<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 1999
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
National Transaction Network, Inc.
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(Name of Issuer)
National Transaction Network, Inc.
IVI Checkmate Corp.
IVI Checkmate Inc.
NTN Merger Corp.
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(Name of Person(s) Filing Statement)
Common Stock, par value $0.15 per share
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(Title of Class of Securities)
638221 40 8
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(CUSIP Number of Class of Securities)
John J. Neubert L. Barry Thomson
IVI Checkmate Corp. National Transaction Network, Inc.
IVI Checkmate Inc. 117 Flanders Road
NTN Merger Corp. Westborough, Massachusetts 01581
1003 Mansell Road (508) 870-3200
Roswell, Georgia 30076
(770) 594-6000
(Name, Address and Telephone Number of Persons Authorized to Receive Notices and
Communications on Behalf of the Person(s) Fling Statement)
The Commission is requested to send copies of all communications to:
M. Hill Jeffries Robert D. Pannell
Paul J. Nozick Nelson Mullins Riley & Scarborough, L.L.P.
Alston & Bird LLP First Union Plaza
One Atlantic Center 999 Peachtree Street
1201 West Peachtree Street Atlanta, Georgia 30309
Atlanta, Georgia 30309-3424 (404) 817-6177
(404) 881-7000
, 1999
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(Date Proxy Statement First Published, Sent or Given to Security Holders)
This statement is filed in connection with (check the appropriate box):
a. [ ] The filing of solicitation materials or an information statement subject
to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities
Exchange Act of 1934.
b. [X] The filing of a registration statement under the Securities Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies. [ ]
Calculation of Filing Fee
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Transaction Valuation* Amount of Filing Fee
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$266,890.03 $74.20
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[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
Amount previously paid: $74.20 Filing party: IVI Checkmate Corp.
Form or Registration no.: Date filed: July 26, 1999
Registration Statement on Form S-4
*For purposes of calculation of the filing fee only. This transaction relates
to the proposed merger (the "Merger") of a subsidiary of IVI Checkmate Inc., a
------
Georgia corporation ("IVI Inc."), with and into National Transaction Network,
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Inc., a Delaware corporation (the "Company"). The "Transaction Valuation"
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amount referenced above is based upon the conversion of each share of common
stock, $.15 par value, of the Company ("Company Common Stock") (excluding shares
--------------------
held by the Company or by IVI Inc. or any of its subsidiaries, in each case
other than in a fiduciary capacity ("Treasury Shares"), and excluding shares
---------------
held by public stockholders who perfect their statutory dissenters' rights) (a
"Share") issued and outstanding immediately prior to the Merger into the right
to receive the number of shares of the common stock, $.01 par value, of IVI
Checkmate Corp., a Delaware corporation ("IVI Corp.") ("IVI Common Stock") with
--------- ----------------
a value that would be equal to $.30 multiplied by the number of Shares
(excluding Treasury Shares) issued and outstanding immediately prior to the
Merger (the "Merger Consideration"). In accordance with Section 6(b) under the
--------------------
Securities Act of 1933, as amended, the filing fee is based on an amount equal
to $278 per $1 million in value being registered.
This Rule 13E-3 Transaction Statement (the "Statement") of the
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Company, IVI Corp., IVI Inc., a wholly owned subsidiary of IVI Corp., and NTN
Merger Corp., a Delaware corporation and wholly owned subsidiary of IVI Inc.
("Merger Sub"), relates to an Agreement and Plan of Merger (the "Merger
- ------------ ------
Agreement"), dated as of July 20, 1999, among the Company, IVI Corp., IVI Inc.,
- ---------
and Merger Sub, pursuant to which, among other things, (a) Merger Sub will be
merged with and into the Company (the "Merger" or the "Transaction"), with the
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Company being the surviving corporation (the "Surviving Corporation"), (b) each
---------------------
Share (excluding Treasury Shares and shares held by public stockholders who
perfect their statutory dissenters' rights) of Company Common Stock issued and
outstanding immediately prior to the Merger shall be converted into and
exchanged for the right to receive the number of shares of IVI Common Stock with
a value that would be equal to $.30, (c) each Share of the Company Common Stock
held as Treasury Shares, immediately prior to the Merger shall be canceled and
retired at the Merger and no consideration shall be issued in exchange
therefor, (d) each share of common stock of Merger Sub issued and outstanding
immediately prior to the Merger shall cease to be outstanding and shall be
converted into one share of the Surviving Corporation with the same rights,
powers and privileges as the shares so converted and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation, (e) holders of
Company Common Stock shall cease to be, and shall have no rights as,
stockholders of the Company, other than to receive (i) any dividend or other
distribution with respect to such Company Common Stock with a record date
occurring prior to ______, 1999 and (ii) the Merger Consideration provided under
the Merger Agreement, and (f) notwithstanding any other provision hereof, no
fractional shares of IVI Common Stock and no certificates or scrip therefor, or
other evidence of ownership thereof, will be issued in the Merger; instead, IVI
Corp. shall pay to each holder of Company Common Stock who would otherwise be
entitled to a fractional share of IVI Common Stock an amount in cash (without
interest) determined by multiplying such fraction by the average of the daily
closing price for shares of IVI Common Stock for the twenty (20) consecutive
full trading days on which such shares are actually traded on the Nasdaq
National Market ending on the close of trading on the second trading day
immediately preceding the effective date of the Merger. After the Merger, there
shall be no transfers on the share transfer books of the Company or the
Surviving Corporation of shares of Company Common Stock. The Merger Agreement
and the Merger have already been approved by the board of directors of each of
the parties to the Merger Agreement and are subject to the approval of the
stockholders of the Company at a Special Meeting of Stockholders to be held on
________, 1999. This Statement is intended to satisfy the reporting
requirements of Section 13(e) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). A copy of the Merger Agreement is filed by the Company as
------------
Exhibit 2.1 to the IVI Corp. Registration Statement on Form S-4 (the "S-4
---
Registration Statement") and incorporated by reference in Item 17(c) to this
- ----------------------
Statement.
The cross-reference sheet below is being supplied pursuant to General
Instruction F to the Schedule 13E-3 and shows the location in the S-4
Registration Statement of the information required to be included in response to
the items of this Statement. The information in the S-4 Registration Statement,
including all exhibits thereto, is hereby expressly incorporated herein by
reference and the responses to each item in this Statement are qualified in
their entirety by the information contained in the S-4 Registration Statement.
<PAGE>
Cross Reference Sheet
Schedule 13E-3 Item: Location in the S-4 Registration Statement:
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Item 1(a) *
Item 1(b) "SUMMARY--Comparative Market Prices of Common
Stock" and "THE SPECIAL MEETING--NTN
Stockholders Entitled to Vote"
Item 1(c) "COMPARATIVE MARKET PRICES AND DIVIDENDS"
Item 1(d) "COMPARATIVE MARKET PRICES AND DIVIDENDS"
Item 1(e) **
Item 1(f) **
Item 2(a)--(d) and (g) "SUMMARY--The Companies," "BUSINESS OF IVI
CHECKMATE," "BUSINESS OF NTN," "DESCRIPTION OF
THE TRANSACTION--Management and Operations
After the Merger," "INFORMATION CONCERNING
DIRECTORS AND EXECUTIVE OFFICERS OF IVI
CHECKMATE INC. AND NTN MERGER CORP." and
"SHARES BENEFICIALLY OWNED"
Item 2(e)--(f) *
Item 3(a)(1) "DESCRIPTION OF THE TRANSACTION --Interests of
Certain Persons in the Merger"
Item 3(a)(2) "SUMMARY--The Merger," "SUMMARY--What You Will
Receive in the Merger," "SUMMARY--Our Reasons
for the Merger," "DESCRIPTION OF THE
TRANSACTION--The Merger," "DESCRIPTION OF THE
TRANSACTION--What you will Receive in the
Merger," "DESCRIPTION OF THE TRANSACTION--
Background of and Reasons for the Merger" and
APPENDIX A--"AGREEMENT AND PLAN OF MERGER"
Item 3(b) "SUMMARY--The Merger," "SUMMARY--What You Will
Receive in the Merger," "SUMMARY--Stockholder
Vote Required to Approve the Merger,"
"SUMMARY--Voting Rights at the Special
Meeting," "SUMMARY--NTN Stock Ownership,"
"SUMMARY--Interests of Certain Persons in the
Merger That May Be Different From Yours," "THE
SPECIAL MEETING--NTN Stockholders Entitled to
Vote," "THE SPECIAL MEETING--Vote Required;
Voting at the Meeting," "DESCRIPTION OF THE
TRANSACTION--The Merger," "DESCRIPTION OF THE
TRANSACTION--What You Will Receive in the
Merger," "DESCRIPTION OF THE TRANSACTION--
Background of and Reasons for the Merger,"
"DESCRIPTION OF THE TRANSACTION--Interests of
Certain Persons in the Merger" and "SHARES
BENEFICIALLY OWNED"
Item 4(a) "SUMMARY--The Merger," "SUMMARY--What You Will
Receive in the Merger," "SUMMARY--Our Reasons
for the Merger," "DESCRIPTION OF THE
TRANSACTION--The Merger," "DESCRIPTION OF THE
TRANSACTION--What You Will Receive in the
Merger" and APPENDIX A--"AGREEMENT AND PLAN OF
MERGER"
<PAGE>
Item 4(b) "SUMMARY--The Merger," "SUMMARY--What You Will
Receive in the Merger," "SUMMARY--Stockholder
Vote Required to Approve the Merger,"
"SUMMARY--NTN Stock Ownership," "SUMMARY--
Interests of Certain Persons in the Merger
That May Be Different From Yours," "DESCRIPTION
OF THE TRANSACTION--The Merger," "DESCRIPTION
OF THE TRANSACTION--What You Will Receive in
the Merger," "DESCRIPTION OF THE TRANSACTION--
Background of and Reasons for the Merger,"
"DESCRIPTION OF THE TRANSACTION--Interests of
Certain Persons in the Merger," "SHARES
BENEFICIALLY OWNED" and APPENDIX A--"AGREEMENT
AND PLAN OF MERGER"
Item 5(a)--(g) "SUMMARY--Effect of the Merger on NTN Options,"
"SUMMARY--Differences in Stockholders' Rights,"
"DESCRIPTION OF THE TRANSACTION--Effect of the
Merger on NTN Options," "DESCRIPTION OF THE
TRANSACTION--Management and Operations After
the Merger," "EFFECT OF THE MERGER ON RIGHTS OF
STOCKHOLDERS" and APPENDIX A--"AGREEMENT AND
PLAN OF MERGER"
Item 6(a)--(b) "SUMMARY--What You Will Receive in the Merger,"
"DESCRIPTION OF THE TRANSACTION--What You Will
Receive in the Merger" and "DESCRIPTION OF THE
TRANSACTION--Fees and Expenses"
Item 6(c) **
Item 6(d) **
Item 7(a) and (c) "SUMMARY--Our Reasons for the Merger" and
"DESCRIPTION OF THE TRANSACTION--Background
of and Reasons for the Merger"
Item 7(b) "DESCRIPTION OF THE TRANSACTION--Background
of and Reasons for the Merger"
Item 7(d) "SUMMARY--The Merger," "SUMMARY--What You Will
Receive in the Merger," "SUMMARY--Effect of the
Merger on NTN Options," "SUMMARY--Certain
Federal Income Tax Consequences of the Merger,"
"SUMMARY--NTN Stock Ownership," "SUMMARY--
Interests of Certain Persons in the Merger That
May Be Different From Yours," "DESCRIPTION OF
THE TRANSACTION--The Merger," "DESCRIPTION OF
THE TRANSACTION--What You Will Receive in the
Merger," "DESCRIPTION OF THE TRANSACTION--
Effect of the Merger on NTN Options,"
"DESCRIPTION OF THE TRANSACTION--Certain
Federal Income Tax Consequences of the Merger,"
"DESCRIPTION OF THE TRANSACTION--Background of
and Reasons for the Merger," "DESCRIPTION OF
THE TRANSACTION--Management and Operations
After the Merger," "DESCRIPTION OF THE
TRANSACTION--Interests of Certain Persons in
the Merger," "SHARES BENEFICIALLY OWNED" and
APPENDIX A--"AGREEMENT AND PLAN OF MERGER"
Item 8(a)-(b) "SUMMARY--Fairness Opinion of the Special
Committee's Financial Advisor," "SUMMARY--Our
Recommendation to Stockholders," "THE SPECIAL
MEETING--Recommendation of the Special
Committee," "THE SPECIAL MEETING--
Recommendation of the NTN Board of Directors,"
"THE SPECIAL MEETING--Recommendation of the
Board of Directors of IVI Checkmate, IVI
Checkmate Inc. and NTN Merger Corp." and
"DESCRIPTION OF THE TRANSACTION--Fairness
Opinion of the Special Committee's Financial
Advisor"
<PAGE>
Item 8(c) "SUMMARY--Stockholder Vote Required to Approve
the Merger," "SUMMARY--Voting Rights at the
Special Meeting," "THE SPECIAL MEETING--Vote
Required; Voting at the Meeting," "DESCRIPTION
OF THE TRANSACTION--Completion of the Merger,"
"DESCRIPTION OF THE TRANSACTION--Conditions to
Completion of the Merger" and APPENDIX A--
"AGREEMENT AND PLAN OF MERGER"
Item 8(d) "SUMMARY--Fairness Opinion of the Special
Committee's Financial Advisor," "DESCRIPTION OF
THE TRANSACTION--Background of and Reasons for
the Merger," "DESCRIPTION OF THE TRANSACTION--
Fairness Opinion of the Special Committee's
Financial Advisor" and APPENDIX C--"FAIRNESS
OPINION OF THE SPECIAL COMMITTEE'S FINANCIAL
ADVISOR"
Item 8(e) "SUMMARY--Our Recommendation to Stockholders"
and "THE SPECIAL MEETING--Recommendation of the
NTN Board of Directors"
Item 8(f) **
Item 9(a)-(c) "SUMMARY--Fairness Opinion of the Special
Committee's Financial Advisor," "DESCRIPTION OF
THE TRANSACTION--Background of and Reasons for
the Merger," "DESCRIPTION OF THE TRANSACTION--
Fairness Opinion of the Special Committee's
Financial Advisor" and APPENDIX C--"FAIRNESS
OPINION OF THE SPECIAL COMMITTEE'S FINANCIAL
ADVISOR"
Item 10(a) "SUMMARY--NTN Stock Ownership," "SUMMARY--
Interests of Certain Persons in the Merger That
May Be Different from Yours," "THE SPECIAL
MEETING--Vote Required; Voting at the Meeting,"
"DESCRIPTION OF THE TRANSACTION--The Merger,"
"DESCRIPTION OF THE TRANSACTION--Interests of
Certain Persons in the Merger," "BUSINESS OF
IVI CHECKMATE," "BUSINESS OF NTN" and "SHARES
BENEFICIALLY OWNED"
Item 10(b) **
Item 11 "SUMMARY--The Merger," "SUMMARY--Voting Rights
at the Special Meeting," "SUMMARY--NTN Stock
Ownership," "SUMMARY--Interests of Certain
Persons in the Merger That May Be Different
from Yours," "THE SPECIAL MEETING--Vote
Required; Voting at the Meeting," "DESCRIPTION
OF THE TRANSACTION--The Merger," "DESCRIPTION
OF THE TRANSACTION--Management and Operations
After the Merger," "DESCRIPTION OF THE
TRANSACTION--Interests of Certain Persons in
the Merger" and "SHARES BENEFICIALLY OWNED "
Item 12(a) "SUMMARY--The Merger," "SUMMARY--Voting Rights
at the Special Meeting," "SUMMARY--NTN Stock
Ownership," "SUMMARY--Interests of Certain
Persons in the Merger That May Be Different
from Yours," "THE SPECIAL MEETING--Vote
Required; Voting at the Meeting," "DESCRIPTION
OF THE TRANSACTION--The Merger," "DESCRIPTION
OF THE TRANSACTION--Background of and Reasons
for the Merger," "DESCRIPTION OF THE
TRANSACTION--Interests of Certain Persons in
the Merger" and "SHARES BENEFICIALLY OWNED"
<PAGE>
Item 12(b) "SUMMARY--Our Recommendation to Stockholders,"
"SUMMARY--NTN Stock Ownership," "THE SPECIAL
MEETING--Recommendation of the Special
Committee," "THE SPECIAL MEETING--
Recommendation of the NTN Board of Directors,"
"THE SPECIAL MEETING--Recommendation of the
Board of Directors of IVI Checkmate, IVI
Checkmate Inc. and NTN Merger Corp." and
"SHARES BENEFICIALLY OWNED"
Item 13(a) "SUMMARY--Appraisal Rights of Dissenting
Stockholders," "THE SPECIAL MEETING--Rights of
Dissenting Stockholders" and APPENDIX B--
"SECTION 262 OF THE DELAWARE GENERAL
CORPORATION LAW"
Item 13(b)-(c) **
Item 14(a) "SUMMARY HISTORICAL FINANCIAL DATA," "NTN
SELECTED FINANCIAL DATA" and APPENDIX F--"NTN
FINANCIAL STATEMENTS"
Item 14(b) **
Item 15(a) "DESCRIPTION OF THE TRANSACTION--Management and
Operations After the Merger"
Item 15(b) "SUMMARY--Fairness Opinion of the Special
Committee's Financial Advisor," "DESCRIPTION OF
THE TRANSACTION--Background of and Reasons for
the Merger," "DESCRIPTION OF THE TRANSACTION--
Fairness Opinion of the Special Committee's
Financial Advisor" and APPENDIX C--"FAIRNESS
OPINION OF THE SPECIAL COMMITTEE'S FINANCIAL
ADVISOR "
Item 16 The information set forth in the S-4
Registration Statement is incorporated herein
by reference in its entirety
Item 17 *
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* Information is contained in this Statement
** Not applicable
<PAGE>
ITEM 1. Issuer and Class of Security Subject to the Transaction.
(a) The issuer of the class of equity securities which is the subject
of the Rule 13e-3 transaction is the Company. The address of the Company's
principal executive offices is 117 Flanders Road, Westborough, Massachusetts
01581.
(b) The information set forth in "SUMMARY--Comparative Market Prices
of Common Stock" and "THE SPECIAL MEETING--NTN Stockholders Entitled to Vote" in
the S-4 Registration Statement is incorporated herein by reference.
(c) The information set forth in "COMPARATIVE MARKET PRICES AND
DIVIDENDS" in the S-4 Registration Statement is incorporated herein by
reference.
(d) The information set forth in "COMPARATIVE MARKET PRICES AND
DIVIDENDS" in the S-4 Registration Statement is incorporated herein by
reference.
(e) Not applicable.
(f) Not applicable.
ITEM 2. Identity and Background.
(a)-(d) and (g) This statement is being filed by the Company, a
Delaware corporation and the issuer of the class of equity securities which is
the subject of the Rule 13e-3 transaction, by IVI Corp., by IVI Inc. and by
Merger Sub. The information set forth in "SUMMARY--The Companies," "BUSINESS OF
IVI CHECKMATE," "BUSINESS OF NTN," "DESCRIPTION OF THE TRANSACTION--Management
and Operations After the Merger," "INFORMATION CONCERNING DIRECTORS AND
EXECUTIVE OFFICERS OF IVI CHECKMATE INC. AND NTN MERGER CORP." and "SHARES
BENEFICIALLY OWNED," in the S-4 Registration Statement is incorporated herein by
reference.
(e)-(f) None of the Company, IVI Corp., IVI Inc. or Merger Sub or, to
the best of their knowledge, any of the directors or executive officers of the
Company, IVI Corp., IVI Inc. or Merger Sub has during the last five years (i)
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining further
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violation of such laws.
ITEM 3. Past Contacts, Transactions or Negotiations.
(a)(1) The information set forth in "DESCRIPTION OF THE TRANSACTION--
Interests of Certain Persons in the Merger" of the S-4 Registration Statement is
incorporated herein by reference.
(a)(2) The information set forth in "SUMMARY--The Merger," "SUMMARY--
What You Will Receive in the Merger," "SUMMARY--Our Reasons for the Merger,"
"DESCRIPTION OF THE TRANSACTION--The Merger," "DESCRIPTION OF THE TRANSACTION--
What You Will Receive in the Merger," "DESCRIPTION OF THE TRANSACTION--
Background of and Reasons for the Merger," and APPENDIX A--"AGREEMENT AND PLAN
OF MERGER" of the S-4 Registration Statement is incorporated herein by
reference.
(b) The information set forth in "SUMMARY--The Merger," "SUMMARY--What
You Will Receive in the Merger," "SUMMARY--Stockholder Vote Required to Approve
the Merger," "SUMMARY--Voting Rights at the Special Meeting," "SUMMARY--NTN
Stock Ownership," "SUMMARY--Interests of Certain Persons in the Merger That May
Be Different From Yours," "THE SPECIAL MEETING--NTN Stockholders
<PAGE>
Entitled to Vote," "THE SPECIAL MEETING--Vote Required; Voting at the Meeting,"
"DESCRIPTION OF THE TRANSACTION--The Merger," "DESCRIPTION OF THE TRANSACTION--
What You Will Receive in the Merger," "DESCRIPTION OF THE TRANSACTION--
Background of and Reasons for the Merger," "DESCRIPTION OF THE TRANSACTION--
Interests of Certain Persons in the Merger" and "SHARES BENEFICIALLY OWNED" of
the S-4 Registration Statement is incorporated herein by reference.
ITEM 4. Terms of the Transaction.
(a) The information set forth in "SUMMARY--The Merger," "SUMMARY--What
You Will Receive in the Merger," "SUMMARY--Our Reasons for the Merger,"
"DESCRIPTION OF THE TRANSACTION--The Merger," "DESCRIPTION OF THE TRANSACTION--
What You Will Receive in the Merger," and APPENDIX A--"AGREEMENT AND PLAN OF
MERGER" of the S-4 Registration Statement is incorporated herein by reference.
