share Capital and Share Capital Increases and Decreases
Our current capital structure and authorized share capital are the result of
a series of corporate actions.
On January 27, 1997, our articles of association authorized us to have a
share capital of IR(Pounds)250,000, divided into 5,000,000 ordinary shares of
IR(Pounds)0.01 each and 200,000 redeemable preference shares of IR(Pounds)1.00
each, of which 2,891,640 ordinary shares and 181,062 redeemable preference
shares were outstanding.
On January 27, 1997, our shareholders resolved to subdivide each of the
5,000,000 ordinary shares of IR(Pounds)0.01 each into 5 ordinary shares of
IR(Pounds)0.002 each, which gave us a share capital of IR(Pounds)250,000
divided into 25 million ordinary shares of IR(Pounds)0.002 each and 200,000
redeemable preference shares of IR(Pounds)1.00 each.
On November 21, 1997, our shareholders resolved to reduce our authorized
share capital from IR(Pounds)250,000 to IR(Pounds)50,000 by cancelling 200,000
authorized but unissued redeemable preference shares of IR(Pounds)1.00 each.
Immediately after that cancellation, our shareholders then resolved to increase
our authorized share capital to IR(Pounds)200,000 by creating 75,000,000
ordinary shares of IR(Pounds)0.002 each, with the new ordinary shares having
the same rights as our existing ordinary shares.
On June 26, 1998, our shareholders resolved to increase our authorized share
capital from IR(Pounds)200,000 divided into 100,000,000 ordinary shares of
IR(Pounds)0.002 each to IR(Pounds)206,000 composed of 100,000,000 ordinary
shares of IR(Pounds)0.002 each and 3,000,000 redeemable convertible preference
shares of IR(Pounds)0.002 each by the creation of 3,000,000 redeemable
convertible preference shares of IR(Pounds)0.002 each.
On August 23, 1999, our shareholders resolved to convert the currency of our
share capital from Irish pounds to US dollars by converting each of our
ordinary shares and redeemable convertible preference shares from shares of
IR(Pounds)0.002 each to shares of US$0.0027 each. To effect the conversion our
shareholders then resolved to cancel all 83,744,547 of the authorized but
unissued ordinary shares and all 40,000 of the authorized but unissued
redeemable convertible preference shares. Our shareholders then resolved to
increase our authorized share capital by the creation of 100,000,000 ordinary
shares of US$0.0027 each and 3,000,000 redeemable convertible preference shares
of US$0.0027.
Our board of directors than allotted 16,255,426 ordinary shares of US$0.0027
each to our existing shareholders and further allotted 2,960,000 redeemable
convertible preference shares of US$0.0027 to our existing redeemable
convertible preference shareholders.
Our board of directors then resolved to redeem all 16,255,426 issued
ordinary shares of IR(Pounds)0.002 each and all 2,960,000 issued redeemable
convertible preference shares of IR(Pounds)0.002 each for an amount per share
equal to the amount paid by each shareholder for each ordinary share and for
each redeemable convertible preference share, such amounts being satisfied out
of and set off against the amount owed by each shareholder for the ordinary
shares of US$0.0027 each and the redeemable convertible preference shares of
US$0.0027 each allotted to our shareholders. Our shareholders then resolved to
cancel each of the redeemed ordinary shares of IR(Pounds)0.002 each and each of
the convertible redeemable preference shares of IR(Pounds)0.002 each upon the
redemption.
22. Before closing of the initial public offering, our authorized share
capital was US$278,100 divided into 100,000,000 ordinary shares of US$0.0027
each and 3,000,000
A-9
<PAGE>
redeemable convertible preference shares of US$0.0027 each. Upon the date of
closing of the initial public offering, all of the issued convertible
redeemable preferences shares in our capital automatically converted into
ordinary shares at a conversion rate of one ordinary share per one convertible
redeemable preference share. Further, immediately following the conversion a
resolution of our shareholders cancelling the 3,000,000 authorized redeemable
convertible preference shares became effective, which reduced our authorized
share capital from US$278,100 to US$270,000. Then, a resolution of our
shareholders increasing our authorized share capital from US$270,000 divided
into 100,000,000 ordinary shares of US$0.0027 each to US$297,000 divided into
100,000,000 ordinary shares of US$0.0027 each and 10,000,000 series B
preference shares of US$0.0027 each by the creation of 10,000,000 series B
preference shares became effective.
As a result, our authorized share capital is US$297,000 divided into
100,000,000 ordinary shares of US$0.0027 per ordinary share and 10,000,000
series B preference shares of US$0.0027 per series B preference share.
23. On August 23, 1999, our shareholders authorized by special resolution the
board of directors to allot all of the authorized but unissued shares in our
share capital, including 5,887,598 ordinary shares in our initial public
offering. On August 27, 1999, our directors resolved to allot the 5,887,598
ordinary shares to the custodian and establish a sponsored ADR program to issue
the ADRs under the terms of the deposit agreement with The Bank of New York.
24. On March 10, 2000, the Board authorized the allotment of up to 2,000,000
ordinary shares in our follow-on offering to the custodian.
24. Even if our share capital offered for subscription pursuant to this
offering is not subscribed in full, the amount of that capital subscribed for
may be allotted in any event.