(b) The information set forth in "SUMMARY--The Merger," "SUMMARY--What
You Will Receive in the Merger," "SUMMARY--Stockholder Vote Required to Approve
the Merger," "SUMMARY--NTN Stock Ownership," "SUMMARY--Interests of Certain
Persons in the Merger That May Be Different From Yours," "DESCRIPTION OF THE
TRANSACTION--The Merger," "DESCRIPTION OF THE TRANSACTION--What You Will Receive
in the Merger," "DESCRIPTION OF THE TRANSACTION--Background of and Reasons for
the Merger," "DESCRIPTION OF THE TRANSACTION--Interests of Certain Persons in
the Merger," "SHARES BENEFICIALLY OWNED" and APPENDIX A--"AGREEMENT AND PLAN OF
MERGER" of the S-4 Registration Statement is incorporated herein by reference.
ITEM 5. Plans or Proposals of the Issuer or Affiliate.
(a)-(g) The information set forth in "SUMMARY--Effect of the Merger on
NTN Options," "SUMMARY--Differences in Stockholders' Rights," "DESCRIPTION OF
THE TRANSACTION--Effect of the Merger on NTN Options," "DESCRIPTION OF THE
TRANSACTION--Management and Operations After the Merger," "EFFECT OF THE MERGER
ON RIGHTS OF STOCKHOLDERS," and APPENDIX A--"AGREEMENT AND PLAN OF MERGER" of
the S-4 Registration Statement is incorporated herein by reference.
ITEM 6. Source and Amount of Funds or Other Consideration.
(a)-(b) The information set forth in "SUMMARY--What You Will Receive
in the Merger," "DESCRIPTION OF THE TRANSACTION--What You Will Receive in the
Merger" and "DESCRIPTION OF THE TRANSACTION--Fees and Expenses" of the S-4
Registration Statement is incorporated herein by reference.
(c) Not applicable.
(d) Not applicable.
ITEM 7. Purpose(s), Alternatives, Reasons and Effects.
(a) and (c) The information set forth in "SUMMARY--Our Reasons for the
Merger" and "DESCRIPTION OF THE TRANSACTION--Background of and Reasons for the
Merger" of the S-4 Registration Statement is incorporated herein by reference.
(b) The information set forth in "DESCRIPTION OF THE TRANSACTION--
Background of and Reasons for the Merger" of the S-4 Registration Statement is
incorporated herein by reference.
(d) The information set forth in "SUMMARY--The Merger," "SUMMARY--What
You Will Receive in the Merger," "SUMMARY--Effect of the Merger on NTN Options,"
"SUMMARY--Certain Federal Income Tax Consequences of the Merger," "SUMMARY--NTN
Stock Ownership," "SUMMARY--
<PAGE>
Interests of Certain Persons in the Merger That May Be Different From Yours,"
"DESCRIPTION OF THE TRANSACTION--The Merger," "DESCRIPTION OF THE TRANSACTION--
What You Will Receive in the Merger," "DESCRIPTION OF THE TRANSACTION--Effect of
the Merger on NTN Options," "DESCRIPTION OF THE TRANSACTION--Certain Federal
Income Tax Consequences of the Merger," "DESCRIPTION OF THE TRANSACTION--
Background of and Reasons for the Merger," "DESCRIPTION OF THE TRANSACTION--
Management and Operations After the Merger," "DESCRIPTION OF THE TRANSACTION--
Interests of Certain Persons in the Merger," "SHARES BENEFICIALLY OWNED" and
APPENDIX A--"AGREEMENT AND PLAN OF MERGER" of the S-4 Registration Statement is
incorporated herein by reference.
ITEM 8. Fairness of the Transaction.
(a)-(b) The information set forth in "SUMMARY--Fairness Opinion of the
Special Committee's Financial Advisor," "SUMMARY--Our Recommendation to the
Stockholders," "THE SPECIAL MEETING--Recommendation of the Special Committee,"
"THE SPECIAL MEETING--Recommendation of the NTN Board of Directors," "THE
SPECIAL MEETING--Recommendation of the Board of Directors of IVI Checkmate, IVI
Checkmate Inc. and NTN Merger Corp." and "DESCRIPTION OF THE TRANSACTION--
Fairness Opinion of the Special Committee's Financial Advisor" of the S-4
Registration Statement is incorporated herein by reference.
(c) The information set forth in "SUMMARY--Stockholder Vote Required
to Approve the Merger," "SUMMARY--Voting Rights at the Special Meeting," "THE
SPECIAL MEETING--Vote Required; Voting at the Meeting," "DESCRIPTION OF THE
TRANSACTION--Completion of the Merger," DESCRIPTION OF THE TRANSACTION--
Conditions to Completion of the Merger," and APPENDIX A--"AGREEMENT AND PLAN OF
MERGER" of the S-4 Registration Statement is incorporated herein by reference.
(d) The information set forth in "SUMMARY--Fairness Opinion of the
Special Committee's Financial Advisor," "DESCRIPTION OF THE TRANSACTION--
Background of and Reasons for the Merger," "DESCRIPTION OF THE TRANSACTION--
Fairness Opinion of the Special Committee's Financial Advisor" and APPENDIX C--
"FAIRNESS OPINION OF THE SPECIAL COMMITTEE'S FINANCIAL ADVISOR" of the S-4
Registration Statement is incorporated herein by reference.
(e) The information set forth in "SUMMARY--Our Recommendation to
Stockholders" and "THE SPECIAL MEETING--Recommendation of the NTN Board of
Directors" of the S-4 Registration Statement is incorporated herein by
reference.
(f) Not applicable.
ITEM 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a)-(c) The information set forth in "SUMMARY--Fairness Opinion of the
Special Committee's Financial Advisor," "DESCRIPTION OF THE TRANSACTION--
Background of and Reasons for the Merger," "DESCRIPTION OF THE TRANSACTION--
Fairness Opinion of the Special Committee's Financial Advisor" and APPENDIX C--
"FAIRNESS OPINION OF THE SPECIAL COMMITTEE'S FINANCIAL ADVISOR" of the S-4
Registration Statement is incorporated herein by reference.
ITEM 10. Interest in Securities of the Issuer.
(a) The information set forth in "SUMMARY--NTN Stock Ownership,"
"SUMMARY--Interests of Certain Persons in the Merger That May Be Different from
Yours," "THE SPECIAL MEETING--Vote Required; Voting at the Meeting,"
"DESCRIPTION OF THE TRANSACTION--The Merger," "DESCRIPTION OF THE TRANSACTION--
Interests of Certain Persons in the Merger," "BUSINESS OF IVI CHECKMATE,"
"BUSINESS OF NTN" and "SHARES BENEFICIALLY OWNED" of the S-4 Registration
Statement is incorporated herein by reference.
<PAGE>
(b) Not applicable.
ITEM 11. Contracts, Arrangements or Understandings with Respect to the Issuer's
Securities.
The information set forth in "SUMMARY--The Merger," "SUMMARY--Voting
Rights at the Special Meeting," "SUMMARY--NTN Stock Ownership," "SUMMARY--
Interests of Certain Persons in the Merger That May Be Different from Yours,"
"THE SPECIAL MEETING--Vote Required; Voting at the Meeting," "DESCRIPTION OF THE
TRANSACTION--The Merger," "DESCRIPTION OF THE TRANSACTION--What You Will Receive
in the Merger," "DESCRIPTION OF THE TRANSACTION--Interests of Certain Persons in
the Merger," "DESCRIPTION OF THE TRANSACTION--Management and Operations After
the Merger," "BUSINESS OF IVI CHECKMATE," "BUSINESS OF NTN" and "SHARES
BENEFICIALLY OWNED" of the S-4 Registration Statement is incorporated herein by
reference.
ITEM 12. Present Intention and Recommendation of Certain Persons with Regard to
the Transaction.
(a) The information set forth in "SUMMARY--The Merger," "SUMMARY--
Voting Rights at the Special Meeting," "SUMMARY--NTN Stock Ownership," "SUMMARY-
- -Interests of Certain Persons in the Merger That May Be Different from Yours,"
"THE SPECIAL MEETING--Vote Required; Voting at the Meeting," "DESCRIPTION OF THE
TRANSACTION--The Merger," "DESCRIPTION OF THE TRANSACTION--Background of and
Reasons for the Merger," "DESCRIPTION OF THE TRANSACTION--Interests of Certain
Persons in the Merger" and "SHARES BENEFICIALLY OWNED" of the S-4 Registration
Statement is incorporated herein by reference.
(b) The information set forth in "SUMMARY--Our Recommendation to
Stockholders," "SUMMARY--NTN Stock Ownership," "THE SPECIAL MEETING--
Recommendation of the Special Committee," "THE SPECIAL MEETING--Recommendation
of the NTN Board of Directors," "THE SPECIAL MEETING--Recommendation of the
Board of Directors of IVI Checkmate, IVI Checkmate Inc. and NTN Merger Corp."
and "SHARES BENEFICIALLY OWNED" of the S-4 Registration Statement is
incorporated herein by reference.
ITEM 13. Other Provisions of the Transaction.
(a) The information set forth in "SUMMARY--Appraisal Rights of
Dissenting Stockholders," "THE SPECIAL MEETING--Rights of Dissenting
Stockholders," and APPENDIX B--"SECTION 262 OF THE DELAWARE GENERAL CORPORATION
LAW" of the S-4 Registration Statement is incorporated herein by reference.
(b)-(c) Not applicable.
ITEM 14. Financial Information.
(a) The information set forth in "SUMMARY HISTORICAL FINANCIAL DATA,"
"NTN SELECTED FINANCIAL DATA" and APPENDIX F--"NTN FINANCIAL STATEMENTS" of the
S-4 Registration Statement is incorporated herein by reference.
(b) Not applicable.
ITEM 15. Persons and Assets Employed, Retained or Utilized.
(a) The information set forth in "DESCRIPTION OF THE TRANSACTION--
Management and Operations After the Merger " of the S-4 Registration Statement
is incorporated herein by reference.
<PAGE>
(b) The information set forth in "SUMMARY--Fairness Opinion of the
Special Committee's Financial Advisor," "DESCRIPTION OF THE TRANSACTION--
Background of and Reasons for the Merger," "DESCRIPTION OF THE TRANSACTION--
Fairness Opinion of the Special Committee's Financial Advisor" and APPENDIX C--
"FAIRNESS OPINION OF THE SPECIAL COMMITTEE'S FINANCIAL ADVISOR" of the S-4
Registration Statement is incorporated herein by reference.
ITEM 16. Additional Information.
The information set forth in the S-4 Registration Statement is
incorporated herein by reference in its entirety.
ITEM 17. Material to be Filed as Exhibits.
(b) Fairness Opinion of Southeast Appraisal Resource Associates,
Inc. (attached as Appendix C to the S-4 Registration
Statement).
(c) Agreement and Plan of Merger dated as of July 20, 1999
among the Company, IVI Checkmate Corp., IVI Checkmate Inc.
and NTN Merger Corp. (attached as Appendix A to the Proxy
Statement included in the S-4 Registration Statement).
(d)(1) Proxy Statement dated _______, 1999.
(d)(2) Notice of Special Meeting of Stockholders (included in the
Proxy Statement included in the S-4 Registration Statement).
(d)(3) Proxy Card.
(d)(4) Press Release issued jointly by the Company and IVI
Checkmate Corp. on July 21, 1999.
(d)(5) President's Letter to Stockholders (included in Proxy
Statement).
(e) Text of Section 262 of the Delaware General Corporation Law
(attached as Appendix B to the Proxy Statement included in
the S-4 Registration Statement).
(f) Not Applicable.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
NATIONAL TRANSACTION NETWORK, INC.
By: /s/ Gregory A. Lewis
--------------------------------
Name: Gregory A. Lewis
Title: President
July 23, 1999
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
IVI CHECKMATE CORP.
By: /s/ John J. Neubert
------------------------------------
Name: John J. Neubert
Title: Executive Vice President
and Chief Financial Officer
July 23, 1999
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
IVI CHECKMATE INC.
By: /s/ John J. Neubert
-------------------------------------
Name: John J. Neubert
Title: Executive Vice President
and Chief Financial Officer
July 23, 1999
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
NTN MERGER CORP.
By: /s/ John J. Neubert
-------------------------------------
Name: John J. Neubert
Title: Vice President and Secretary
July 23, 1999
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
(b) Fairness Opinion of Southeast Appraisal Resource Associates, Inc.
(attached as Appendix C to the Proxy Statement).
(c) Agreement and Plan of Merger dated as of July 20, 1999 among the
Company, IVI Checkmate Corp., IVI Checkmate Inc. and NTN Merger
Corp. (attached as Appendix A to the Proxy Statement included in the
S-4 Registration Statement).
(d)(1) Proxy Statement dated _______, 1999.
(d)(2) Notice of Special Meeting of Stockholders (included in the Proxy
Statement included in the S-4 Registration Statement).
(d)(3) Proxy Card.
(d)(4) Press Release issued jointly by the Company and IVI
Checkmate Corp. on July 21, 1999.
(d)(5) President's Letter to Stockholders (included in Proxy Statement).
(e) Text of Section 262 of the Delaware General Corporation Law
(attached as Appendix B to the Proxy Statement included in the S-4
Registration Statement).
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL THE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE +
+SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated July 26, 1999
[National Transaction [IVI Checkmate Corp. Logo]
Network, Inc. Logo]
Prospectus
Proxy Statement for a of
Special IVI Checkmate Corp.
Meeting of Stockholders of
National Transaction
Network, Inc.
PROPOSED MERGER
To the Stockholders of National Transaction Network, Inc.:
Your board of directors has agreed to a merger which will result in the
acquisition of National Transaction Network, Inc. by IVI Checkmate Corp., a
publicly-traded company headquartered in Roswell, Georgia, a suburb of Atlanta.
IVI Checkmate Corp., through its wholly owned subsidiary, IVI Checkmate Inc.,
beneficially owns 82.0% of the issued and outstanding common stock of NTN.
If the merger is completed, you will be entitled to receive the number of
shares of IVI Checkmate Corp. common stock having a value equal to $.30
multiplied by the number of shares of NTN common stock that you own. Stated
differently, you will be entitled to receive $.30 worth of IVI Checkmate Corp.
common stock for each of your shares of NTN common stock, which we refer to as
the "exchange ratio."
IVI Checkmate Corp. common stock is traded on the Nasdaq National Market
under the symbol "CMIV" and on The Toronto Stock Exchange under the symbol
"IVC."
We estimate that IVI Checkmate Corp. will issue approximately shares of
its common stock to NTN stockholders in the merger, not including shares
issuable upon exercise of NTN options to be assumed by IVI Checkmate Corp.
Those shares will represent approximately % of the outstanding common stock of
IVI Checkmate Corp. after the merger.
A special meeting of NTN stockholders will be held on , 1999 at a.m.
at . At the special meeting, we will ask you to approve the merger
agreement and the merger. We cannot complete the merger unless the holders of a
majority of the outstanding shares of NTN common stock entitled to vote at the
meeting approve the merger agreement and the merger. Your vote is very
important. Please complete the enclosed proxy card and return it in the
envelope provided, even if you plan to attend the special meeting.
This proxy statement-prospectus provides you with detailed information about
the special meeting and the merger. We urge you to read the entire document
carefully. In particular, you should read the "Risk Factors" section beginning
on page 9. You also can obtain additional important business and financial
information about IVI Checkmate Corp. and us from documents that IVI Checkmate
Corp. and we file with the Securities and Exchange Commission. To obtain free
copies of these documents, see "Where You Can Find More Information" in this
proxy statement-prospectus.
Neither the SEC nor any state securities
commission has approved or disapproved of the
shares of IVI Checkmate Corp. common stock to be
issued in the merger or determined if this proxy
statement-prospectus is accurate or complete.
Any representation to the contrary is a criminal
offense.
The date of this proxy statement-prospectus is , 1999. It is first being
mailed to you on , 1999.
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
117 Flanders Road
Westborough, Massachusetts 01581
, 1999
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
(including any adjournment or postponement thereof, the "Special Meeting") of
National Transaction Network, Inc. (the "Company") to be held at , , ,
on the day of , 1999, at a.m., local time.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of July 20, 1999, among the Company, IVI Checkmate Corp.
("IVI Corp."), IVI Checkmate Inc., a wholly owned subsidiary of IVI Corp. and
the direct owner of approximately 82.0% of the Company's Common Stock ("IVI
Inc."), and NTN Merger Corp., a wholly owned subsidiary of IVI Inc. ("Merger
Corp."). Pursuant to the Merger Agreement, Merger Corp. will be merged into the
Company (the "Merger") with the Company being the surviving corporation. Merger
Corp. was organized by IVI Inc. solely to facilitate the Merger.
Pursuant to the terms of the Merger Agreement, all stockholders of the
Company, other than IVI Inc. and its affiliates and those stockholders who
perfect their dissenters' rights under applicable Delaware law, will be
entitled to receive an amount of common stock of IVI Corp. worth $.30 in
exchange for each share of the Company's common stock, par value $0.15 per
share (the "Common Stock"), held by them at the effective time of the Merger.
Following the Merger, all of the capital stock of the Company will be owned
by IVI Inc. The present holders of Common Stock (other than IVI Inc. and its
affiliates) will no longer have any equity interest in the Company.
The Company's Board of Directors appointed a Special Committee on January 8,
1999, consisting of the sole director of the Company who is not an employee of
the Company, IVI Corp. or any of its subsidiaries or affiliates. The Special
Committee has, among other things, reviewed and considered the proposed Merger
and negotiated its terms with IVI Corp. In connection therewith, the Special
Committee retained Southeast Appraisal Resource Associates, Inc. to act as its
financial advisor. THE COMPANY'S BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE
HAVE UNANIMOUSLY APPROVED THE MERGER AS BEING IN THE BEST INTERESTS OF THE
COMPANY AND THE STOCKHOLDERS OF THE COMPANY WHO ARE NOT AFFILIATED WITH IVI
CORP. ACCORDINGLY, THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE MERGER AGREEMENT.
Attached is a Notice of Special Meeting of Stockholders and a Proxy
Statement/Prospectus containing a discussion of the Merger. We urge you to read
this material carefully. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT IN THE
ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE. If you attend the Special
Meeting, you may vote in person if you wish, even if you have previously
returned your proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
L. Barry Thomson
Chief Executive Officer
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
117 Flanders Road
Westborough, Massachusetts 01581
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1999
----------------
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
National Transaction Network, Inc. to be held at , on , ,
1999, at a.m.
The purpose of the Special Meeting is for the stockholders to vote upon an
agreement and plan of merger, dated as of July 20, 1999, among National
Transaction Network, Inc., IVI Checkmate Corp., IVI Checkmate Inc. and NTN
Merger Corp., and the transactions provided for in the merger agreement. The
merger agreement provides for the merger of NTN Merger Corp., a wholly owned
subsidiary of IVI Checkmate Inc., into NTN. IVI Checkmate Corp., through its
wholly owned subsidiary, IVI Checkmate Inc., beneficially owns 82.0% of the
issued and outstanding common stock of NTN. If the merger is approved and
completed, the holders of NTN common stock will be entitled to receive the
number of shares of IVI Checkmate Corp. common stock having a value equal to
$.30 multiplied by the number of their shares of NTN common stock.
The board of directors of NTN has carefully considered the terms of the
proposed merger and has determined that the merger agreement and the merger are
in the best interests of NTN and its stockholders. The NTN board of directors
has unanimously approved the merger agreement and the merger and recommends
that you vote for the approval of the merger agreement and the merger.
Stockholders of record at the close of business on , 1999 are entitled
to notice of and to vote at the special meeting and any adjournment or
postponement of the special meeting.
Whether or not you attend the special meeting, it is important that your
shares be represented and voted at the special meeting. Therefore, I urge you
to complete, sign, date and promptly return the enclosed proxy card in the
enclosed postage-paid envelope. If you decide to attend the special meeting and
vote in person, you will, of course, have that opportunity.
Sincerely,
_______________________________
[Name]
[Title]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary................................................................... 1
The Companies........................................................... 1
The Merger.............................................................. 2
What You Will Receive in the Merger..................................... 2
Effect of the Merger on NTN Options..................................... 2
Certain Federal Income Tax Consequences of the Merger................... 2
Comparative Market Prices of Common Stock............................... 2
Our Reasons for the Merger.............................................. 3
Fairness Opinion of the Special Committee's Financial Advisor........... 3
Special Meeting of Stockholders......................................... 3
Stockholder Vote Required to Approve the Merger......................... 3
Voting Rights at the Special Meeting.................................... 4
Appraisal Rights of Dissenting Stockholders............................. 4
Our Recommendation to Stockholders...................................... 4
NTN Stock Ownership..................................................... 4
Interests of Certain Persons in the Merger That May Be Different from
Yours.................................................................. 4
Completion of the Merger................................................ 5
Exchange of Stock Certificates.......................................... 5
Regulatory Approval and Other Conditions................................ 5
Waiver, Amendment, and Termination...................................... 5
Accounting Treatment.................................................... 5
Differences in Stockholders' Rights..................................... 6
Listing of IVI Checkmate Common Stock................................... 6
Summary Historical Financial Data......................................... 7
Risk Factors.............................................................. 9
A Warning About Forward-Looking Statements................................ 17
The Special Meeting....................................................... 18
Purpose................................................................. 18
Date, Place and Time.................................................... 18
Record Date............................................................. 18
NTN Stockholders Entitled to Vote....................................... 18
Vote Required; Voting at the Meeting.................................... 18
Voting of Proxies....................................................... 18
Solicitation of Proxies................................................. 19
Rights of Dissenting Stockholders....................................... 19
Recommendation of the Special Committee................................. 20
Recommendation of the NTN Board of Directors............................ 22
Recommendation of the Board of Directors of IVI Checkmate, IVI Checkmate
Inc. and NTN Merger Corp. ............................................. 23
Description of the Transaction............................................ 24
The Merger.............................................................. 24
What You Will Receive in the Merger..................................... 24
Effect of the Merger on NTN Options..................................... 24
Certain Federal Income Tax Consequences of the Merger................... 25
Background of and Reasons for the Merger................................ 26
Background to the Merger.............................................. 26
NTN's Reasons for the Merger.......................................... 31
IVI Checkmate's Reasons for the Merger................................ 32
Fairness Opinion of the Special Committee's Financial Advisor........... 34
Completion of the Merger................................................ 36
Distribution of IVI Checkmate Stock Certificates........................ 36
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Conditions to Completion of the Merger................................. 37
Indemnification........................................................ 37
Regulatory Approval.................................................... 38
Waiver, Amendment and Termination...................................... 38
Conduct of Business Pending the Merger................................. 38
Management and Operations After the Merger............................. 39
Interests of Certain Persons in the Merger............................. 39
Accounting Treatment................................................... 40
Fees and Expenses...................................................... 40
Resales of IVI Checkmate Common Stock.................................. 41
Comparative Market Prices and Dividends.................................. 42
Business of IVI Checkmate................................................ 44
IVI Checkmate Selected Financial Data.................................... 45
IVI Checkmate Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 46
Overview............................................................... 46
Results of Operations.................................................. 46
Three Months Ended March 31, 1999 Compared to Three Months Ended March
31, 1998.............................................................. 46
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997.. 47
Liquidity and Capital Resources........................................ 49
Year 2000 Issue........................................................ 50
Quantitative and Qualitative Disclosures About Market Risk............. 52
Business of NTN.......................................................... 53
NTN Selected Financial Data.............................................. 54
NTN Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 55
Overview............................................................... 55
Results of Operations.................................................. 55
Three Months Ended March 31, 1999 Compared to Three Months Ended March
31, 1998.............................................................. 55
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997.. 56
Liquidity and Capital Resources........................................ 56
Year 2000 Readiness Disclosure Statement............................... 57
Quantitative and Qualitative Disclosures about Market Risk............. 58
Information Concerning Directors and Executive Officers of IVI Checkmate
Inc. and NTN Merger Corp. .............................................. 58
Information Concerning Directors and Executive Officers of IVI
Checkmate Inc. ....................................................... 58
Information Concerning Directors and Executive Officers of NTN Merger
Corp. ................................................................ 60
Shares Beneficially Owned................................................ 61
Effect of the Merger on Rights of Stockholders........................... 62
Description of IVI Checkmate Capital Stock............................... 66
Other Matters............................................................ 66
Stockholder Proposals.................................................... 66
Experts.................................................................. 66
Opinions................................................................. 67
Where You Can Find More Information...................................... 67
</TABLE>
<TABLE>
<S> <C>
APPENDICES:
Appendix A--Agreement and Plan of Merger................................. A-1
Appendix B--Section 262 of the Delaware General Corporation Law.......... B-1
Appendix C--Fairness Opinion of the Special Committee's Financial
Advisor................................................................. C-1
Appendix D--Tax Opinion of Alston & Bird LLP............................. D-1
Appendix E--IVI Checkmate Financial Statements........................... E-1
Appendix F--NTN Financial Statements..................................... F-1
</TABLE>
ii
<PAGE>
SUMMARY
This summary highlights selected information from this proxy statement-
prospectus and may not contain all of the information that is important to you.
You should carefully read this entire document and the other documents we refer
to in this document. These documents will give you a more complete description
of the transaction we are proposing. We have included page references in this
summary to direct you to other places in this proxy statement-prospectus where
you can find a more complete description of the topics we have summarized.
The Companies (See page 44 for IVI Checkmate Corp. and page 53 for NTN.)
IVI Checkmate Corp.
1003 Mansell Road
Roswell, Georgia 30076
(770) 594-6000
IVI Checkmate Corp. is the third largest electronic transaction solutions
provider in North America, based on annual net revenues. Through its
subsidiaries, IVI Checkmate designs, develops and markets innovative payment
and value-added solutions that optimize transaction management at the point-of-
service in the retail, financial, hospitality, healthcare and transportation
industries. IVI Checkmate's software, hardware and professional services
minimize transaction costs, reduce operational complexity and improve
profitability for its customers in the U.S., Canada and Latin America. It
distributes its products through direct sales and various third party
distribution arrangements. IVI Checkmate's customers include banks, payment
processors, retail merchants, petroleum service stations, convenience-store
operators, supermarkets and other mass merchandisers, and government benefits
disbursers.
For the year ended December 31, 1998, IVI Checkmate generated net revenues
of approximately $107.1 million and a net loss of approximately $5.0 million.
On December 31, 1998, IVI Checkmate had consolidated assets of approximately
$82.8 million and consolidated stockholders' equity of approximately $55.0
million. For more information about IVI Checkmate, see "Where You Can Find More
Information" on page 67. When we refer to IVI Checkmate in this proxy
statement-prospectus, we mean IVI Checkmate Corp.
National Transaction Network, Inc.
117 Flanders Road
Westborough, Massachusetts 01581
(508) 870-3200
NTN designs, develops, integrates, markets and maintains electronic payment
systems for use in retail applications. NTN software performs many of the tasks
involved in electronic payment transactions, including the collection of
payment-related data at the point of sale, secure transmission of the data,
authorization and collection of the completed transaction and final reporting
of the transaction. NTN's Mainsail Software Product allows retailers to
authorize and process electronic funds transfer transactions at the retailers'
corporate offices without the services of an outside, third-party transaction
processor. NTN and its parent company, IVI Checkmate, offer a single-source,
end-to-end electronic payment solution to retailers at both the store and
corporate level.
For the year ended December 31, 1998, NTN generated total revenues of
approximately $5.1 million and a net loss of approximately $1.8 million. On
December 31, 1998, NTN had consolidated assets of approximately $2.0 million
and a consolidated stockholders' deficit of approximately $1.6 million.
IVI Checkmate Inc.
1003 Mansell Road
Roswell, Georgia 30076
(770) 594-6000
IVI Checkmate's operations in the United States are conducted through its
wholly owned subsidiary, IVI Checkmate Inc. IVI Checkmate Inc. designs,
develops and markets innovative payment and value-added solutions that optimize
transaction management at the point-of-service in the retail, financial,
hospitality, healthcare and transportation industries. IVI Checkmate Inc.'s
software, hardware and professional services are designed to minimize
transaction costs, reduce operational complexity and
1
<PAGE>
improve profitability for IVI Checkmate's customers in the United States.
NTN Merger Corp.
1003 Mansell Road
Roswell, Georgia 30076
(770) 594-6000
NTN Merger Corp., a wholly owned subsidiary of IVI Checkmate Inc., is a
Delaware corporation organized for the sole purpose of effectuating the merger.
Until the merger is completed, it is not anticipated that NTN Merger Corp. will
have any significant assets or liabilities (other than those arising under the
merger agreement or in connection with the merger) or will engage in any
activities other than those incidental to its formation and capitalization and
the merger.
The Merger (See page 24)
IVI Checkmate will acquire NTN by means of the merger of NTN Merger Corp., a
wholly owned subsidiary of IVI Checkmate Inc., a wholly owned subsidiary of IVI
Checkmate, into NTN. After the merger, NTN will operate as a wholly owned
subsidiary of IVI Checkmate Inc. The merger agreement is attached as Appendix A
to this proxy statement-prospectus. We encourage you to read the merger
agreement as it is the legal document that governs the merger.
What You Will Receive in the Merger (See page 24)
When we complete the merger, you will receive the number of shares of IVI
Checkmate common stock with a value equal to $.30 multiplied by the number of
your shares of NTN common stock. Stated differently, you will be entitled to
receive $.30 worth of IVI Checkmate common stock for each of your shares of NTN
common stock.
The exact number of shares of IVI Checkmate common stock that you will be
entitled to receive will be based on the average of the daily closing prices
for IVI Checkmate common stock on the Nasdaq National Market for the 20
consecutive trading days ending two business days before the effective date of
the merger. For more information about what you will receive if the merger is
completed, see "Description of the Transaction--What You Will Receive in the
Merger" on page 24.
IVI Checkmate will not issue any fractional shares of common stock. Rather,
IVI Checkmate will pay cash for any fractional share interest that any NTN
stockholder would otherwise receive in the merger. The cash payment will be in
an amount equal to the fraction multiplied by $.30.
Effect of the Merger on NTN Options (See page 24)
From time to time, NTN has granted options to buy shares of NTN common stock
under its stock option plans. When the merger is completed, IVI Checkmate will
assume each outstanding option to buy NTN common stock. Each option will then
become an option to purchase IVI Checkmate common stock. The number of shares
of IVI common stock that may be purchased and the exercise price of the new
options will be adjusted to reflect the exchange ratio. All other terms of the
NTN options will remain the same. IVI Checkmate will assume all outstanding
options whether or not the option holder then has the right to exercise the
option.
Certain Federal Income Tax Consequences of the Merger (See page 25)
We expect that, for federal income tax purposes, you will not recognize any
gain or loss upon the exchange of all of your shares of NTN common stock solely
for shares of IVI Checkmate common stock. However, you may recognize taxable
gain or loss related to any cash you receive in lieu of a fractional share of
IVI Checkmate common stock. See the discussion above under "--What You Will
Receive in the Merger."
Tax matters are very complicated, and the tax consequences of the merger to
you will depend on your own situation. You should consult your own tax advisors
to determine the effect of the merger on you under federal, state, local and
foreign tax laws.
Comparative Market Prices of Common Stock (See page 42)
Shares of IVI Checkmate common stock are traded on the Nasdaq National
Market under the symbol "CMIV" and on The Toronto Stock Exchange under the
symbol "IVC." Shares of NTN common stock are listed on the pink sheets of the
National Quotations Bureau, Inc. under the symbol
2
<PAGE>
"NTRN" and included on the Over The Counter Bulletin Board. The following table
shows you the closing sales prices for IVI Checkmate common stock, as reported
on the Nasdaq National Market, and the last sales price of the NTN common
stock, based on inter-dealer prices, without retail mark-up, mark-down or
commissions, on July 20, 1999, the last trading day before we announced the
execution of the merger agreement, and on , 1999, the latest practicable
date before the mailing of this proxy statement-prospectus. The table also
shows you the "equivalent price per NTN Share" or the value you will receive in
the merger for each share of NTN common stock you own. See "Comparative Market
Prices and Dividends," on page 42.
<TABLE>
<CAPTION>
NTN Equivalent
IVI Checkmate Common Price Per
Common Stock Stock NTN Share
------------- ------- ----------
<S> <C> <C> <C>
July 20, 1999.................................. $3.4375 $0.2656 $.30
, 1999..................................... $ $ $.30
</TABLE>
As noted earlier, the number of shares of IVI Checkmate common stock that
you will receive for your NTN common stock will be based on the average of the
daily closing prices for IVI Checkmate common stock for the 20 consecutive
trading days ending two business days prior to the effective date of the
merger. The market price of IVI Checkmate common stock will fluctuate prior to
the merger. We can provide no assurance as to what the market price of IVI
Checkmate common stock will be during the 20 consecutive days described above.
You should obtain current stock price quotations for IVI Checkmate common
stock.
Our Reasons for the Merger (See page 31)
Through a series of acquisitions, IVI Checkmate is seeking to transition
away from being a hardware-centered terminal supplier to becoming a value-based
systems provider offering total electronic payment solutions. The acquisition
of the NTN common stock not currently owned by IVI Checkmate and its
subsidiaries represents an opportunity for IVI Checkmate to provide versatile
payment solutions at the retail level. The merger will also allow NTN to
transition from a software supplier and systems integrator to a software
division focusing on a single product line, which management of both companies
believes should result in improved operations and profitability. In addition,
the merger will provide for extensive cost savings from the combined operation,
predominately in the areas of management, sales and marketing, accounting and
finance, systems shipment and deployment, and repair and hardware maintenance
operations. The board of directors of each of NTN and IVI Checkmate believe
such reasons will enhance the value of the IVI Checkmate common stock to the
holders of the resultant entity.
Fairness Opinion of the Special Committee's Financial Advisor (See page 34)
In deciding to approve the merger, the special committee of NTN's board of
directors considered an opinion from Southeast Appraisal Resource Associates,
Inc., that the $.30 exchange ratio is fair, from a financial point of view, to
the NTN stockholders. The full text of this opinion is attached to this proxy
statement-prospectus as Appendix C. We encourage you to read this opinion. This
opinion sets forth assumptions made, matters considered and limitations on the
review undertaken in connection with Southeast's opinion. Southeast's opinion
is directed to the board of directors of NTN and does not constitute a
recommendation to any NTN stockholder as to how to vote that stockholder's
shares of NTN common stock.
Special Meeting of Stockholders (See page 18)
The special meeting will be held at , at a.m., on
, 1999. At the special meeting, we will ask you to approve the merger and the
merger agreement.
In order for the special meeting to be held, a quorum must be present. A
quorum is present if a majority of the outstanding shares of NTN common stock
entitled to vote are represented at the special meeting either in person or by
proxy.
Stockholder Vote Required to Approve the Merger (See page 18)
The affirmative vote of the holders of a majority of the outstanding shares
of NTN common stock entitled to vote at the meeting is required to approve the
merger agreement and the merger. IVI Checkmate intends to cause its wholly
owned subsidiary, IVI Checkmate Inc., to vote its shares of NTN common stock in
favor of the approval of the
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merger agreement and the merger. See "The Special Meeting--Vote Required;
Voting at the Special Meeting."
Voting Rights at the Special Meeting (See page 18)
You are entitled to vote at the special meeting if you owned shares as of
the close of business on , 1999, the record date. As of the record date,
there were shares of NTN common stock outstanding and such shares of NTN
common stock were held by holders of record. You will be entitled to one
vote for each share of NTN common stock that you owned on the record date. You
may vote either by attending the special meeting and voting your shares or by
completing the enclosed proxy card and mailing it to us in the enclosed
envelope.
We are seeking your proxy to use at the special meeting. We have prepared
this proxy statement-prospectus to assist you in deciding how to vote. Whether
or not you plan to attend the meeting, please indicate on your proxy card how
you want to vote. Then sign, date and mail it to us as soon as possible so that
your shares will be represented at the special meeting. If you sign, date and
mail your proxy card without indicating how you wish to vote, your proxy will
be counted as a vote FOR the approval of the merger agreement and the merger.
If you fail to return your proxy card and fail to vote at the meeting, the
effect will be a vote against approval of the merger agreement and the merger.
If you sign a proxy, you may revoke it at any time before the special meeting
or by attending and voting at the special meeting.
Appraisal Rights of Dissenting Stockholders (See page 19)
Under Delaware law, NTN stockholders who do not vote in favor of or consent
in writing to the merger and who follow the procedures prescribed under
Delaware law may require NTN to pay the "fair value" for their shares of NTN
common stock. See "The Special Meeting--Rights of Dissenting Stockholders."
Our Recommendation to Stockholders (See page 20)
A special committee of the board of directors, consisting of Christopher F.
Schellhorn, the only NTN director who is not employed by or affiliated with IVI
Checkmate or its subsidiaries (other than as a director of NTN), has
determined, in part based on the opinion of Southeastern Appraisal Resource
Associates, Inc., that the merger and the consideration to be received in the
merger are fair to, and in the best interests of, the stockholders of NTN,
other than IVI Checkmate and its affiliates, and has recommended approval of
the merger agreement by the NTN board of directors. After considering the
recommendation of the special committee, NTN's board of directors unanimously
approved the merger agreement.
The board believes that the proposed merger is in your best interests and
unanimously recommends that you vote to approve the merger agreement and the
merger.
NTN Stock Ownership (See page 61)
On the record date and as of the date of this proxy statement-prospectus:
. IVI Checkmate, through its wholly owned subsidiary IVI Checkmate Inc.,
owned 82.0% of the outstanding shares of NTN common stock;
. NTN's directors and executive officers and their affiliates owned none of
the outstanding shares of NTN common stock;
. IVI Checkmate's directors and executive officers and their affiliates
owned none of the outstanding shares of NTN common stock; and
. NTN was not aware of any person beneficially owning more than 5% of its
common stock, other than IVI Checkmate Inc.
Interests of Certain Persons in the Merger That May Be Different from Yours
(See page 39)
The NTN director who comprises the Special Committee holds options to
acquire 15,000 shares of NTN common stock. No other officers or directors of
NTN hold options to acquire shares of NTN common stock. Additionally, NTN's
directors and officers participate in other benefit plans and have other
arrangements that may provide them with interests in and benefits from the
merger that are different from, or in addition to, yours. Your board
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<PAGE>
of directors was aware of these interests and considered them in approving and
recommending the merger.
Completion of the Merger (See page 36)
The merger will become final at the time specified in the certificate of
merger to be filed with the Secretary of State of the State of Delaware. If the
NTN stockholders approve the merger at the special meeting, we currently
anticipate that the merger will be completed on or about , 1999.
IVI Checkmate and NTN cannot assure you that they can obtain the necessary
stockholder approvals or that the other conditions to consummation of the
merger can or will be satisfied.
Exchange of Stock Certificates (See page 36)
Promptly after the merger is completed, you will receive a letter and
instructions on how to surrender your NTN stock certificates in exchange for
IVI Checkmate stock certificates. You will need to carefully review and
complete these materials and return them as instructed along with your stock
certificates for NTN common stock. Please do not send NTN, IVI Checkmate or
their transfer agents any stock certificates until you receive these
instructions. If you elect to exercise your appraisal rights, you should follow
the procedures outlined in "The Special Meeting--Rights of Dissenting
Stockholders" section beginning on page 19.
Regulatory Approval and Other Conditions (See pages 38 and 37)
Except for the filing of any documents required by the Securities and
Exchange Commission and the certificate of merger with the Secretary of State
of the State of Delaware, no other governmental authorization or regulatory
approval is required of IVI Checkmate or NTN in order to complete the merger.
In addition, the merger will be completed only if certain other conditions,
including but not limited to the following, are met or waived, if waivable:
. NTN stockholders approve the merger at the special meeting, which is
assured if IVI Checkmate votes the 82.0% of NTN common stock owned by its
wholly owned subsidiary IVI Checkmate Inc., as it intends;
. NTN and IVI Checkmate receive all necessary consents and approvals;
. neither IVI Checkmate nor NTN has breached any of its representations or
obligations under the merger agreement such that there is a material
adverse effect on IVI Checkmate or NTN; and
. Southeastern Appraisal Resource Associates, Inc. shall have reaffirmed in
writing its fairness opinion.
In addition to these conditions, the merger agreement, attached to this
proxy statement-prospectus as Appendix A, describes other conditions that must
be met before the merger may be completed.
Waiver, Amendment, and Termination (See page 38)
IVI Checkmate and NTN may agree to terminate the merger agreement and elect
not to complete the merger at any time before the merger is completed, even if
NTN's stockholders have approved the merger.
Each of the parties also can terminate the merger in certain other
circumstances, including if the merger is not completed by September 30, 1999.
The merger agreement may be amended by the written agreement of IVI
Checkmate and NTN. Any provision of the merger agreement may be waived by the
written agreement of the party who waives the provision. The board of directors
of NTN must approve any amendment or waiver of a provision in the merger
agreement. The parties cannot amend or waive provisions in the merger agreement
which could change important terms and conditions in the merger agreement
without stockholder approval.
Accounting Treatment (See page 40)
IVI Checkmate will account for the merger under the purchase method of
accounting, in accordance with generally accepted accounting principles. Under
the purchase method of accounting, IVI Checkmate will allocate the purchase
price of NTN, including direct costs of the
5
<PAGE>
merger, to the assets acquired and liabilities assumed based upon their
estimated relative fair values, with the excess purchase consideration
allocated to goodwill. IVI Checkmate amortizes goodwill and other intangible
assets using the straight-line method over their estimated useful lives, not to
exceed 40 years.
Differences in Stockholders' Rights (See page 62)
When the merger is completed, you will automatically become an IVI Checkmate
stockholder, unless you exercise your appraisal rights. Your rights as an NTN
stockholder are governed by the NTN certificate of incorporation and bylaws and
Delaware law. IVI Checkmate's stockholders also are governed by Delaware law.
Your rights as an IVI Checkmate stockholder will differ from the rights of a
NTN stockholder in important ways due to provisions in IVI Checkmate's
certificate of incorporation and bylaws which differ from NTN's certificate of
incorporation and bylaws.
Listing of IVI Checkmate Common Stock
IVI Checkmate has agreed to list the shares of IVI Checkmate common stock to
be issued in connection with the merger on the Nasdaq National Market and on
The Toronto Stock Exchange.
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SUMMARY HISTORICAL FINANCIAL DATA
The following tables present summary financial data for IVI Checkmate and
for NTN for each of the years in the five-year period ended December 31, 1998
and for the quarters ended March 31, 1999 and 1998. The information for each of
IVI Checkmate and NTN as of December 31, 1998 and 1997 and as of March 31, 1999
and 1998 and for the three years ended December 31, 1998 and the quarters ended
March 31, 1999 and 1998 is based on the financial statements of IVI Checkmate
and NTN included as a part of this proxy statement-prospectus. The summary
financial data for each of IVI Checkmate and NTN as of December 31, 1996, 1995
and 1994 and for each of the two years ended December 31, 1995 have been
derived from audited financial statements of IVI Checkmate and NTN but are not
included herein. See "IVI Selected Financial Data," "IVI Checkmate Management's
Discussion and Analysis of Financial Condition and Results of Operations," "NTN
Selected Financial Data," "NTN Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Where You Can Find More
Information" and the financial statements of each of IVI Checkmate and NTN
attached to this proxy statement-prospectus as Appendix E and Appendix F,
respectively.
You should read the following tables in conjunction with the financial
statements of IVI Checkmate and NTN described above and with the notes to them.