A-10
<PAGE>
ANNEX B:
ADDITIONAL INFORMATION REQUIRED BY GERMAN LAW
Responsibility for the content of the prospectus
We and the underwriters named at the end of this sales prospectus undertake,
under Section 13 of the German Securities Sales Prospectus Act and Sections 45,
77 of the German Stock Exchange Act, responsibility for the contents of this
prospectus, including Annexes A and B, and state that, to the best of our and
their knowledge, the information contained in this prospectus is correct and
that no material information has been omitted.
Availability of documents for inspection
Certain documents referred to in this prospectus which relate to us as well
as annual and interim reports prepared by us may be inspected during customary
business hours at the offices of Trintech GmbH, Siemenstrasse 20, D-63263 Neu
Isenburg, Germany, as well as at the offices of Deutsche Bank
Aktiengesellschaft, Taunusanlage 12, D-60262 Frankfurt am Main.
Subject of this prospectus
The subject of this prospectus as sales prospectus is (a) 6,000,000 ADSs
representing registered 2,000,000 ordinary shares being offered by us, from the
issuance of authorized capital resolved on March 10, 2000, and 1,000,000
ordinary shares from our selling shareholders, and (b) up to 900,000 ADSs
representing 225,000 registered ordinary shares from us from the issuance of
authorized capital, if any, and 225,000 ordinary shares from our selling
shareholders with respect to an over-allotment option granted to the
underwriters.
Deliverability and Clearing
The ADSs are deliverable in Germany in book-entry form in the collective
holdings deposited with the Depository Trust Company on behalf of Clearstream
Banking AG.
B-1
<PAGE>
Since our creation in 1987, we have consistently sought to develop and
deploy technology that offers financial transaction processors secure,
practical payment solutions. Our first product was an off-line credit card
authorization product that transmitted lost and stolen card numbers using
broadcast networks. This product illustrated our innovative use of existing
networks for secure payment applications.
That ability to anticipate payment requirements continued when we built
payment applications for leading airline reservation systems such as Lufthansa.
We believe that the expertise gleaned from working with large-scale proprietary
computer networks, gave us a natural edge when open networks, such as the
Internet, emerged.
Recognizing the rigorous technical requirements of marrying Internet
technology with the myriad of complex protocols, we devoted considerable
resources to gain "first-mover" advantage. This led to Netscape's decision to
choose us as the payment software solution for the world's first international
SSL secured transaction in Sweden in 1995. Following that early Internet first,
we developed a suite of end-to-end Internet solutions based on the SSL security
standard. As the more sophisticated security standard, known as SET, emerged,
we demonstrated our leadership position by conducting the world's first SET 1.0
transaction in Puerto Rico with Visa International in 1997. In the following
year, we were one of the first vendors in the world to achieve SET
certification for its suite of payment products.
One of our specialties is multi-currency, which was instrumental in the
completion of the world's first euro transaction in Germany. At the stroke of
midnight on January 1, 1999, a senior Visa executive used our PayWare and
Compact 9000 technology to authorize and process a card transaction in the new
European single currency. Appropriately, the purchase was a bottle of
champagne!
In 1999, we have continued to innovate with industry firsts. We expanded our
Internet commerce product suite with a number of unique products. These include
a merchant hosting solution for Internet service providers and commerce service
providers, and the deployment of a robust gateway solution that combines SSL
and SET security and routes all Visa USA's e-commerce payment transactions in
the United States.
Strategic relationships and awards are evidence of our success--We have
strategic relationships with, Visa, MasterCard, VeriSign, RSA Security, Compaq,
SAP and Intershop. Our websites: trintech.com and epaynews.com have won
Netscape awards. Epaynews.com is a newswire Internet portal for the world of e-
payments. Finally in May 1999, The Red Herring chose us as one of the top 100
companies of the electronic economy-- "the brightest stars of the digital
universe, the technology companies that are creating new markets and defining
the electronic economy.'
<PAGE>
You may rely on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor sale of the securities
offered by this prospectus means that information contained in this prospectus
is correct after the date of this prospectus. This prospectus is not an offer
to sell or solicitation of an offer to buy the securities offered hereby in
any circumstances under which the offer or solicitation is unlawful.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Presentation of Financial Information.................................... 15
Exchange Rate Information................................................ 16
Price Range of American Depositary Shares................................ 17
Capitalization........................................................... 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 36
Management............................................................... 56
Principal and Selling Shareholders....................................... 66
Related Party Transactions............................................... 69
Description of Share Capital............................................. 72
Description of American Depositary Shares................................ 79
Shares Eligible for Future Sale.......................................... 88
The German Equity Market................................................. 90
Taxation................................................................. 92
Exchange Control Regulations............................................. 99
Underwriting............................................................. 101
Legal Matters............................................................ 102
Experts.................................................................. 103
Where You Can Find More Information...................................... 103
Index to the Consolidated Financial Statements........................... F-1
Additional Information Required by the Irish Companies Act............... A-1
Additional Information Required by German Law ........................... B-1
</TABLE>
- -------------------------------------------------------------------------------
[LOGO OF TRINTECH GROUP PLC APPEARS HERE]
6,000,000 American Depositary Shares
Representing
3,000,000 Ordinary Shares
Deutsche Banc Alex. Brown
Donaldson, Lufkin & Jenrette
Robertson Stephens
Chase H&Q
Prospectus
May 4, 2000