We have not provided pro forma financial statements showing how the merger
might have affected the financial condition and results of operations of IVI
Checkmate had the merger been completed on various dates in the past. This is
because the consolidated financial statements of IVI Checkmate as of those
dates and for the relevant fiscal periods, which are provided in Appendix E and
Appendix F to this proxy statement-prospectus, already reflect the financial
condition and results of operations of NTN as of those dates and for those
periods, except for immaterial adjustments to reflect the elimination of IVI
Checkmate's minority interest in NTN and the issuance of shares of IVI
Checkmate common stock to the stockholders of NTN in connection with the
merger. We caution you, however, that historical results are not necessarily
indicative of results to be expected for any future period.
7
<PAGE>
IVI Checkmate Summary Financial Data
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended
------------------------------------------- -----------------
1998 1997 1996 1995 1994 1999 1998
-------- ------- -------- ------- ------- --------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $107,122 $92,665 $ 77,385 $79,686 $52,587 $15,110 $24,989
Income (loss) before
income taxes(1)........ (5,551) 2,381 (4,615) 6,167 (7,137) (3,280) 1,284
Net income (loss)....... (4,971) $ 3,236 $(10,299) $ 3,480 $(3,940) (2,296) 1,044
Basic and diluted net
income (loss) per
common share........... (0.28) $ 0.19 $ (0.69) $ 0.24 $ (0.32) (0.13) 0.06
<CAPTION>
December 31,
------------------------------------------- March 31,
1998 1997 1996 1995 1994 1999
-------- ------- -------- ------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Total assets............ $ 82,829 $76,584 $ 69,787 $66,357 $59,079 $79,329
Long-term liabilities... 787 2,085 1,124 1,598 609 783
Stockholders' equity.... 55,017 47,412 53,029 41,130 44,865 54,196
</TABLE>
- --------
(1) Unusual charges consist principally of merger costs in 1998 and writedown
of assets in each of 1998, 1996 and 1994.
NTN Summary Financial Data
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended
---------------------------------------- ----------------
1998 1997 1996 1995 1994 1999 1998
------- ------ ------ ------ ------- --------- ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $ 5,051 $5,318 $5,013 $8,006 $ 7,968 $ 1,005 $1,551
Loss from operations.... (1,640) (411) (635) (105) (1,252) (30) (107)
Net loss................ (1,806) (449) (615) (89) (1,236) (82) (148)
Basic and diluted loss
per common share....... (0.55) (0.14) (0.19) (0.03) (0.38) (0.02) (0.05)
<CAPTION>
December 31,
---------------------------------------- March 31,
1998 1997 1996 1995 1994 1999
------- ------ ------ ------ ------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ $ 2,018 $2,639 $2,161 $2,345 $ 2,878 $ 1,782
Long-term liabilities... 2,256 1,549 12 0 0 2,309
Stockholders' equity
(deficiency)........... (1,589) 196 634 1,249 1,338 (1,671)
</TABLE>
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RISK FACTORS
If the merger is consummated, you will receive shares of IVI Checkmate
common stock in exchange for your shares of NTN common stock. You should be
aware of particular risks and uncertainties that are applicable to an
investment in IVI Checkmate common stock. Specifically, there are risks and
uncertainties that bear on IVI Checkmate's future financial results and that
may cause IVI Checkmate's future earnings and financial condition to be less
than IVI Checkmate's expectations.
IVI Checkmate may not achieve the increases in operating income that it expects
to result from the integration of NTN into IVI Checkmate.
IVI Checkmate cannot guarantee that it will realize the increases in
operating income that it anticipates from integrating NTN's operations and IVI
Checkmate's operations as fully or as quickly as it expects. Successful
integration of NTN's operations will depend primarily on IVI Checkmate's
ability to consolidate operations, systems and procedures and to eliminate
redundancies and costs. IVI Checkmate may be unable to integrate its operations
without encountering difficulties, including, without limitation, the loss of
key employees and customers, the disruption of its businesses, or possible
inconsistencies in standards, controls, procedures and policies.
If IVI Checkmate cannot keep up with changes in technology, IVI Checkmate might
be unable to effectively compete and might lose customers.
The electronic payment industry is constantly changing. These changes
include, among others:
. rapid technological advances;
. evolving industry standards in electronic fund transfer and point-of-sale
products;
. changes in customer requirements; and
. frequent new product introductions and enhancements.
To be successful, IVI Checkmate must develop and use leading technologies
effectively, and continue to satisfy customer needs on a timely and cost-
effective basis. While IVI Checkmate continues to develop new products and
technologies, it may not successfully keep up with the new products and
technological advances of others. Several of IVI Checkmate's competitors have
introduced products and technologies that will compete with IVI Checkmate's
products and technologies. IVI Checkmate cannot guarantee that present or
potential customers will accept its new products and technologies or that they
will not choose to use IVI Checkmate's competitors' products and technologies.
If IVI Checkmate is unable to develop and market new products and product
enhancements that achieve market acceptance on a timely and cost-effective
basis, it could materially and adversely affect IVI Checkmate's business,
financial condition and results of operations.
IVI Checkmate relies on a limited number of large customers for a significant
percentage of its revenues so the loss of one or more of these customers could
materially and adversely affect IVI Checkmate.
IVI Checkmate relies on large banks and retail customers with a large number
of point-of-sale stations for a significant percentage of its revenues. IVI
Checkmate continues to diversify its customer base by developing strategic
alliances and partnerships to open more distribution channels and limit its
reliance on large customers. While IVI Checkmate continues to transact business
with its current customers and attract new ones, its revenues will decrease
significantly if it loses a large customer. IVI Checkmate may also be
unsuccessful in attracting new customers. The demand for IVI Checkmate's
products and services, especially from its large customers, may decline. If
these things occur, it could materially and adversely affect IVI Checkmate's
business, financial condition and results of operations.
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<PAGE>
If competition in the electronic payment industry increases, it could limit IVI
Checkmate's ability to grow.
The electronic payment industry is very competitive and subject to rapid
technological change. IVI Checkmate expects competition to increase in the
future. To compete successfully in the future, IVI Checkmate must respond
promptly and effectively to changes in technology. IVI Checkmate must also
respond to its competitors' innovations and provide low cost products through
manufacturing efficiencies and other costs savings measures. Certain of IVI
Checkmate's competitors have significantly greater financial, marketing,
service, support and technical resources than IVI Checkmate. Certain of these
competitors also have greater name recognition than IVI Checkmate. Accordingly,
IVI Checkmate's competitors may be able to respond more quickly than IVI
Checkmate to new or emerging technologies or changes in customer requirements.
They may also be able to devote greater resources to the development, promotion
and sale of products than IVI Checkmate. In addition, IVI Checkmate's profit
margins could decline because of competitive pricing pressures that may have a
material adverse effect on its business, financial condition, and results of
operations. Consequently, IVI Checkmate may not compete successfully against
current or future competitors, and the competitive pressures that it faces may
negatively affect its business, financial condition and results of operations.
IVI Checkmate attempts to differentiate itself from its competitors by
providing end-to-end solutions. IVI Checkmate's competitors include VeriFone,
Inc., a division of Hewlett-Packard Company, Hypercom Corp. and NBS
Technologies, Inc. Current and potential competitors may make acquisitions or
establish alliances among themselves or with others. These acquisitions or
alliances could increase the ability of competitors' products to address the
needs of IVI Checkmate's current or prospective customers. As a result, it is
possible that new competitors or alliances among current and new competitors
may emerge and rapidly gain a significant share of the electronic payment
market. For IVI Checkmate, this could result in price reductions, the loss of
current or prospective customers, fewer customer orders and reduced net income.
IVI Checkmate's hardware and software may contain defects and undetected errors
that could affect its performance, causing IVI Checkmate to lose customers,
spend large amounts to correct the problems or become subject to product
liability claims.
IVI Checkmate's hardware and software, including the security features on
IVI Checkmate's point-of-sale payment systems, may contain undetected defects
and errors. Although IVI Checkmate tests its hardware and software before
releasing it, IVI Checkmate may discover defects and errors in the future. Once
detected, IVI Checkmate may not be able to correct defects and errors in a
timely manner. The cost to fix defects and errors may be high. Consequently,
any undetected defects and errors in IVI Checkmate's hardware and software may
result in any of the following:
. delays in the shipment of the products;
. loss of market acceptance of the products;
. additional warranty expense;
. significant product liability claims;
. diversions of engineering and other resources from IVI Checkmate's other
product development efforts; and
. loss of credibility with IVI Checkmate's distributors and customers.
Therefore, any undetected defects and errors in IVI Checkmate's hardware and
software could adversely affect its business, financial condition and results
of operations.
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IVI Checkmate's quarterly operating results are difficult to predict, and
unexpected results could harm its stock price.
IVI Checkmate's future success depends on a number of factors, many of which
are unpredictable and beyond its control. Moreover, many of these factors are
likely to cause IVI Checkmate's operating results, cash flows and liquidity to
fluctuate significantly from quarter to quarter in the future. For example,
despite a generally consistent trend of increases in net revenues, IVI
Checkmate recorded net income (loss) of approximately ($3,940,000) in 1994,
$3,480,000 in 1995, ($10,299,000) in 1996, $3,236,000 in 1997 and ($4,971,000)
in 1998. Similarly, IVI Checkmate recorded net income (loss) of approximately
$1,044,000 in the three months ended March 31, 1998 compared to ($2,296,000) in
the three months ended March 31, 1999.
Factors which may cause IVI Checkmate's quarterly operating results, cash
flows and liquidity to fluctuate include, among others:
. defects or bugs in IVI Checkmate's hardware or software products;
. how quickly IVI Checkmate is able to develop new products and services
that its customers require;
. acceptance by IVI Checkmate's customers of its new and enhanced services;
. whether and how quickly alternative technologies, products and services
introduced by IVI Checkmate's competitors gain market acceptance;
. the timing of the introduction of new or enhanced products and services
offered by IVI Checkmate or its competitors;
. IVI Checkmate's customers' inventory levels of its products, which may
affect the timing of future orders;
. competitive pricing pressures;
. the number, size and successful integration of acquired companies and
relationships with alliance partners;
. Year 2000 issues not identified or resolved on a timely basis, which may
affect IVI Checkmate's operations or the operations of its suppliers on
whom it relies;
. foreign currency exposures;
. prevailing conditions in the electronic payment marketplace and other
general economic and political factors; and
. the condition of the stock market.
Quarterly revenues and expenses are difficult to predict because the market
for IVI Checkmate's products and services is rapidly evolving. IVI Checkmate's
expense levels are based, in part, on its expectations about future revenues.
IVI Checkmate typically records a disproportionate amount of its revenue for
each quarter in the final month of the quarter, while expenses are generally
incurred more evenly throughout the period. If IVI Checkmate's actual revenue
levels do not meet its projections or if its expenses exceed its projections,
operating results would likely be negatively affected. Due to many factors, IVI
Checkmate believes that period-to-period comparisons of its business is not
necessarily meaningful. Because IVI Checkmate's industry changes so quickly,
its operating results in future quarters could be below the expectations of
public market analysts and investors. If IVI Checkmate did not meet these
expectations, its stock price could fall significantly.
In addition, from time to time the stock market experiences significant
price and volume fluctuations. Stock market fluctuations have particularly
affected the stock prices of technology companies, such as IVI Checkmate.
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<PAGE>
Government and industry regulations may result in increased costs and increased
competition.
Various regulatory factors affect IVI Checkmate's financial performance and
ability to compete. Governmental regulatory policies affect charges and terms
for both private-line and public network electronic payment services.
Accordingly, changes in governmental regulatory policies may:
. make it more costly to communicate on these networks;
. increase the costs of development; or
. increase the opportunity for additional competition.
If regulatory action of this type occurs, IVI Checkmate's business, financial
condition and results of operations could be negatively affected.
IVI Checkmate must also obtain product certification on the applicable
customer's systems in the U.S., Canada and other countries. Any delays in
obtaining necessary certifications with respect to future products may delay
the introduction or result in the cancellation of these products. If IVI
Checkmate has any delays in obtaining necessary certifications with respect to
future products, its business, financial condition and results of operations
could be negatively affected.
IVI Checkmate is subject to regulation by the Federal Communications
Commission with respect to the performance of certain products. Compliance with
future regulations or changes in the interpretation of existing regulations may
result in a need to modify products or systems. In the event that FCC rules are
added or their interpretations are changed, IVI Checkmate could be negatively
affected.
Because IVI Checkmate has only limited protection of its proprietary technology
and intellectual property rights, others may copy them and harm IVI Checkmate's
ability to compete.
IVI Checkmate's operations could be materially and adversely affected if it
is not adequately able to protect its proprietary software, audit techniques
and methodologies, and other proprietary intellectual property rights. IVI
Checkmate relies on a combination of patents, copyrights, trademarks, trade
secrets, nondisclosure and other contractual arrangements and technical
measures to protect its proprietary rights. While IVI Checkmate currently holds
several U.S. and Canadian patents, IVI Checkmate mainly relies on copyright to
protect its operating systems and various other software programs.
Nevertheless, IVI Checkmate could be negatively affected if its competitors
successfully incorporate this technology into their products.
Despite IVI Checkmate's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of its products or obtain and
use information that IVI Checkmate regards as proprietary. IVI Checkmate could
be negatively affected if its means of protecting its proprietary information
is inadequate. IVI Checkmate may also be unable to deter misappropriation of
its proprietary information, detect unauthorized use and take appropriate steps
to enforce its intellectual property rights. Furthermore, IVI Checkmate's
competitors also may independently develop technologies that are substantially
equivalent or superior to its technology.
IVI Checkmate may not be successful in avoiding claims that it infringes
others' proprietary rights and could be required to pay judgments or licensing
fees.
Although IVI Checkmate believes that its services and products do not
infringe on the intellectual property rights of others, IVI Checkmate cannot
prevent someone else from asserting a claim against it in the future for
violating their technology rights. In the ordinary course of IVI Checkmate's
business, third parties may claim that IVI Checkmate's services infringe on
their patent, copyright or trademark rights. IVI Checkmate also may be subject
to court actions alleging that it violated a third party's patent, copyright or
trademark rights. Third parties making infringement claims may have
significantly greater resources than IVI Checkmate does to pursue litigation,
and IVI Checkmate cannot be certain that it would prevail in an infringement
action.
12
<PAGE>
Infringement claims, whether with or without merit, could be time consuming,
distract management, result in costly litigation, delay the introduction of new
services and require IVI Checkmate to enter into royalty or licensing
agreements. As a result of an infringement claim, IVI Checkmate could be
required to discontinue use of a specific technology, tradename or service
mark. In these instances, it could be expensive for IVI Checkmate to develop or
buy replacement technology or market a new name. Consequently, whether
justified or not, infringement claims could have a negative effect on IVI
Checkmate's business, financial condition and results of operations.
Any failure of supply chain manufacturers and suppliers to timely provide
necessary components and services could cause production delays and a loss of
customers.
IVI Checkmate currently assembles certain products and components at its
manufacturing facility in Roswell, Georgia. However, IVI Checkmate depends on
other manufacturers and suppliers for some of its products and certain
components used in its products. The components IVI Checkmate obtains from
other manufacturers and suppliers are only available from a limited number of
sources. Certain components and products are currently purchased from single
suppliers. While IVI Checkmate maintains additional inventory of certain
products and continually evaluates alternative sources of supply, the failure
of any single supplier to meet its commitment on schedule could adversely
affect IVI Checkmate. If a sole source supplier goes out of business or becomes
unable to meet its supply commitments to IVI Checkmate, IVI Checkmate's
production could be delayed. Delays of this type could adversely affect IVI
Checkmate's business, financial conditions and results of operations.
The use of outside manufacturers and suppliers also subjects IVI Checkmate
to the following additional risks:
. potential quality assurance problems;
. availability of suitable competitive and cost effective manufacturers and
suppliers;
. potential loss of product margin; and
. price fluctuation, particularly for certain static random access memory
products.
IVI Checkmate is subject to the risk of product liability claims.
IVI Checkmate's products are generally used to manage data critical to large
organizations. As a result, IVI Checkmate's development, sale and support of
products may entail the risk of product liability claims. IVI Checkmate's
license agreements with its customers typically contain provisions designed to
limit its exposure to potential product liability claims. However, these
provisions may not be effective under the laws of all jurisdictions. The
insurance that IVI Checkmate maintains may not be sufficient in scope or amount
to cover all personal injury, property damage and other claims if the
limitations on IVI Checkmate's liability contained in its license agreements
are ineffective. A successful product liability claim brought against IVI
Checkmate could therefore materially and adversely affect its business,
financial condition and results of operations. In addition, defending a product
liability suit, regardless of its merits, could require IVI Checkmate to incur
substantial expense and require the time and attention of key management
personnel. This could also materially and adversely affect IVI Checkmate's
business, financial condition and results of operations.
If IVI Checkmate is unable to attract and retain key personnel, it may have to
employ less qualified personnel and may experience high turnover costs.
IVI Checkmate's future performance depends upon the continued service of a
number of senior management and key technical personnel. The loss or
interruption of the services of one or more key employees could have a material
adverse effect on IVI Checkmate's business, financial condition and results of
operations. Of its key employees, IVI Checkmate currently maintains key-person
life insurance only on John J. Neubert and Gregory A. Lewis. Each of these
policies is in the amount of $1,000,000.
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<PAGE>
IVI Checkmate's future financial results also will depend upon its ability
to attract and retain highly skilled technical, managerial and marketing
personnel. Competition for qualified personnel is significant and intense and
is likely to intensify in the future. IVI Checkmate competes for qualified
personnel against numerous companies, including larger, more established
companies with significantly greater financial resources than its own.
Significant competition exists for qualified technical, managerial and
marketing personnel. At times IVI Checkmate has experienced and continues to
experience difficulty retaining and recruiting qualified personnel. If IVI
Checkmate is unable to hire and retain qualified personnel in the future, it
could materially and adversely affect IVI Checkmate's business, financial
condition and results of operations.
IVI Checkmate's stock ownership is concentrated, which will make it difficult
for you to exert control over IVI Checkmate or to replace IVI Checkmate's
management.
Based on information as of July 1, 1999, IVI Checkmate's directors, officers
and their affiliates beneficially own approximately 3,848,114 shares
(approximately 20%) of its common stock, including shares exchangeable for
common stock and exercisable options to purchase common stock. IVI Checkmate's
directors, officers and their affiliates also hold options to acquire 208,334
shares of common stock that are not immediately exercisable. Consequently, IVI
Checkmate's directors, officers and their affiliates could, as stockholders,
control or exercise significant influence over the election of directors and
all other matters requiring stockholder approval, including a change of control
or ownership of IVI Checkmate.
Failure to obtain Year 2000 compliance may negatively affect IVI Checkmate's
business.
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that store dates as two digits
rather than four (e.g., "99" for 1999). On January 1, 2000, these systems and
equipment may read "00" as the year 1900 instead of the year 2000. This problem
could result in an interruption in, or failure of, certain of IVI Checkmate's
normal business activities and operations.
IVI Checkmate has analyzed the Year 2000 issue with respect to its hardware
and software products, the hardware and software IVI Checkmate uses to provide
its services and IVI Checkmate's computerized information and operating
systems. IVI Checkmate does not believe that the costs necessary to resolve the
known Year 2000 problems will be material to its operating results. However, if
IVI Checkmate's projected timetable or cost estimates are incorrect, IVI
Checkmate's business, financial condition and results of operations could be
negatively affected. IVI Checkmate is also discussing the Year 2000 issues with
its significant customers, manufacturers and suppliers. If they are unprepared
for Year 2000 problems, IVI Checkmate's business activities and operations
could be negatively affected. IVI Checkmate is not yet certain to what extent
its significant customers, manufacturers and suppliers are Year 2000 compliant.
If their systems are not timely converted or if their converted systems are not
compatible with those of IVI Checkmate, IVI Checkmate may experience a
significant number of operational inconveniences and inefficiencies for itself
and its customers that may divert its time and attention and financial and
human resources from its ordinary business activities. Any Year 2000 problems
IVI Checkmate encounters may have a materially adverse affect on its business,
financial condition or results of operations.
If IVI Checkmate is unable to effectively manage its growth, its business could
suffer.
IVI Checkmate's future operating results will depend heavily on its ability
to manage its business and make appropriate changes in the face of its growth
and changing industry conditions. If IVI Checkmate does not respond
appropriately to growth and change, the quality of its services, its ability to
retain key personnel and its business in general could be negatively affected.
If IVI Checkmate does not correctly predict its growth, its business, financial
condition and results of operations could be negatively affected.
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IVI Checkmate is subject to risks associated with making acquisitions and may
not be able to grow through acquisitions
As part of IVI Checkmate's business strategy, IVI Checkmate continually
evaluates potential acquisitions of, and cooperative ventures to acquire,
complementary technologies, products and businesses in the electronic payment
market. In its pursuit of strategic alliances, partnerships and acquisitions,
IVI Checkmate may be unable to:
. identify suitable strategic alliances, partnerships and acquisition
candidates;
. compete for strategic alliances, partnerships and acquisitions with other
companies, many of which have substantially greater resources than IVI
Checkmate;
. obtain sufficient financing on acceptable terms to fund strategic
alliances, partnerships and acquisitions;
. complete strategic alliances, partnerships and acquisitions on terms
favorable to IVI Checkmate;
. integrate acquired technologies, products and businesses into its
existing operations; and
. profitably manage acquired technologies, products and businesses.
Strategic alliances, partnerships and acquisitions may also involve a number
of risks including, among others, that:
. technologies, products or businesses acquired by IVI Checkmate may not
perform as expected;
. technologies, products or businesses acquired by IVI Checkmate may not
achieve levels of revenues, profitability or productivity comparable to
those of IVI Checkmate's existing technologies, products and operations;
. strategic alliances, partnerships and acquisitions may divert the
attention of management and IVI Checkmate's resources;
. IVI Checkmate may experience difficulty in assimilating the acquired
operations and personnel; and
. IVI Checkmate may experience difficulty in retaining, hiring and training
key personnel.
Any or all of these risks could materially and adversely affect IVI
Checkmate's business, financial condition or results of operations.
IVI Checkmate has adopted measures that have anti-takeover effects.
Under IVI Checkmate's certificate of incorporation, the board of directors
may issue preferred stock, with any rights it may wish to assign, without
stockholder action. IVI Checkmate has also adopted a stockholder rights plan
under which IVI Checkmate has distributed rights to purchase shares of its
Series C junior participating preferred stock to its stockholders. If certain
triggering events occur, the holders of the rights will be able to purchase
shares of common stock at a price substantially discounted from the then
applicable market price of the common stock.
Exchange rate fluctuations between the U.S. dollar and other currencies in
which IVI Checkmate does business may result in currency transaction losses.
A significant portion of IVI Checkmate's revenues are denominated in
Canadian dollars. Consequently, fluctuations in exchange rates between the U.S.
and Canadian dollar may have a material adverse effect on IVI Checkmate's
business, financial condition and results of operations and could also result
in significant exchange losses. Foreign currency transaction gains and losses
are a result of transacting business in certain foreign locations in currencies
other than the functional currency of the location. IVI Checkmate attempts to
balance its revenues and expenses in each currency to minimize net foreign
currency risk. To the extent that IVI Checkmate is unable to balance revenues
and expenses in a currency, fluctuations in the value of the currency
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in which IVI Checkmate conducts its business relative to the functional
currency have caused and will continue to cause currency transaction gains and
losses. IVI Checkmate cannot accurately predict the impact of future exchange
rate fluctuations on its results of operations. These currency exchange risks
could materially and adversely affect IVI Checkmate's business, financial
condition and results of operations.
IVI Checkmate has not sought to hedge the risks associated with fluctuations
in exchange rates but may undertake transactions of this type in the future.
Any hedging techniques which IVI Checkmate implements in the future may not be
successful, and exchange rate losses could be exacerbated by hedging techniques
that IVI Checkmate uses.
A large number of shares of IVI Checkmate's stock are currently eligible for
public sale, which could cause IVI Checkmate's stock price to drop.
Sales of a substantial number of shares of IVI Checkmate common stock in the
public market, or the prospect of these sales, could adversely affect the
market price of IVI Checkmate common stock. These sales or the prospect of
these sales could also impair IVI Checkmate's ability to raise needed funds in
the capital markets at a time and price favorable to it. As of July 1, 1999,
IVI Checkmate had approximately 18,114,000 shares of common stock outstanding,
including approximately 5,616,000 exchangeable shares of IVI Checkmate Ltd.
which are exchangeable by the holders at any time for shares of IVI Checkmate
common stock on a one-for-one basis. Most of the currently outstanding IVI
Checkmate common stock and all of the IVI Checkmate common stock for which the
exchangeable shares are exchangeable have been registered under the Securities
Act of 1933. As of July 1, 1999, approximately 16,659,000 of the approximately
18,114,000 outstanding shares were eligible for sale in the public market. The
remaining unregistered outstanding shares of IVI Checkmate common stock, as
well as the approximately 2,354,541 outstanding shares owned as of December 31,
1998 by IVI Checkmate's directors and executive officers and their affiliates,
will be eligible for sale in the public market at such times and in such
amounts as are permitted under Rule 144 of the SEC.
As of July 1, 1999, IVI Checkmate had options outstanding under its stock
option plans for the purchase of a total of approximately 3,363,000 shares of
common stock at a weighted average exercise price of $6.38 per share. IVI
Checkmate has reserved an additional 1,274,400 shares of common stock that it
may issue upon the exercise of options that may be granted in the future under
these plans. Substantially all of the shares that are issuable upon the
exercise of these options, as well as the shares that are issuable under the
IVI Checkmate employee stock purchase plan, have been registered under the
Securities Act. All of these shares will be freely tradable in the public
market, except for shares held by IVI Checkmate's affiliates which will be
eligible for public sale in such amounts as are permitted under Rule 144.
IVI Checkmate's holding company structure may affect its performance and
ability to pay dividends and other distributions.
IVI Checkmate is a holding company, and its principal assets are all of the
outstanding stock of its operating subsidiaries, including IVI Checkmate Ltd.
and IVI Checkmate Inc. All of IVI Checkmate's operations are conducted through
its subsidiaries. Consequently, IVI Checkmate's performance and ability to pay
dividends and other distributions depends on, among other things, the earnings
and cash flows of the operations of its subsidiaries, as well as other
dividends and distributions from its subsidiaries.
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A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Some of the statements in this proxy statement-prospectus, including some
statements in "Summary", "Risk Factors," "Description of the Transaction," and
IVI Checkmate's and NTN's "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as some statements in IVI
Checkmate's and NTN's SEC filings that are incorporated by reference in this
proxy statement-prospectus, are forward-looking statements about management's
expectations of what may happen in the future. Statements that are not
historical facts are forward-looking statements. These statements are based on
the beliefs and assumptions of IVI Checkmate's and NTN's management and on
information currently available to them. Forward-looking statements can
sometimes be identified by the use of forward-looking words like "anticipate,"
"believe," "estimate," "expect," "intend," "may," "plan" and similar
expressions.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. IVI Checkmate's and NTN's future
results and stockholder value may differ significantly from those expressed in
or implied by the forward-looking statements contained in this proxy statement-
prospectus and in the information incorporated in this proxy statement-
prospectus. See "Where You Can Find More Information" on page 67. Many of the
factors that will determine these results and values are beyond management's
ability to control or predict. A number of important factors could cause actual
results to be very different from and worse than management's expectations
expressed in or implied by any forward-looking statement. These factors
include, but are not limited to, those discussed in "Risk Factors" beginning on
page 9.
Management of IVI Checkmate and NTN believe that their forward-looking
statements are reasonable. However, you should not place undue reliance on
these forward-looking statements, which are based only on current expectations.
Forward-looking statements speak only as of the date they are made, and IVI
Checkmate and NTN undertake no obligation to publicly update any of them in
light of new information or future events.
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THE SPECIAL MEETING
Purpose
IVI Checkmate and NTN are furnishing this proxy statement-prospectus to NTN
stockholders in connection with the solicitation of proxies by NTN's board of
directors. The NTN board of directors will use the proxies at the special
meeting of stockholders of NTN to be held on , 1999 and at any
adjournment or postponement thereof.
At the special meeting, NTN stockholders will be asked to vote upon the
proposal to approve the agreement and plan of merger attached to this proxy
statement-prospectus as Appendix A and to authorize the merger of NTN Merger
Corp., a wholly owned subsidiary of IVI Checkmate Inc., into NTN. As a result,
NTN will become a wholly owned subsidiary of IVI Checkmate Inc.
Date, Place and Time
The special meeting of NTN's stockholders will be held on , 1999, at
, commencing at a.m., local time.
Record Date
The NTN board of directors fixed the close of business on , 1999 as
the record date for the special meeting. Accordingly, only holders of NTN
common stock of record at the close of business on , 1999, will be
entitled to notice of and to vote at the special meeting.
NTN Stockholders Entitled to Vote
As of July , 1999, there were 3,325,468 shares of NTN common stock
outstanding and such shares of NTN common stock were held by holders of
record. Each share of NTN common stock entitles the holder thereof to one vote.
As of July , 1999, the directors and executive officers of NTN owned none
of the outstanding shares of NTN common stock, although one of the directors of
NTN held exercisable options to acquire 15,000 shares of NTN common stock.
Vote Required; Voting at the Meeting
The holders of a majority of the outstanding shares of NTN common stock
entitled to vote at the special meeting, present in person or by proxy, are
necessary for a quorum to exist at the special meeting.
Approval of the agreement and plan of merger and authorization of the merger
requires the affirmative vote of the holders of a majority of the outstanding
shares of NTN common stock entitled to vote at the meeting. The merger is not
structured so as to require the affirmative vote of a majority of the
stockholders other than IVI Checkmate Inc.
IVI Checkmate, which is the beneficial owner of 82.0% of the outstanding
shares of NTN common stock, intends to vote, through its wholly owned
subsidiary IVI Checkmate Inc., its shares in favor of the approval of the
merger agreement and the merger, which would assure approval of the agreement
and plan of merger. None of the directors or officers of IVI Checkmate
beneficially owns any shares of NTN common stock. NTN is not aware, as of the
date of this proxy statement-prospectus, of any person beneficially owning more
than 5% of its common stock, other than IVI Checkmate Inc.
Voting of Proxies
All properly executed proxies received before the vote at the special
meeting and not revoked will be voted in accordance with the instructions
indicated on the proxies. If no instructions are indicated, such proxies
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will be voted FOR the proposal to approve the merger agreement and the merger,
and the proxy holder may vote the proxy in its discretion as to any other
matter which may properly come before the meeting.
Any abstentions and broker non-votes will have the same effect as a vote
AGAINST the approval of the merger agreement and the merger.
A NTN stockholder who has given a proxy may revoke it by:
. giving written notice of revocation to the Corporate Secretary of NTN, L.
Barry Thomson,
. delivering a later dated proxy to L. Barry Thomson, or
. attending the special meeting and voting in person.
Any written notice of revocation or any subsequent proxy must be sent so as
to be delivered at or before the taking of the vote at the special meeting to
National Transaction Network, Inc., 117 Flanders Road, Westborough,
Massachusetts 01581, Attention: L. Barry Thomson.
Solicitation of Proxies
The expenses of the solicitation of proxies for the special meeting will be
borne by NTN, including the expenses incurred in connection with filing,
printing and mailing this proxy statement-prospectus and the forms of proxy to
the NTN stockholders, except if the merger is not completed, all printing
expenses and filing fees associated with the preparation and distribution of
this proxy statement-prospectus shall be paid by IVI Checkmate. See
"Description of the Transaction--Fees And Expenses."
In addition to solicitation by mail, directors, officers and employees of
NTN may solicit proxies in person or by telephone, telegram or other means of
communication. These persons will receive no additional compensation for
solicitation of proxies but may be reimbursed for reasonable out-of-pocket
expenses.
Rights of Dissenting Stockholders
If the merger is completed, holders of NTN common stock who object to the
merger are entitled to appraisal rights under Delaware law. In order to
exercise appraisal rights, NTN stockholders must strictly adhere to the
provisions of Delaware law governing appraisal rights. The following is a
summary of the relevant provisions of Delaware law. The description below is
only a summary and is qualified by reference to the relevant provisions of
Delaware law, a copy of which is attached hereto as Appendix B.
In order to exercise appraisal rights, you must take the following steps:
. send a written objection to the merger to NTN before the special meeting
stating your intention to demand payment for your shares of NTN common
stock if the merger is approved and the merger occurs,
. not vote in favor of the merger,
. continue to hold your NTN common stock through the effective date of the
merger, and
. send a written demand to NTN for payment for your shares of NTN common
stock within 20 days after you receive notice from NTN that the merger
has occurred (NTN will send the notice within 10 days after the merger is
completed).
The written objection and written demand should be delivered to National
Transaction Network, Inc., 117 Flanders Road, Westborough, Massachusetts 01581,
Attention: L. Barry Thomson, and we recommend that you send the objection and
demand by registered or certified mail, return receipt requested.
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Please note that, if you file a written objection with NTN prior to the
special meeting, you do not need to vote against the merger. However, if you
file a written objection with NTN prior to the special meeting and vote in
favor of the merger, you will be deemed to have waived your right to exercise
appraisal rights.
If you have followed the procedures set forth above and the merger is
completed, either NTN or you may file a petition in the Delaware Court of
Chancery within 120 days after the merger to determine the "fair value" of your
NTN common stock. After a hearing, the court will determine the fair value of
your NTN common stock and, if appropriate, a fair rate of interest on the
amount to be paid. In determining the fair value of your NTN common stock, the
court will exclude any value arising from the accomplishment or expectation of
the merger. The court may consider many relevant factors, including the market
value, asset value and earnings prospects of NTN, to determine the fair value
of your NTN common stock. The court will then order NTN to make payment to you
of the value of your shares of NTN common stock plus interest, if any.
The fair value of the NTN common stock could be worth more than, the same as
or less than the value of the IVI Checkmate common stock you would otherwise
have received by exchanging your shares of NTN common stock for shares of IVI
Checkmate common stock.
Your appraisal rights are your only remedy if you object to the merger,
unless the merger is determined to have been illegal, fraudulent or in breach
of the fiduciary duties of the NTN board of directors.
If you exercise your appraisal rights, after the merger is completed you
will not have any rights as an NTN or IVI Checkmate stockholder, including the
right to receive notices of meetings, vote at meetings or receive dividends, if
any. You may withdraw your demand for appraisal rights within 60 days after the
merger has occurred, and you will then receive IVI Checkmate common stock
offered for shares of NTN common stock in the merger.
Recommendation of the Special Committee
NTN's board of directors created the special committee, which consists of
the sole NTN director who is not employed by or affiliated with NTN, IVI
Checkmate, IVI Checkmate Inc., NTN Merger Corp. or any of their subsidiaries or
affiliates (except in his capacity as a director of NTN), to act solely on
behalf of the NTN stockholders other than IVI Checkmate Inc. and its affiliates
for purposes of negotiating the merger. The special committee retained Nelson,
Mullins, Riley & Scarborough, L.L.P. as its independent legal counsel and
Southeast Appraisal Resource Associates, Inc. as the independent financial
advisor of the special committee, to assist it in negotiating and determining
the fairness of the merger on behalf of the NTN stockholders other than IVI
Checkmate Inc. and its affiliates. At a meeting of the special committee on May
18, 1999, the special committee approved the merger consideration, being $.30
worth of IVI Checkmate common stock for each share of NTN common stock. On July
20, 1999, following a presentation by Southeast to the full NTN board of
directors as to its opinion that the merger consideration, on the terms set
forth in the merger agreement, was fair to the NTN stockholders, other than IVI
Checkmate Inc. and its affiliates, from a financial point of view, the special
committee concluded the merger and the merger consideration are fair to, and in
the best interests of, the NTN stockholders, other than IVI Checkmate Inc. and
its affiliates, and recommended to the board of directors that it approve the
merger agreement. Based in part on the recommendation of the special committee
and considering the written fairness opinion received from Southeast, the board
of directors of NTN unanimously:
(i) determined that the merger is fair to, and in the best interests of,
the NTN stockholders, other than IVI Checkmate Inc. and its affiliates;
(ii) approved the merger agreement and the transactions contemplated
thereby and authorized the execution, delivery and performance thereof
by NTN; and
(iii) resolved to recommend that the stockholders of NTN approve the merger
agreement and the transactions contemplated thereby.
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The board of directors of NTN believes that the terms of the merger
agreement are fair to, and in the best interests of, NTN and the NTN
stockholders, other than IVI Checkmate Inc. and its affiliates. In reaching its
conclusion, the board of directors of NTN adopted the recommendation of the
special committee as set forth below.
The special committee, in reaching its conclusion that the merger is fair
to, and in the best interests of, the NTN stockholders, other than IVI
Checkmate Inc. and its affiliates, and in determining to recommend approval of
the merger agreement and the merger to the board of directors of NTN,
considered a number of factors, including, without limitation:
. The oral presentation of Southeast to the special committee on June 22,
1999 and the oral and written presentation to the full board of directors
on July 20, 1999, and the written opinion of Southeast dated July 20,
1999 to the effect that, as of the date of such opinion and based upon
and subject to certain matters stated in such opinion, the merger
consideration was fair, from a financial point of view, to the NTN
stockholders, other than IVI Checkmate Inc. and its affiliates. See "--
Opinion of the Special Committee's Financial Advisor." The opinion of
Southeast is attached hereto as Appendix C. The special committee has
accepted the analysis of Southeast as set forth in its opinion dated July
20, 1999. You are urged to read such opinion carefully in its entirety.
. The special committee's conclusion that the merger consideration
represented the highest price that IVI Checkmate would be willing to pay
in acquiring the NTN common stock held by the NTN stockholders, other
than IVI Checkmate Inc. and its affiliates. This determination was the
result of the special committee's substantial negotiations with IVI
Checkmate in an attempt to obtain the highest possible price. In
conducting such negotiations, the special committee retained Nelson
Mullins, an unaffiliated representative, to act solely on behalf of the
special committee and the NTN stockholders, other than IVI Checkmate Inc.
and its affiliates, in such negotiations.
. The terms of the merger agreement, including without limitation, the
amount and form of consideration; the nature of the parties'
representations, warranties, covenants and agreements; and the conditions
to the obligations of IVI Checkmate and NTN. In particular, the special
committee viewed favorably the fact that the merger agreement contained a
limited number of representations and warranties by NTN and a limited
number of conditions to consummation of the merger, thus making
consummation of the transaction more likely than one in the which the
agreement imposed more significant conditions to consummation. The
special committee also considered favorable to its determination the fact
that the merger agreement could be terminated without making any payment
to IVI Checkmate (other than payment for fees and expenses).
. The possibility that, in the absence of a merger agreement, IVI Checkmate
could increase its beneficial ownership of NTN common stock in a
transaction not approved by NTN or the special committee through
asserting the influence of the 82.0% ownership interest held by IVI
Checkmate Inc., a wholly owned subsidiary of IVI Checkmate.
. The fact that the merger consideration represented a premium of
approximately 13% over the last reported sales price of the NTN common
stock on July 19, 1999, the day immediately preceding the approval of the
merger agreement by the special committee and the NTN board of directors.
. The special committee's knowledge of the business, financial condition,
results of operations and prospects of NTN. The special committee was
generally familiar with and knowledgeable about NTN's affairs, including
the present and possible future economic and competitive environment in
which NTN operates its business. The special committee also noted the
continued potential liability associated with public disclosure
requirements applicable to publicly held companies generally, as well as
the additional regulatory burdens and expenses imposed on NTN due to
NTN's status as a publicly held company.
. The historical trading prices of the NTN common stock and the limited
trading volume and market for the NTN common stock, resulting in limited
liquidity for the stockholders, other than IVI Checkmate and its
affiliates.
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. The availability of dissenters' rights to the stockholders who do not
vote in favor of the merger agreement and who perfect such rights under
the applicable provisions of the Delaware General Corporation Law. See
"--Rights of Dissenting Stockholders."
In view of the number and disparate nature of the factors considered by the
special committee, the special committee did not assign relative weights to the
factors considered in reaching its conclusions. The special committee did,
however, rely significantly on the presentations and opinion of Southeast
described in paragraph 1 above.
The members of the special committee (as well as the other directors of NTN)
are indemnified by NTN under NTN's certificate of incorporation and the
applicable provisions of the Delaware General Corporation Law, and are
exculpated from certain liabilities under NTN's certificate of incorporation,
with respect to their actions in connection with the merger. The members of the
special committee are also covered by directors and officers liability
insurance maintained by NTN. Mr. Schellhorn has received no additional
compensation from NTN for service on the special committee, other than the
compensation payable to all directors of NTN.
Recommendation of the NTN Board of Directors
The board of directors of NTN has unanimously concluded that the merger and
the merger consideration are fair to the NTN stockholders, other than IVI
Checkmate Inc. and its affiliates, and unanimously recommends that you vote in
favor of the merger agreement based upon the following factors: (i) the
conclusions of the special committee; (ii) the opinion of the special
committee's financial advisor, Southeast Appraisal Resource Associates, Inc.,
to the effect that the merger consideration to be received in the merger is
fair from a financial point of view to the NTN stockholders, other than IVI
Checkmate Inc. and its affiliates; and (iii) the factors referred to above as
having been taken into account by the special committee, which the NTN board of
directors adopts as its own. In view of the wide variety of factors considered
in connection with its evaluation of the merger and the merger consideration,
the NTN board of directors did not find it practicable to assign relative
weights to the factors considered in reaching its decision and, therefore, did
not quantify or otherwise attach relative weights to the specific factors
considered by the board.
The NTN board of directors also believes that the proposed merger is
procedurally fair to the NTN stockholders, other than IVI Checkmate Inc. and
its affiliates, based on several factors. First, the NTN board of directors
formed a special committee comprised of the sole director who is not employed
by NTN or otherwise affiliated with NTN or its affiliates. The special
committee and its independent advisors conducted all negotiations with IVI
Checkmate regarding the merger and the consideration to be paid to the
stockholders. Second, the special committee engaged its own independent legal
counsel, Nelson Mullins, to provide legal advice to the special committee in
connection with the merger. Third, the special committee engaged an independent
financial advisor, Southeast Appraisal Resource Associates, Inc., to render an
opinion regarding the fairness of the merger consideration. Fourth, Southeast
did in fact render an opinion that the merger consideration is fair, from a
financial point of view, to the NTN stockholders, other than IVI Checkmate Inc.
and its affiliates. Finally, NTN stockholders who do not want to accept the
merger consideration may have dissenter's rights under the Delaware General
Corporation Law.
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Recommendation of the Board of Directors of IVI Checkmate, IVI Checkmate Inc.
and NTN Merger Corp.
The board of directors of each of IVI Checkmate, IVI Checkmate Inc. and NTN
Merger Corp. has unanimously concluded that the merger and the merger
consideration are fair to the NTN stockholders, other than IVI Checkmate Inc.
and its affiliates, and each unanimously recommends that you vote in favor of
the merger based upon the following factors: (i) the conclusions and
recommendations of the special committee and the NTN board of directors; (ii)
the fact that the merger consideration and the other terms and conditions of
the merger agreement were the result of arms' length good faith negotiations
between the special committee and its advisors and the representatives of IVI
Checkmate and its advisors; (iii) the fact that Southeast Appraisal Resource
Associates, Inc. issued a fairness opinion to NTN to the effect that the merger
is fair from a financial point of view to the NTN stockholders, other than IVI
Checkmate Inc. and its affiliates; and (iv) the other factors referred to above
as having been taken into account by the special committee and the NTN board of
directors, which the board of directors of IVI Checkmate, the board of
directors of IVI Checkmate Inc. and the board of directors of NTN Merger Corp.
each adopt as their own.
In view of the wide variety of factors considered in connection with its
evaluation of the merger and the merger consideration, neither IVI Checkmate's
board of directors, IVI Checkmate Inc.'s board of directors nor NTN Merger
Corp.'s board of directors found it practicable to assign relative weights to
the factors considered in reaching its respective decision and, therefore, the
members of such boards did not quantify or otherwise attach relative weights to
the specific factors considered by the special committee, the NTN board of
directors, the IVI Checkmate board of directors, the IVI Checkmate Inc. board
of directors and the NTN Merger Corp. board of directors.
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DESCRIPTION OF THE TRANSACTION
The following information describes material aspects of the merger. This
description is only a summary of the terms and conditions of the merger
agreement. It is qualified in its entirety by the Appendices hereto, including
the text of the merger agreement, which is attached as Appendix A to this proxy
statement-prospectus and is incorporated herein by this reference thereto. You
are urged to read the Appendices in their entirety.
The Merger
The merger agreement provides for the acquisition of NTN by IVI Checkmate
pursuant to the merger of NTN Merger Corp., a wholly owned subsidiary of IVI
Checkmate Inc., with and into NTN. NTN will be the surviving corporation
resulting from the merger and will be a wholly owned subsidiary of IVI
Checkmate Inc. The common stock of NTN Merger Corp. will cease to be
outstanding and shall be converted into one share of the common stock of NTN.
IVI Checkmate, through its wholly owned subsidiary IVI Checkmate Inc., owns
approximately 82.0% of the total outstanding common stock of NTN and intends to
vote such shares in favor of the approval of the merger agreement and the
merger.
What You Will Receive in the Merger
When we complete the merger, you will receive the number of shares of IVI
Checkmate common stock equal to $.30 multiplied by the number of your shares of
NTN common stock. The value of the IVI Checkmate common stock, which will
determine the exact number of shares of IVI Checkmate common stock that you
will receive, will be based on the average of the daily closing prices for IVI
Checkmate common stock for the 20 consecutive trading days ending two business
days prior to the effective date of the merger. See "Comparative Market Prices
and Dividends."
Based on the ratio of $.30 worth of IVI Checkmate common stock for each
share of NTN common stock and assuming that the fair market value of a share of
IVI Checkmate common stock over the 20 day period ending two business days
prior to the effective date of the merger is $ , IVI Checkmate estimates
that, assuming no exercise of outstanding NTN stock options prior to the
merger, upon completion of the merger IVI Checkmate will:
. issue approximately shares of its common stock to NTN stockholders,
and
. grant options for the purchase of approximately shares of IVI
Checkmate common stock to the holders of the NTN stock options.
Based on the number of shares of IVI Checkmate common stock and the number of
stock options outstanding on , 1999, after the merger, IVI Checkmate
would have approximately shares of IVI Checkmate common stock and options
for the purchase of approximately shares of IVI Checkmate common stock
outstanding.
IVI Checkmate will not issue any fractional shares of common stock in the
merger. Rather, IVI Checkmate will pay cash for any fractional share interest
any NTN stockholder otherwise would have received in the merger. The cash
payment will be in an amount equal to the fraction multiplied by $.30.
Effect of the Merger on NTN Options
When the merger is completed, each option granted under NTN's stock option
plan that is outstanding, whether or not exercisable, will become an option to
purchase shares of IVI Checkmate common stock. IVI Checkmate will assume each
option in accordance with the terms of NTN's stock option plans and the stock
option agreement that evidences the option and will deliver IVI Checkmate
common stock upon the exercise of each option. After the merger becomes
effective,
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. IVI Checkmate and the compensation committee of its board of directors
will be substituted for NTN and the committee of NTN's board of directors
administering NTN's plan;
. each option assumed by IVI Checkmate may be exercised only for shares of
IVI Checkmate common stock;
. the number of shares of IVI Checkmate common stock subject to the option
will be equal to the number of shares of NTN common stock subject to the
option immediately before the merger is completed multiplied by a ratio
equal to $.30 divided by the average of the daily closing prices for IVI
Checkmate common stock for the 20 consecutive trading days ending two
business days prior to the effective date of the merger; and
. the per share exercise price of each option will equal the exercise price
of the option immediately before the merger divided by a ratio equal to
$.30 divided by the average of the daily closing prices for IVI Checkmate
common stock for the 20 consecutive trading days ending two business days
prior to the effective date of the merger.
Notwithstanding the foregoing, each NTN option which is an "incentive stock
option" shall be adjusted as required by Section 424 of the Internal Revenue
Code so as not to constitute a modification, extension or renewal of the
option, within the meaning of Section 424(h) of the Internal Revenue Code.
IVI Checkmate will not issue any fractional part of a share of common stock
upon exercise of an option. Rather, IVI Checkmate will pay cash for any
fractional share interest any former NTN option holder would otherwise receive
upon exercise of the option. The cash payment will be in an amount equal to the
fraction multiplied by $.30.
For information with respect to stock options held by NTN's management, see
"--Interests of Certain Persons in the Merger."
Certain Federal Income Tax Consequences of the Merger
IVI Checkmate and NTN have not and do not intend to seek a ruling from the
Internal Revenue Service as to the federal income tax consequences of the
merger. Instead, IVI Checkmate and NTN have obtained the opinion of counsel to
IVI Checkmate, Alston & Bird LLP, as to certain of the expected federal income
tax consequences of the merger. In rendering its opinion, Alston & Bird LLP has
relied on certain factual statements and representations made to it by IVI
Checkmate and NTN. This opinion may not be relied upon if any of the factual
statements or representations are incorrect or incomplete. A copy of this
opinion is attached as an exhibit to the registration statement.
The following is a discussion of the anticipated federal income tax
consequences of the merger to stockholders of NTN. This discussion does not
address, among other matters:
. state, local, or foreign tax consequences of the merger;
. federal income tax consequences to NTN stockholders who are subject to
special rules under the Internal Revenue Code, such as foreign persons,
tax-exempt organizations, insurance companies, financial institutions,
dealers in stocks and securities, persons who hold such stock as part of
a "straddle" or "conversion transaction" for federal income tax purposes
and persons who do not own such stock as a capital asset;
. federal income tax consequences affecting shares of NTN common stock
acquired upon the exercise of stock options, stock purchase plan rights,
or otherwise as compensation;
. the tax consequences to holders of warrants, options, or other rights to
acquire shares of such stock;
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. the tax consequences to IVI Checkmate and NTN resulting from any required
change in accounting methods; and
. the tax consequences to IVI Checkmate and NTN of any income and deferred
gain recognized pursuant to Treasury Regulations issued under Section
1502 of the Internal Revenue Code.
Assuming that the merger is completed in accordance with the merger
agreement, it is anticipated that the following federal income tax consequences
will occur.
. The merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code and each of IVI Checkmate, IVI
Checkmate Inc. and NTN will be a party to the reorganization within the
meaning of Section 368(b) of the Code.
. No gain or loss will be recognized by a stockholder of NTN as a result of
the exchange of all of the stockholder's shares of NTN common stock
solely for IVI Checkmate common stock pursuant to the merger.
. The aggregate tax basis of IVI Checkmate common stock to be received by a
stockholder of NTN, who exchanges all of the stockholder's NTN common
stock solely for IVI Checkmate common stock in the merger, will be the
same as the aggregate tax basis of the NTN common stock surrendered in
exchange therefor.
. The holding period of the IVI Checkmate common stock to be received by a
stockholder of NTN, who exchanges all of the stockholder's NTN common
stock solely for IVI Checkmate common stock in the merger, will include
the holding period of the NTN common stock surrendered in exchange
therefor, provided the NTN shares were held as a capital asset by the
stockholders of NTN on the date of the exchange.
. The payment of cash to a stockholder of NTN in lieu of fractional share
interests of IVI Checkmate common stock will be treated for federal
income tax purposes as if the fractional shares were distributed as part
of the exchange and then were redeemed by IVI Checkmate. These cash
payments will be treated as having been received as distributions in full
payment in exchange for the IVI Checkmate common stock redeemed, as
provided in Section 302 of the Internal Revenue Code.
. Where solely cash is received by a stockholder of NTN in exchange for NTN
common stock pursuant to the exercise of dissenters' rights, such cash
will be treated as having been received in redemption of such holder's
NTN common stock, subject to the provisions and limitations of Section
302 of the Internal Revenue Code.
Tax consequences of the merger may vary depending upon the particular
circumstances of each stockholder of NTN. Accordingly, stockholders of NTN are
urged to consult their own tax advisors as to the specific tax consequences to
them of the merger, including the applicability and effect of state, local, and
foreign tax laws.
Background of and Reasons for the Merger
Background to the Merger
In September 1996, International Verifact Inc., a Toronto, Ontario, Canada-
based company, acquired ownership of 2,726,440 shares of common stock of NTN in
a private transaction (which amount currently constitutes 82.0% of the
outstanding NTN common stock). International Verifact acquired such interest in
exchange for shares of International Verifact common stock having an aggregate
market value of approximately $1,254,000. In June 1998, International Verifact
merged with Checkmate Electronics, Inc., and the surviving entity was IVI
Checkmate Corp. Under the terms of the June 1998 merger, International Verifact
transferred its shares of NTN to IVI Checkmate Ltd., a wholly-owned subsidiary
of IVI Checkmate and a Canadian entity. In
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December 1998, IVI Checkmate Ltd. transferred such shares of NTN common stock
to IVI Checkmate Inc., a wholly-owned subsidiary of IVI Checkmate and a Georgia
corporation.
In the last quarter of 1998, IVI Checkmate began an evaluation of the
financial status of NTN and IVI Checkmate's interests in NTN. Based on this
evaluation, IVI Checkmate concluded that NTN was unable to generate sufficient
revenues to be self-sustaining and therefore would continue to require loans
from IVI Checkmate's subsidiaries to finance NTN's operations. On the other
hand, IVI Checkmate determined that some of the products and services offered
by NTN, including particularly, a software product that is integral to the
functioning of telecommunication switches and NTN's customization services
related to this product, complemented IVI Checkmate's goal of providing
comprehensive end-to-end point of service payment solutions. Based on these
conclusions, L. Barry Thomson, as IVI Checkmate's President and Chief Executive
Officer (Mr. Thomson also serves as NTN's President and Chief Executive
Officer), proposed to NTN's board of directors in November 1998 the possibility
of IVI Checkmate or one of its subsidiaries acquiring all of the outstanding
stock of NTN.
Immediately thereafter, Mr. Thomson approached Christopher F. Schellhorn, a
director of NTN since March 1997, to determine Mr. Schellhorn's willingness to
serve as the sole member of a special committee of independent directors of NTN
to represent the interests of the approximately 75 stockholders of record of
NTN other than IVI Checkmate Inc. in any proposed transaction. Mr. Schellhorn
agreed to serve as the special committee. Mr. Thomson's request was based on
two important qualifications of Mr. Schellhorn. First, Mr. Schellhorn is the
only director of NTN not affiliated with IVI Checkmate or its subsidiaries
(other than as a director of NTN) as an officer, director or stockholder.
Second, Mr. Schellhorn has an extensive background in retail payment
transaction processing, the focus of NTN's business. Mr. Schellhorn has served
as the director of operations since August 1997 and Chief Operating Officer
since May 1999 of Integrion Financial Network, Inc., a provider of interactive
banking, bill payment and electronic commerce services to financial
institutions in North America. Mr. Schellhorn also gained experience in retail
payment transaction processing in similar positions with VISA Interactive,
Inc., International Verifact Inc. (now a subsidiary of IVI Checkmate known as
IVI Checkmate, Ltd.), Market Imaging Systems, Inc., Wegmans Transaction
Services, a division of Wegmans Food Markets, Inc., and Business Modeling
Techniques, Inc.
On various occasions from November 1998 to January 1999, Mr. Schellhorn
discussed with Mr. Thomson the structure and timetable of the proposed
transaction in very general terms. Mr. Thomson made no specific offer on behalf
of IVI Checkmate as to the terms of the transaction but instead encouraged Mr.
Schellhorn to undertake efforts to determine the value of NTN and to approach
IVI Checkmate with a proposal as to fair offer terms.
In December 1998, Mr. Schellhorn initiated efforts to determine the value of
NTN. Mr. Schellhorn performed research with regard to the engagement of a firm
to perform an appraisal of NTN. After extensive review of literature from three
firms, Mr. Schellhorn initiated discussions with representatives of Southeast
Appraisal Resource Associates, Inc. of Atlanta, Georgia. Formed in 1988,
Southeast provides multi-disciplined appraisal and valuation services to firms
and individuals located in the southeastern United States and to firms and
individuals located elsewhere but seeking valuation assistance in the
southeastern United States. Southeast indicated to Mr. Schellhorn that, since
its formation, it has played a key role in transactions valued at approximately
$4 billion. After completion of these initial discussions, Mr. Schellhorn
concluded that Southeast was sufficiently knowledgeable as to technology
businesses generally and NTN's product offerings specifically to fairly value
NTN. Based on such discussions and after consultation with Mr. John J. Neubert,
then NTN's Chief Financial Officer, Mr. Schellhorn engaged Southeast to perform
a valuation of NTN, and Mr. Schellhorn requested management of NTN to provide
Southeast with financial and other information relating to NTN.
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<PAGE>
On January 8, 1999, the board of directors of NTN, by unanimous written
consent, established a special committee of the board and authorized it to:
. investigate the desirability of a transaction in which IVI Checkmate (or
a subsidiary of IVI Checkmate) would purchase all of the outstanding
shares of stock of NTN not owned by IVI Checkmate Inc. for cash and/or
other property in order to maximize the value of the stockholders'
investment in NTN;
. establish the price to be paid to the stockholders in any transaction
that the special committee may recommend;
. make a recommendation to the full board of directors of NTN regarding the
advisability of a transaction, the form of the transaction, and the
amount and form of consideration to be paid to stockholders in the
transaction; and
. take any such other actions as are necessary.
The board of directors also appointed Mr. Schellhorn, as the only director of
NTN who was not a director, officer or significant stockholder of IVI Checkmate
or its subsidiaries (other than NTN), as the sole member of the special
committee.
At the same time, the NTN board of directors further authorized NTN to
increase the principal amount of its borrowings from IVI Checkmate Ltd. to
$2,500,000 and to borrow up to the principal amount of $1,000,000 from IVI
Checkmate Inc.
Shortly thereafter, Ernst & Young LLP submitted a report on NTN's financial
statements for the year ended December 31, 1998 which contained an opinion that
was qualified due to uncertainty as to NTN's ability to continue as a going
concern.
Over the course of the following five weeks, Mr. Schellhorn continued his
communications with Southeast in order to obtain a valuation of NTN which he
could use as a basis for proposing offer terms to IVI Checkmate. On February
15, 1999, Southeast informed Mr. Schellhorn that it had completed an appraisal
of the fair market value of a minority interest in the common stock of NTN as
of December 31, 1998. Southeast then offered its opinion that, as of December
31, 1998, the fair market value of a share of common stock of NTN was equitably
represented in the amount of $0.26 per share. Southeast explained in its
opinion that "fair market value" is defined as the amount at which property
would change hands between a willing seller and a willing buyer when neither is
acting under compulsion and when both have reasonable knowledge of the relevant
facts.
Southeast further explained that it had employed three methods for
valuation. The first method, the share transaction method, involves
examinations of actual transactions in the common shares of a company in a
period near the evaluation date. The share transaction method yielded a
valuation of $0.29 per share. Southeast cautioned, however, that though the
best evidence of fair market value of publicly traded common stock is
ordinarily the most recent bid price for the common stock on the applicable
stock exchange, the stock of NTN, while nominally public, has relatively little
trading volume. Consequently, Southeast concluded that the use of other
valuation techniques, rather than sole reliance on public transactions, would
be appropriate.
The second valuation method employed by Southeast, the capital markets
method, involves the identification of publicly traded companies similar to the
company subject to the valuation, the determination of certain multiples of
financial benchmarks to explain the stock prices of such publicly traded
companies, the application of such multiples to the company subject to the
valuation, and the application of a discount for lack of marketability of the
stock of the company subject to the valuation. The capital markets method
yielded a valuation of $1.377 per share.
The third valuation method employed by Southeast, the discounted cash flow
method, involves estimates of a company's future cash flow on a debt-free
basis, the application of a discount to compute the present value of this
future cash flow, and the application of a further discount for lack of
marketability of the stock of a company. The discounted cash flow method
yielded a valuation of $0.248 per share.
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Ultimately, Southeast accorded no weight to the capital markets method
because of the limited measures available. Southeast ascribed to the share
transaction method and the discounted cash flow method equal weight, which
resulted in a value of $0.264 per share, rounded to $0.26 per share for NTN.
Over approximately the next three months, the attention of the board of
directors and management of IVI Checkmate was diverted to a number of other
matters, including an acquisition. As a result, the parties did not engage in
substantive discussions or negotiations during this period with regard to a
proposed transaction involving NTN. During this period, however, Mr. Neubert
resigned as Chief Financial Officer of NTN, but retained his position as Chief
Financial Officer of IVI Checkmate. In addition, during this period, all of the
directors of NTN, other than Mr. Schellhorn, agreed to rescind all options held
by them for the purchase of NTN common stock.
In May 1999, Mr. Neubert, as the Chief Financial Officer of IVI Checkmate,
contacted Mr. Schellhorn to resume the discussions regarding a proposed
transaction. After some negotiations regarding the appropriate form of the
transaction and purchase price for the stock, including discussions of the
valuation of NTN, the parties agreed that:
. IVI Checkmate would offer to purchase all of the NTN outstanding common
stock not held by IVI Checkmate Inc. in exchange for shares of common
stock of IVI Checkmate;
. IVI Checkmate would purchase those shares of NTN common stock at a price
of $0.30 per share;
. For purposes of determining the number of shares of IVI Checkmate common
stock to be issued at this purchase price, IVI Checkmate's common stock
would be deemed to have a value equal to the average of the closing
prices for IVI Checkmate's common stock over the 20 trading days ending
two business days prior to the closing of the merger; and
. NTN would be merged with a subsidiary of IVI Checkmate Inc., with NTN as
the surviving corporation.
Thereafter, Mr. Schellhorn engaged Nelson Mullins Riley & Scarborough,
L.L.P., an Atlanta law firm which advises on mergers and acquisitions,
securities law and corporate finance, among other things, to act as counsel in
the negotiation of merger documents with IVI Checkmate. Over the course of May,
June and July 1999, Nelson Mullins consulted with Mr. Schellhorn and his
associates and conducted negotiations of the merger documents with Alston &
Bird LLP, an Atlanta law firm representing IVI Checkmate.
During this period, Mr. Schellhorn also engaged Southeast to provide a
fairness opinion with regard to the above-referenced transaction for the
benefit of the board of directors of NTN.
Mr. Schellhorn, together with representatives of Southeast and Nelson,
Mullins, met again on June 22, 1999 to discuss the current offer from IVI
Checkmate. Mr. Schellhorn asked Southeast whether it would deliver a fairness
opinion based on a ratio of $.30 worth of IVI Checkmate common stock for each
share of NTN common stock. Southeast indicated that it would be willing to give
an opinion that such amount was fair, from a financial point of view, to the
stockholders of NTN other than IVI Checkmate Inc. and its affiliates. After
further discussion, Mr. Schellhorn, acting as the special committee, approved
the merger at the offered price, subject to receipt of a final fairness opinion
from Southeast, and on the terms described herein under "--The Merger
Agreement."
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Mr. Schellhorn met again on July 20, 1999 with the full board of directors
of NTN. At this meeting, Mr. Schellhorn and the board of NTN received a
presentation from Southeast that the offering price from IVI Checkmate was fair
to the stockholders of NTN, other than IVI Checkmate Inc. and its affiliates,
from a financial point of view. After further discussion, Mr. Schellhorn,
acting as the special committee, concluded, based to a significant degree on
the opinion of Southeast and the other factors described below under "--NTN's
Reasons for the Merger," that the terms of the merger were fair to, and in the
best interests of, the stockholders of NTN, other than IVI Checkmate Inc. and
its affiliates, and recommended that the NTN board of directors do the
following:
. approve the merger agreement in the form presented to the special
committee, with such changes as are approved by Mr. Schellhorn;
. determine that the merger is fair to, and in the best interest of, the
NTN stockholders other than IVI Checkmate Inc. and its affiliates; and
. recommend that the stockholders of NTN approve the merger agreement.
The NTN board of directors then unanimously took these actions.
The board of directors of IVI Checkmate, acting by unanimous written consent
on July 20, 1999 after reviewing the terms of the merger agreement and related
transactions, as well as the opinion received by the NTN special committee
stating that the consideration to be received by the NTN stockholders was fair,
from a financial point of view, to the stockholders of NTN, other than IVI
Checkmate Inc. and its affiliates, concluded, based to a significant degree on
the opinion of Southeast and the other factors described below under "--IVI
Checkmate's Reasons for the Merger," that the terms of the merger and the
merger agreement are fair to, and in the best interests of IVI Checkmate and
the stockholders of NTN other than IVI Checkmate and its subsidiaries. The IVI
Checkmate board of directors approved the merger agreement in the form
presented to the board, with such changes as are approved by L. Barry Thomson,
President and Chief Executive Officer of IVI Checkmate, or John J. Neubert,
Executive Vice President and Chief Financial Officer of IVI Checkmate.
On July 21, 1999, following the execution of the merger agreement, IVI
Checkmate and NTN issued the following joint press release:
NATIONAL TRANSACTION NETWORK AND IVI CHECKMATE
ENTER INTO MERGER AGREEMENT
Atlanta, Georgia
Toronto, Canada
Westborough, Massachusetts
July 21, 1999
IVI CHECKMATE CORP. (Nasdaq: CMIV; TSE: IVC/IVI) and NATIONAL
TRANSACTION NETWORK, INC. (OTCBB: NTRN) today announced that they had
entered into an agreement that will result in the acquisition by IVI
Checkmate Corp., through its wholly owned subsidiary IVI Checkmate Inc., of
all of the shares of National Transaction Network, Inc. common stock that
it does not presently own. IVI Checkmate Corp., through IVI Checkmate Inc.,
currently owns 2,726,440, or approximately 82.0%, of National Transaction
Network's 3,325,468 shares of common stock outstanding.
The acquisition will be accomplished in the form of a merger between
National Transaction Network and a wholly owned subsidiary of IVI Checkmate
Inc. formed for this purpose and should be completed in the next one to
three months, subject to approval by National Transaction Network's
stockholders and depending on the timing of regulatory reviews and
approvals. A special committee consisting of an independent director of
National Transaction Network and management of IVI Checkmate Corp. agreed
on merger consideration of $0.30 worth of common stock of IVI Checkmate
Corp. for each share of National Transaction Network common stock.
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IVI Checkmate Corp. is the third largest electronic transaction
solutions provider in North America and designs, develops and markets
innovative payment and value-added solutions that optimize transaction
management at the point-of-service in the retail, financial, travel and
entertainment, healthcare and transportation industries. IVI Checkmate
Corp.'s software, hardware, and professional services minimize transaction
costs, reduce operational complexity, and improve profitability for its
customers in the U.S., Canada and Latin America.
National Transaction Network, Inc. designs, develops, integrates,
markets and maintains electronic payment systems for use in retail
applications. National Transaction Network software performs many of the
tasks involved in electronic payment transactions, including the collection
of payment-related data at the point of sale, secure transmission of the
data, authorization and collection of the completed transaction and final
reporting of the transaction.
National Transaction Network and IVI Checkmate Corp. offer a single-
source, end-to-end electronic payment solution to retailers at both store
and corporate level.
NTN's Reasons for the Merger
NTN's Current Financial Situation
NTN currently is unable to generate sufficient revenues from operations to
be self-sustaining. For the years 1996, 1997 and 1998, NTN incurred losses from
operations of approximately $1.6 million, $400,000 and $600,000, respectively,
and net losses of similar or larger amounts in those years. NTN has recently
financed its operations in part through loans from IVI Checkmate's
subsidiaries. In January 1999, the NTN board of directors authorized NTN to
increase the principal amounts of its borrowings from IVI Checkmate Ltd. to
$2,500,000 and to borrow up to the principal amount of $1,000,000 from IVI
Checkmate Inc. NTN is currently in debt to these subsidiaries in the principal
amount of approximately $2,450,000. At March 31, 1999, NTN had an accumulated
deficit of approximately $14.7 million and negative stockholders' equity of
approximately $1.6 million. Ernst & Young LLP recently submitted a report on
NTN's financial statements for the year ended December 31, 1998 which contained
an opinion that was qualified due to uncertainty as to NTN's ability to
continue as a going concern. Furthermore, NTN's ability to obtain equity or
debt financing from outside sources is severely limited by (a) NTN's history of
operating losses, (b) NTN's substantial indebtedness referenced above, (c)
NTN's substantial accumulated deficit and negative stockholder's equity, and
(d) the ownership of approximately 82% of the outstanding common stock of NTN
by IVI Checkmate Inc. Under the circumstances in which NTN is currently
operating, NTN is unlikely to generate sufficient revenues from operations to
remain in business, and IVI Checkmate and its affiliates have no obligation to
extend additional loans to NTN.
Fair Offer Terms
NTN's board of directors has reviewed (a) the opinion of Southeast Appraisal
Resource Associates, Inc., as delivered to the special committee appointed by
NTN's board of directors, to the effect that the consideration to be received
by the stockholders of NTN through the proposed merger is fair from a financial
point of view and (b) the merger agreement and other documents relating to the
proposed transaction, and the NTN board has concluded that the terms of the
proposed transaction are fair to NTN and its stockholders other than IVI
Checkmate Inc. and its affiliates.
The foregoing discussion of certain information and factors deemed material
by the NTN board in considering the merger agreement and the merger is not
intended to be exhaustive but is believed to include all material factors
considered by the NTN board of directors.
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The board of directors of NTN has unanimously approved the merger agreement and
unanimously recommends to the stockholders of NTN that you approve the merger
agreement and the merger.
IVI Checkmate's Reasons for the Merger
IVI Checkmate's Business Strategy
IVI Checkmate is the third largest electronic transaction solutions provider
in North America. IVI Checkmate designs, develops and markets innovative
payment and value-added solutions that optimize transaction management at the
point of service in the retail, financial, hospitality, healthcare, and
transportation industries. IVI Checkmate's software, hardware and professional
services minimize transaction costs, reduce operational complexity and improve
profitability for its customers in the U.S., Canada and Latin America.
In an effort to increase revenues, enhance operating margins and maintain
its product leadership position, IVI Checkmate is transitioning away from being
a hardware-centered terminal supplier to becoming a value-based systems
provider offering end-to-end electronic payment solutions. To achieve this
goal, IVI Checkmate adopted a growth strategy to move from being primarily a
hardware supplier to becoming a total solutions provider. The objective is to
provide to its customer's "eN to eN Solutions." These solutions will consist of
consumer-activated terminals and payment peripherals, in-store payments and
transaction processing software, high-speed transaction routers and value added
application servers. In addition to providing its retailer customers with
control over their payment system, IVI Checkmate will also offer value added
solutions such as electronic marketing, check conversion, off-line debit
conversion, signature capture and charge back protection, integrated check
management systems and other payments and transaction oriented en to en
solutions which will enable them to generate increased revenue.
To achieve that objective, IVI Checkmate has made three strategic
acquisitions in the retail arena. First, in December 1997, Checkmate acquired
the assets of Total Retail Solutions, a Florida based corporation. Total Retail
Solutions' expertise included developing payment and transaction processing
applications embedded in point of service systems as well as the ability to
connect IVI Checkmate's devices to such point of service systems.
The second strategic retail market acquisition, made in September 1998, was
the acquisition of the stock of Plourde Computer Services, Inc. Plourde's
expertise is providing in-store payments and transaction processing engines and
software for IBM and Windows NT based POS systems.
In April 1999, IVI Checkmate acquired the assets of the Financial Systems
subsidiary of DataCard Corporation. This acquisition provided IVI Checkmate
with additional electronic funds transfer products, accelerated IVI Checkmate's
entry into the small retail business and the travel and entertainment markets,
and provided IVI Checkmate with its initial entry into the petroleum market.
NTN represents a fourth source of opportunity in the retail market. While
NTN has a systems integration business that resells hardware and in-store
payments software to retailers, its primary asset is Mainsail, a retail host
switch which can be both a transaction router and a value added application
server. Mainsail will be renamed eN-Concert Enterprise and marketed as part of
IVI Checkmate's en to en Solution.
Benefits to IVI Checkmate
The acquisition of NTN better positions IVI Checkmate to provide versatile
payment solutions that are seamlessly integrated into a retailer's legacy and
new store systems or integrated as part of a Value Added Reseller store system
offering. NTN's leadership in multi-lane retail payment applications and its
Retail Host Switch payment solution are a key element in IVI Checkmate's
strategy of providing end to end payment solutions to the retail industry.
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The acquisition of NTN will further IVI Checkmate's goal of offering a full
eN to eN payments solution. Work has already been completed to interface IVI
Checkmate's consumer activated terminals and payment peripherals to its eN-
Concert Store product, which enables retailers to better control all aspects of
a customer transaction. IVI Checkmate is currently developing an interface
between eN-Concert Store and eN-Concert Enterprise.
Once the initial system is tested and installed, IVI Checkmate will invest
in the hardware, store software and host software to bring to market additional
value added applications. These additional value added applications and
solutions will be marketed to existing IVI Checkmate customers as well as to
NTN's eN-Concert Enterprise customers. This should provide additional revenue
to invest in new applications as well provide additional benefits to retailers,
making the entire eN to eN Solution easier to justify and sell.
By offering not only consumer activated terminals and payment peripherals
but also a full eN to eN software solution, IVI Checkmate expects to increase
the average sale per customer as well as be able to command higher product
margins. In addition, IVI Checkmate intends to offer a full range of
professional services for implementation, project management and support, which
will increase revenue and serve as a recurring revenue stream.
Impact on NTN
Following the merger, NTN will transition from a software supplier and
systems integrator to a software division of IVI Checkmate, operating as a
wholly owned subsidiary of IVI Checkmate Inc. and focusing on the retail host
switch product formally known as Mainsail. The resulting organization will be
known as the eN-Concert Enterprise product division. This focus on one product
line should result in improved operations and profitability.
The eN-Concert Enterprise product division will consist of product
development, project management, quality assurance and implementation
resources. The eN-Concert Enterprise product division will sell its products
and services through the IVI Checkmate sales channels. The hardware deployment
and repair service functions and all accounting and financial reporting
functions will be moved to Atlanta. What remains will be a focused business
group that will not have to carry the high overhead that NTN currently has to
carry. This should result in the eN-Concert Enterprise product division
becoming and remaining profitable.
Anticipated Savings
IVI Checkmate expects to realize savings from the combined operation. These
savings should be realized in five areas:
. management;
. sales and marketing;
. accounting and finance;
. systems shipment and deployment; and
. repair and hardware maintenance operations.
Following the merger, the new eN-Concert Enterprise division will report to
IVI Checkmate's Vice President of eN-Concert Solutions. This will result in the
elimination of the position of Vice President and General Manager of NTN. The
current Vice President and General Manager of NTN will be reassigned within IVI
Checkmate to an open position.
Rather than layer multiple sales forces calling on the same customers, IVI
Checkmate will use two primary channels to bring these eN to eN solutions to
the retail market. IVI Checkmate will market to the top
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100 retailers through a direct sales organization and to the next tier with a
distributor channel. Both channels will offer eN-Concert Enterprise as part of
the eN to eN solution.
As noted, following the merger, all accounting and financial reporting
functions will be transferred to and consolidated in Atlanta. A reduction in
accounting and financial headcount will result in savings to the combined
entity. In addition, the costs NTN incurred from being a public company will be
eliminated. There will also be savings from interest on NTN's bank line of
credit because IVI Checkmate has sufficient working capital to fund the eN-
Concert Enterprise division.
NTN's hardware deployment operation also will be transferred to Atlanta,
where the combined volume should reduce product costs and efficiencies of the
combined operations should reduce production costs, resulting in improved gross
margins for the systems shipped to former NTN customers. As noted, the hardware
maintenance and hardware repair operations will also be transferred to Atlanta,
resulting in the elimination of one position.
Fairness Opinion of the Special Committee's Financial Advisor
Opinion. The special committee retained Southeast Appraisal Resource
Associates, Inc. to assist it in evaluating the fairness to the NTN
stockholders, other than IVI Checkmate Inc. and its affiliates, from a
financial point of view, of the merger consideration. On July 20, 1999,
Southeast delivered to the special committee a written opinion stating that
"the consideration to be received by the shareholders of NTN (excluding shares
held by NTN or by IVI Checkmate Corp. or any of its subsidiaries) through the
proposed merger is fair to them from a financial point of view."
Sources of Information for Opinion. In arriving at its opinion, Southeast:
(i) reviewed the merger agreement;
(ii) held discussions with certain senior officers, directors and other
representatives and advisors of NTN and certain senior officers and
other representatives and advisors of IVI Checkmate concerning the
businesses, operations, and prospects of NTN and IVI Checkmate;
(iii) examined certain publicly available business and financial
information relating to NTN and IVI Checkmate as well as certain
financial forecasts and other information and data for NTN and IVI
Checkmate which were provided to or otherwise discussed with
Southeast by the respective management of each of NTN and IVI
Checkmate, including information relating to certain strategic
implications and operational benefits anticipated to result from the
merger;
(iv) reviewed the financial terms of the merger agreement in relation to,
among other things, (a) current and historical market prices and
trading volumes of the NTN common stock and the IVI Checkmate common
stock, (b) the historical and projected earnings and other operating
data of NTN and IVI Checkmate, and (c) the capitalization and
financial condition of NTN and IVI Checkmate;
(v) considered, to the extent available, the financial terms of other
transactions recently effected which Southeast considered relevant in
evaluating the merger and analyzed certain financial, stock market and
other publicly available information relating to the businesses of
other companies whose operations Southeast considered relevant in
evaluating those of NTN and IVI Checkmate;
(vi) evaluated the potential pro forma financial impact of the merger on
IVI Checkmate; and
(vii) conducted such other analyses and examinations and considered such
other financial, economic and market criteria as Southeast deemed
appropriate in arriving at its opinion.
Limitations on Opinion. In rendering its opinion, Southeast assumed and
relied, without independent verification, upon the accuracy and completeness of
all financial and other information and data publicly available or furnished to
or otherwise reviewed by or discussed with Southeast. With respect to financial
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forecasts and other information and data provided to or otherwise reviewed by
or discussed with Southeast, Southeast was advised by the managements of NTN
and IVI Checkmate that such forecasts and other information and data were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of each of NTN and IVI Checkmate as to the
future financial performance of NTN and IVI Checkmate and the strategic
implications and operational benefits anticipated to result from the merger.
Southeast assumed that the merger will be treated as a tax-free reorganization
for U.S. federal income tax purposes and as a purchase transaction in
accordance with U.S. generally accepted accounting principles. Southeast's
opinion relates to the relative values of NTN and IVI Checkmate. Southeast
expresses no opinion as to what the value of the common stock of IVI Checkmate
actually will be when issued to NTN's stockholders pursuant to the merger or
the price at which the IVI Checkmate common stock will trade subsequent to the
merger. Southeast was not requested to, and did not, solicit third party
indications of interest in the possible acquisition of NTN. Southeast was not
asked to consider, and the opinion does not address, the relative merits of the
merger as compared to any alternative business strategies that might exist for
NTN or the effect of any other transaction in which NTN might engage. Southeast
has not acted as financial advisor to NTN in connection with the merger.
Southeast's opinion is not intended to be and does not constitute a
recommendation to any stockholder of NTN as to how such stockholder should
vote, or take any other action, with respect to the merger agreement or any
matters relating to the merger agreement.
Analysis Employed in Opinion. The opinion does not provide significant
detail with regard to the analysis upon which Southeast bases its opinion; the
opinion does, however, reference the appraisal conducted by Southeast of the
fair market value of the NTN common stock, on a minority interest basis, as of
December 31, 1998. In the appraisal, Southeast opined that the fair market
value of a share of NTN common stock was equitably represented in the amount of
$0.26 per share.
In its appraisal, Southeast explained that it had employed three methods for
valuation. First, the share transaction method (involving examinations of
actual transactions involving the common shares of a company in a period near
the evaluation date) yielded a valuation of $0.29 per share for NTN. Southeast
cautioned, however, that though the best evidence of fair market value of
publicly traded common stock is ordinarily the most recent bid price for the
common stock on the applicable stock exchange, the stock of NTN, while
nominally public, has relatively little trading volume. Thus, Southeast
concluded that the use of other valuation techniques, rather than sole reliance
on public transactions, would be appropriate. Second, the capital markets
method (involving the identification of publicly traded companies similar to
the company subject to the valuation, the determination of certain multiples of
financial benchmarks to explain the stock prices of such publicly traded
companies, the application of such multiples to the company subject to the
valuation, and the application of a discount for lack of marketability of the
stock of the company subject to the valuation) yielded a valuation of $1.377
per share for NTN. Third, the discounted cash flow method (involving estimates
of a company's future cash flow on a debt-free basis, the application of a
discount to compute the present value of this future cash flow, and the
application of a further discount for lack of marketability of the stock of a
company) yielded a valuation of $0.248 per share for NTN. Ultimately, Southeast
accorded no weight to the capital markets method because of the limited
measures available. Southeast ascribed to the share transaction method and the
discounted cash flow method equal weight, which resulted in a value of $0.264
per share, rounded to $0.26 per share for NTN.
Information Regarding Southeast Appraisal Resource Associates, Inc. Formed
in 1988, Southeast provides multi-disciplined appraisal and valuation services
to firms and individuals located in the southeastern United States (and
operating in that region or nationally) and firms and individuals located
elsewhere and seeking valuation assistance in the southeastern United States.
Southeast indicated to the special committee that, since its formation, it has
played a key role in transactions valued in the aggregate at approximately $4
billion. After completion of (i) research regarding Southeast's qualifications
to provide a valuation and a fairness opinion and (ii) initial discussions with
Southeast, the special committee engaged Southeast based on the special
committee's conclusion that Southeast was sufficiently knowledgeable as to
technology businesses generally and NTN's product offerings specifically to
fairly value NTN and to render a fairness opinion. NTN
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agreed to pay Southeast a fee of $8,000, which it deemed to be a reasonable and
customary fee upon the rendering of the valuation and the fairness opinion.
Full Text of Opinion Attached. The full text of the written opinion of
Southeast Appraisal Resource Associates, Inc., dated July 20, 1999, which sets
forth the assumptions made, matters considered, and limitations on the review
undertaken, is attached hereto as Appendix C and is incorporated herein by
reference. Holders of NTN common stock are urged to read the opinion carefully
in its entirety. The summary of the opinion of Southeast set forth above is
qualified in its entirety by reference to the full text of such opinion.
Completion of the Merger
Subject to the conditions to the obligations of the parties to effect the
merger, the merger will be completed on the date and at the time specified in
the certificate of merger to be filed with the Secretary of State of the State
of Delaware. Unless IVI Checkmate and NTN agree otherwise, they will use
reasonable efforts to complete the merger. IVI Checkmate and NTN anticipate
that the merger will become effective on or about , 1999. However, delays
could occur.
IVI Checkmate and NTN cannot assure you that they will be able to obtain
necessary approvals for the merger or that they will be able to satisfy other
conditions to completion of the merger. Either NTN's or IVI Checkmate's board
of directors may terminate the merger agreement if the merger is not completed
by September 30, 1999. IVI Checkmate and NTN may extend the date on which they
may terminate the merger agreement if both parties agree to an extension in
writing. See "--Conditions to Completion of the Merger" and "--Waiver,
Amendment and Termination."
Distribution of IVI Checkmate Stock Certificates
Promptly after the merger is completed, each NTN stockholder at the time of
completion of the merger will be mailed a letter of transmittal and
instructions for the exchange of the certificates representing shares of NTN
common stock for certificates representing shares of IVI Checkmate common
stock.
You should not send in your certificates until you receive a letter of
transmittal and instructions.
After you surrender to the exchange agent certificates for NTN common stock
with a properly completed letter of transmittal, the exchange agent will mail
you a certificate or certificates representing the number of shares of IVI
Checkmate common stock to which you are entitled and a check for the amount to
be paid in lieu of any fractional share, without interest, if any, together
with all undelivered dividends or distributions in respect of the shares of IVI
Checkmate common stock, without interest thereon, if any. IVI Checkmate will
not be obligated to deliver the consideration to you, as a former NTN
stockholder, until you have surrendered your NTN common stock certificates.
Whenever a dividend or other distribution is declared by IVI Checkmate on
IVI Checkmate common stock with a record date after the date on which the
merger was completed, the declaration will include dividends or other
distributions on all shares of IVI Checkmate common stock that may be issued in
the merger. However, IVI Checkmate will not pay any dividend or other
distribution that is payable after the completion of the merger to any former
NTN stockholder who has not surrendered his or her NTN stock certificate until
the holder surrenders the certificate. If any NTN stockholder's stock
certificate has been lost, stolen or destroyed, the exchange agent will issue
the shares of IVI Checkmate common stock and any cash in lieu of fractional
shares upon such stockholder's submission of an affidavit claiming the
certificate to be lost, stolen or destroyed by the stockholder of record, the
posting of a bond in such amount as IVI Checkmate may reasonably direct as
indemnity against any claim that may be made against IVI Checkmate with respect
to the certificate, and submission of any other documents necessary to effect
the exchange of the shares represented by the certificate.
At the time the merger is completed, the stock transfer books of NTN will be
closed and no transfer of shares of NTN common stock by any stockholder will
thereafter be made or recognized. If certificates for
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shares of NTN common stock are presented for transfer after the merger is
completed, they will be canceled and exchanged for shares of IVI Checkmate
common stock, a check for the amount due in lieu of fractional shares, if any,
and any undelivered dividends on the IVI Checkmate common stock. Any
certificates for IVI Checkmate common stock, cash and any dividends or
distributions not claimed by NTN's stockholders within two years from
completion of the merger will become the property of IVI Checkmate.
Conditions to Completion of the Merger
IVI Checkmate, IVI Checkmate Inc., NTN and NTN Merger Corp. are required to
complete the merger only after the satisfaction of various conditions. These
conditions include:
. the approval of the merger by the board of directors of NTN, IVI
Checkmate, IVI Checkmate Inc. and NTN Merger Corp.;
. the approval of the merger by the holders of a majority of the
outstanding shares of NTN common stock;
. obtaining all required filings, consents, approvals and waivers from any
governmental or public agency necessary to complete the merger;
. the SEC declaring this registration statement effective under the
Securities Act;
. no inaccuracies in the representations and warranties of IVI Checkmate,
IVI Checkmate Inc., NTN and NTN Merger Corp. as set forth in the merger
agreement, as of the date the merger is completed such that the aggregate
effect of such inaccuracies has, or is reasonably likely to have, a
material adverse effect on such party will have occurred;
. the performance and compliance by IVI Checkmate, IVI Checkmate Inc., NTN
and NTN Merger Corp. of all agreements and covenants set forth in the
merger agreement in all material respects;
. no event, change or occurrence, or any combination of events, changes or
occurrences, that has, or is reasonably likely to have, a material
adverse effect on NTN from the date of the merger agreement to the date
the merger is completed will have occurred;
. no action, suit, investigation or proceeding pending, threatened or
affecting NTN or IVI Checkmate or IVI Checkmate Inc. or any of their
officers or directors which could prevent or delay the merger will have
occurred;
. no law will be in effect, and no order or action will have been taken by
any court, governmental, or regulatory authority of competent
jurisdiction, prohibiting or restricting the merger or making it illegal;
. the receipt by NTN of the reaffirmation by Southeast Appraisal Resource
Associates, Inc. of its opinion as to the fairness of the merger and the
merger consideration; and
. the satisfaction of other conditions, including the receipt of various
certificates from the officers of NTN and IVI Checkmate.
We cannot assure you as to when or if the conditions to the merger can or
will be satisfied or waived by the party permitted to do so. If the merger is
not effected on or before September 30, 1999, except as described otherwise in
this proxy statement-prospectus or the merger agreement, the board of directors
of either NTN or IVI Checkmate may terminate the agreement and plan of merger
and abandon the merger. See "--Waiver, Amendment, and Termination."
Indemnification
IVI Checkmate has agreed to indemnify the present and former directors and
officers of NTN against certain liabilities arising out of actions or omissions
occurring at or prior to the time the merger is completed to the full extent
permitted under Delaware law and NTN's certificate of incorporation and bylaws.
IVI
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Checkmate has also agreed to use its reasonable efforts to maintain in effect
for a period of six years after completion of the merger, NTN's existing
directors and officers liability insurance policy similar to NTN's existing
insurance policy. IVI Checkmate will cause NTN to provide such indemnification
and directors' and officers' liability insurance to the extent it does not.
Regulatory Approval
NTN and IVI Checkmate are not aware of any material governmental approvals
or actions that are required to complete the merger, except for the documents
which must be filed with the SEC and the certificate of merger to be filed with
the Secretary of State of the State of Delaware. Should any other approval or
action be required, IVI Checkmate and NTN contemplate that they would seek such
approval or action.
Waiver, Amendment and Termination
To the extent permitted by law, the boards of directors of IVI Checkmate and
NTN may agree in writing to amend the merger agreement before the time the
merger becomes effective. In addition, before the merger becomes effective,
either NTN or IVI Checkmate, or both, may waive any provision under the merger
agreement. To be effective, an amendment or a waiver must be approved by the
board of directors of NTN or IVI Checkmate, as appropriate, and must be in
writing and signed by an authorized officer of NTN or IVI Checkmate, as the
case may be. However, after the stockholders of NTN have approved the merger,
any amendment or waiver which changes the amount they will receive in exchange
for their shares of NTN common stock or in any other way adversely affects
them, must be approved by such stockholders.
At any time before the merger becomes effective, the boards of directors of
IVI Checkmate and NTN may agree to terminate the merger agreement. In addition,
either NTN's board of directors or IVI Checkmate's board of directors may
terminate the merger agreement in the following circumstances:
. if the merger is not completed by September 30, 1999;
. if any law or order makes the completion of the merger illegal or
prohibited and the order is final and nonappealable;
. if the stockholders of NTN fail to approve the merger agreement and the
merger at the special meeting; or
. if the board of directors of NTN or the special committee withdraws,
modifies or changes or resolves to withdraw, modify or change its
recommendation of the merger to the NTN stockholders, recommends or
authorizes entering into any other acquisition proposal or other similar
transaction in a manner that would adversely affect IVI Checkmate or NTN
Merger Corp.
If the merger is terminated, the merger agreement will become void and have
no effect, except that the provision of the merger agreement which relates to
the obligations to share certain expenses will survive.
Conduct of Business Pending the Merger
The merger agreement obligates NTN to conduct its business only in the
usual, regular and ordinary course before the merger becomes effective and
imposes certain limitations on the operations of NTN and its subsidiaries.
These items are listed in Article 6 of the merger agreement which is attached
as Appendix A to this proxy statement-prospectus.
NTN has also agreed that neither it nor any of its representatives will
directly or indirectly solicit, or participate in negotiations with respect to,
any proposal for the acquisition of NTN by a third party; provided, that, to
the extent necessary to comply with the fiduciary duties of NTN's board of
directors as advised by the special committee, NTN may furnish information
concerning NTN to, and participate in negotiations with respect to the
acquisition of NTN by, a third party.
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IVI Checkmate and NTN have also agreed to use best efforts and to take all
actions necessary to complete the merger.
Management and Operations After the Merger
As a result of this transaction, IVI Checkmate intends to transition NTN
from a software supplier and systems integrator to a software division of IVI
Checkmate. The slimmed down NTN, which will become a wholly owned subsidiary of
IVI Checkmate Inc., will focus on the retail host switch product formally known
as Mainsail. The resulting organization will be known as the eN-Concert
Enterprise product division. Management of IVI Checkmate believes this focus on
one product line should result in improved operations and profitability.
The eN-Concert Enterprise product division will consist of development,
quality assurance, project management, quality assurance, implementation
resources and will sell its products and services through the IVI Checkmate
sales channels.
Following the completion of the merger, IVI Checkmate intends to move the
hardware deployment and repair service functions to Atlanta, as well as all
accounting functions of IVI Checkmate.
What remains as NTN will be a focused business group that will not have to
carry the high overhead that NTN previously carried. Management of IVI
Checkmate believes this should result in the eN-Concert Enterprise product
division having additional opportunities and growth for the remaining
employees.
The merger will not change the present management team or board of directors
of IVI Checkmate or IVI Checkmate Inc. Under the merger agreement, the current
directors of NTN Merger Corp. are to serve as the directors of NTN after the
merger and the current officers of NTN are to serve as the officers of NTN
after the merger.
Information concerning the current management of IVI Checkmate and NTN is
included in the documents incorporated by reference in this proxy statement-
prospectus. See "Where You Can Find More Information." Information concerning
the current management of IVI Checkmate Inc. and NTN Merger Corp. is set forth
in "Information Concerning Directors and Executive Officers of IVI Checkmate
Inc. and NTN Merger Corp."
Interests of Certain Persons in the Merger
Certain members of NTN's management and board of directors may be deemed to
have interests in the merger that are in addition to their interests as
stockholders of NTN generally. NTN's board of directors was aware of these
interests and considered them, among other matters, in approving the merger
agreement.
Ownership of IVI Checkmate, IVI Checkmate Inc. and NTN Merger Corp. IVI
Checkmate is a publicly traded company with approximately stockholders of
record as of , 1999, the latest practicable date before the mailing of
this proxy statement-prospectus. IVI Checkmate owns 100% of the common stock of
IVI Checkmate Inc., which owns 100% of the common stock of NTN Merger Corp.,
which was organized by IVI Checkmate Inc. solely for the purpose of enabling
IVI Checkmate to acquire, pursuant to the merger agreement, the entire equity
interest in NTN.
Through its wholly owned subsidiary, IVI Checkmate Inc., IVI Checkmate
beneficially owns 2,726,440 shares of NTN, representing 82.0% of the
outstanding shares of common stock of NTN. By voting the shares of NTN common
stock owned by IVI Checkmate Inc. for the merger and the merger agreement as it
intends, IVI Checkmate can be assured of the merger being approved by the
required amount of NTN stockholders. However, as provided in the merger
agreement, IVI Checkmate will not receive any consideration for the
cancellation of the shares of NTN common stock owned by it or its affiliates.
Treatment of NTN Options. At the effective time, each outstanding option
granted by NTN to purchase shares of NTN common stock will be converted into an
option to acquire IVI Checkmate common stock having
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the same terms and conditions as the NTN option had before the merger was
completed. The number of shares that the new IVI Checkmate option will be
exercisable for and the exercise price of the new IVI Checkmate option will
reflect the exchange ratio at which shares of NTN common stock are exchanged
for shares of IVI Checkmate common stock in the merger.
Indemnification; Directors and Officers Insurance. IVI Checkmate has agreed
to indemnify the present and former directors and officers of NTN against
certain liabilities arising out of actions or omissions occurring at or prior
to the time the merger is completed, to the full extent permitted under
Delaware law and NTN's certificate of incorporation and bylaws. IVI Checkmate
has also agreed to use its reasonable efforts to maintain in effect for a
period of six years after completion of the merger, NTN's existing directors'
and officers' liability insurance policy, or a policy similar to NTN's existing
insurance policy. IVI Checkmate will cause NTN to provide such indemnification
and directors' and officers' liability insurance to the extent it does not.
Other. On August 18, 1997, NTN entered into a Convertible Subordinated Note
Purchase Agreement, as amended on October 31, 1997, with IVI Checkmate Ltd., a
wholly owned subsidiary of IVI Checkmate, whereby NTN may from time to time
issue and sell to IVI Checkmate Ltd., and IVI Checkmate Ltd. agrees to
purchase, up to $2,000,000 aggregate principal amount of NTN's Convertible
Subordinated Notes. The notes have a five-year term, bear interest at a rate
per annum equal to the prime rate plus 2% (9.75% at December 31, 1998) and are
secured by NTN's assets. The notes are convertible into shares of NTN common
stock at any time in accordance with the terms of the agreement governing the
note; however, the conversion price per share shall be equal to no less than
the fair market value of NTN's common stock. In addition, the notes are subject
to registration rights if NTN determines to register other shares of its common
stock under the Securities Act of 1933. Interest payments on the notes are
deferred until maturity.
On September 19, 1997 and November 24, 1997, NTN issued notes to IVI
Checkmate Ltd. in the principal amounts of $400,000 and $1,100,000,
respectively. Both notes mature in 2002. During 1998, IVI Checkmate Ltd.
advanced funding to NTN under the Notes in the amount of $650,000. Accrued
interest under the notes totaled $159,000 at March 31, 1999.
On July 20, 1999, IVI Checkmate Ltd. and IVI Checkmate Inc. entered into an
Exchange Agreement concerning the NTN Convertible Subordinated Notes. Under the
Exchange Agreement, IVI Checkmate Inc. issued 2,150,000 shares of its Series B
Preferred Stock to IVI Checkmate Ltd. in exchange for the outstanding
convertible subordinated notes issued to IVI Checkmate Ltd. by NTN on September
19, 1997, November 24, 1997 and December 31, 1998 in the principal amounts of
$400,000, $1,100,000 and $650,000, respectively.
Accounting Treatment
IVI Checkmate will account for the merger as a purchase transaction for
accounting and financial reporting purposes. Under this method of accounting,
IVI Checkmate will allocate the purchase price of NTN, including direct costs
of the merger, to the assets acquired and liabilities assumed based upon their
estimated relative fair values with the excess purchase consideration allocated
to goodwill. IVI Checkmate amortizes goodwill and other intangible assets using
the straight-line method over their estimated useful lives, not to exceed 40
years.
Fees and Expenses
IVI Checkmate and NTN will each pay its own expenses in connection with the
merger, including filing, registration and application fees, printing fees, and
fees and expenses of its own financial or other consultants, investment
bankers, accountants and counsel, except that if the merger is not completed,
IVI Checkmate will pay all filing and printing fees.
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Resales of IVI Checkmate Common Stock
The IVI Checkmate common stock to be issued to stockholders of NTN in the
merger will be registered under the Securities Act of 1933. As a result, all
shares of IVI Checkmate common stock received by stockholders of NTN in the
merger will be freely transferable after the merger by those stockholders of
NTN who are not considered to be "affiliates" of NTN or IVI Checkmate.
"Affiliates" generally are defined as persons or entities who control, are
controlled by, or are under common control with NTN or IVI Checkmate at the
time of the special meeting (generally, executive officers, directors, and 10%
or greater stockholders).
Rule 145 under the Securities Act restricts the sale of IVI Checkmate common
stock received in the merger by affiliates of NTN and certain of their family
members and related entities. Under the rule, during the first 12-month period
after the merger is completed, affiliates of NTN or IVI Checkmate may resell
publicly the IVI Checkmate common stock they receive in the merger but only
within certain limitations as to the amount of IVI Checkmate common stock they
can sell in any three-month period and as to the manner of sale. After the one-
year period, affiliates of NTN who are not affiliates of IVI Checkmate may
resell their shares without restriction. IVI Checkmate must continue to satisfy
its reporting requirements under the Securities Exchange Act of 1934 in order
for affiliates to resell, under Rule 145 as described in the preceding two
sentences, shares of IVI Checkmate common stock received in the merger.
However, after at least two years has passed since the date of the merger,
persons who are not, and have not been within the preceding three months,
affiliates of IVI Checkmate may resell their shares received in the merger even
if IVI Checkmate does not continue to satisfy its reporting obligations under
the Securities Exchange Act.
Affiliates also would be permitted to resell IVI Checkmate common stock
received in the merger pursuant to an effective registration statement under
the Securities Act or an available exemption from the registration requirements
of the Securities Act other than Rule 145. This proxy statement-prospectus does
not cover any resales of IVI Checkmate common stock received by persons who may
be deemed to be affiliates of NTN or IVI Checkmate.
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COMPARATIVE MARKET PRICES AND DIVIDENDS
IVI Checkmate resulted from the combination on June 25, 1998 of
International Verifact Inc. (now IVI Checkmate, Ltd., a wholly owned Canadian
subsidiary of IVI Checkmate) and Checkmate Electronics, Inc. (now IVI Checkmate
Inc., a wholly owned U.S. subsidiary of IVI Checkmate). Prior to the
combination of International Verifact and Checkmate Electronics, the common
stocks of International Verifact and Checkmate Electronics were traded on the
Nasdaq National Market under the symbols "IVIAF" and "CMEL," respectively, and
the common stock of International Verifact was also traded on the Toronto Stock
Exchange under the symbol "IVI." Following the combination, the common stock of
IVI Checkmate began trading on the Nasdaq National Market and the Toronto Stock
Exchange under the symbols "CMIV" and "IVC," respectively. Additionally,
exchangeable shares of International Verifact that issued in the combination to
Canadian stockholders of International Verifact instead of shares of IVI
Checkmate common stock began trading on the Toronto Stock Exchange under the
symbol "IVI." The International Verifact exchangeable shares are convertible at
any time, on a one-for-one basis, into common stock of IVI Checkmate.
NTN common stock is listed on the pink sheets of the National Quotations
Bureau, Inc. under the symbol "NTRN" and included on the OTC Bulletin Board.
The table set forth below provides, on a per share basis for the periods
indicated:
. the high and low bid quotations prices of the common stock of
International Verifact, Checkmate Electronics and IVI Checkmate as
reported on the Nasdaq National Market;
. the high and low sales prices of the common stock of IVI Checkmate and
the exchangeable shares of International Verifact as reported on the
Toronto Stock Exchange; and
. the high and low inter-dealer quotations for the NTN common stock; such
quotations do not reflect any retail mark-up, mark-down or commissions
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
International Checkmate
Verifact Electronics
Common Shares Common Stock
------------------------ -------------
Nasdaq Toronto Nasdaq
National Stock National
Market Exchange Market NTN
----------- ------------ ------------- ---------
(US $) (Canadian $) (US $) (US $)
High Low High Low High Low High Low
----- ----- ------ ----- ------ ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
Quarter ended March 31,
1997........................ 5.375 4.391 7.150 6.000 13.875 11.500 .406 .250
Quarter ended June 30, 1997.. 6.000 4.250 8.300 6.000 13.500 8.000 .875 .250
Quarter ended September 30,
1997........................ 7.375 5.125 10.200 7.000 9.125 6.875 .922 .750
Quarter ended December 31,
1997........................ 9.815 6.500 13.500 9.250 9.000 6.250 .875 .563
1998
Quarter ended March 31,
1998........................ 8.375 6.625 11.950 9.400 9.500 6.844 .719 .469
Quarter ended June 30, 1998
(through June 25, 1998)..... 7.625 5.188 10.750 7.703 9.000 6.500 .875 .406
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
International
Verifact
IVI Checkmate Common Exchangeable
Stock Shares
------------------------ --------------
Nasdaq Toronto
National Stock Toronto Stock
Market Exchange Exchange NTN
----------- ------------ -------------- ---------
(US $) (Canadian $) (Canadian $) (US $)
High Low High Low High Low High Low
----- ----- ------ ----- ------- ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
Quarter ended June 30, 1998
(from June 26, 1998)....... 7.125 6.250 10.094 9.406 9.000 8.000 .563 .406
Quarter ended September 30,
1998....................... 7.000 3.719 10.000 5.750 9.000 5.750 .563 .281
Quarter ended December 31,
1998....................... 6.250 2.500 9.500 5.094 9.500 5.000 .500 .280
1999
Quarter ended March 31,
1999....................... 7.375 2.938 11.500 4.400 11.150 4.600 .380 .280
Quarter ended June 30,
1999....................... 3.750 2.750 5.700 4.050 5.500 4.000 .320 .280
Quarter ended September 30,
1999 (through July 13,
1999)...................... 2.875 2.813 4.850 4.200 5.100 4.150 .310 .260
</TABLE>
On , 1999, the latest practicable date before the mailing of this
proxy statement-prospectus, the last sale price of IVI Checkmate common stock
as reported on the Nasdaq National Market was $ per share. On July 20, 1999,
the last business day prior to public announcement of the merger, the last sale
price of IVI Checkmate common stock as reported on the Nasdaq National Market
was $3.4375 per share.
On , 1999, the latest practicable date before the mailing of this
proxy statement-prospectus, the last sale price of NTN common stock based on
inter-dealer prices, without retail mark-up, mark-down or commissions, was $
per share. On July 20, 1999, the last business day prior to public announcement
of the merger, the last sale price of NTN common stock based on inter-dealer
prices, without retail mark-up, mark-down or commissions, was $0.2656 per
share.
Neither IVI Checkmate nor NTN declared or paid any dividends during the
periods indicated in the stock price table above. The holders of IVI Checkmate
common stock and the holders of NTN common stock each are entitled to receive
dividends when and if declared by the respective board of directors out of
funds legally available therefor. IVI Checkmate currently intends to retain its
future earnings, if any, to fund the development and growth of its business and
therefore does not anticipate paying any cash dividends in the foreseeable
future.
43
<PAGE>
BUSINESS OF IVI CHECKMATE
IVI Checkmate is the third largest electronic transaction solutions provider
in North America. IVI Checkmate was incorporated in 1998 under the laws of
Delaware and became active on June 25, 1998 as a result of the combination of
International Verifact, a Canadian corporation, and Checkmate Electronics, a
Georgia corporation. IVI Checkmate owns all of the capital stock of these two
companies, which are now named IVI Checkmate Ltd. and IVI Checkmate Inc.,
respectively, and operates through these two companies and their subsidiaries.
Through its subsidiaries, IVI Checkmate designs, develops and markets
innovative payment and value-added solutions that optimize transaction
management at the point-of-service in the retail, financial, hospitality,
healthcare and transportation industries. IVI Checkmate's software, hardware
and professional services minimize transaction costs, reduce operational
complexity and improve profitability for IVI Checkmate's customers in the U.S.,
Canada and Latin America.
IVI Checkmate distributes its products through direct sales and various
third party distribution arrangements. IVI Checkmate's customers include banks,
payment processors, retail merchants, petroleum service stations, convenience-
store operators, supermarkets and other mass merchandisers, and government
benefits disbursers.
With over 15 years of manufacturing and technology expertise through its
subsidiaries, IVI Checkmate is a leading provider of electronic payment systems
that enable customers to respond to the demands of a rapidly growing, highly
competitive, global marketplace. IVI Checkmate provides a variety of point-of-
service products such as terminals, check readers and software to facilitate
the processing of electronic payment transactions such as check, debit, credit,
smart card and electronic benefits transfer among customers, merchants and
financial institutions. In particular, IVI Checkmate has been successful at
addressing the technology and business requirements of its customers by
providing comprehensive product functionality and high quality customer service
on a cost-effective basis.
IVI Checkmate's primary customers are major retailers and financial
institutions, but its customers also include distributors, independent sales
organizations, value-added resellers and original equipment manufacturers. IVI
Checkmate's customers generally seek electronic payment products and services
to help manage processing transactions. Its products assist customers in
meeting their internal goals of maintaining operational flexibility and
responding to market changes, while minimizing cost, waste and disruption.
The principal executive offices of IVI Checkmate are located at 1003 Mansell
Road, Roswell, Georgia 30076, and its telephone number at that address is (770)
594-6000. Additional information with respect to IVI Checkmate and its
subsidiaries is included in documents incorporated by reference in this proxy
statement-prospectus. See "Where You Can Find More Information."
44
<PAGE>
IVI CHECKMATE SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31
-------------------------------------------- -----------------
1998 1997 1996 1995 1994 1999 1998
-------- ------- -------- ------- ------- --------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $107,122 $92,665 $ 77,385 $79,686 $52,587 $15,110 $24,989
Cost of sales........... 65,818 58,015 47,378 50,568 33,959 9,388 15,392
-------- ------- -------- ------- ------- ------- -------
Gross profit............ 41,304 34,650 30,007 29,118 18,628 5,722 9,597
-------- ------- -------- ------- ------- ------- -------
Operating expenses
Selling, general and
administrative....... 25,118 24,769 20,327 16,216 13,921 6,560 5,843
Research and
development.......... 4,963 5,603 4,459 4,264 3,335 1,236 1,457
Depreciation and
amortization......... 4,153 2,823 2,198 2,817 1,828 1,155 1,053
Unusual charges (1)... 12,634 -- 8,023 -- 6,972 -- --
-------- ------- -------- ------- ------- ------- -------
Total............... $ 46,868 $33,195 $ 35,007 $23,297 $26,056 $ 8,951 $ 8,353
-------- ------- -------- ------- ------- ------- -------
Operating income
(loss)................. (5,564) 1,455 (5,000) 5,821 (7,428) (3,229) 1,244
Other
Minority interest..... 53 448 20 -- -- -- --
Share of equity
minority loss........ (342) -- (147) -- -- -- --
Interest income
(expense), net....... 302 478 512 346 291 (51) 40
-------- ------- -------- ------- ------- ------- -------
Income (loss) before
income taxes........... (5,551) 2,381 (4,615) 6,167 (7,137) (3,280) 1,284
Income tax benefit
(expense).............. 580 855 (5,684) (2,687) 3,197 984 (240)
-------- ------- -------- ------- ------- ------- -------
Net income (loss)....... $ (4,971) $ 3,236 $(10,299) $ 3,480 $(3,940) $(2,296) $ 1,044
======== ======= ======== ======= ======= ======= =======
Basic and diluted net
income (loss) per
common share........... $ (0.28) $ 0.19 $ (0.69) $ 0.24 $ (0.32) $ (0.13) $ 0.06
======== ======= ======== ======= ======= ======= =======
<CAPTION>
December 31,
-------------------------------------------- March 31,
1998 1997 1996 1995 1994 1999
-------- ------- -------- ------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Total assets............ $ 82,829 $76,584 $ 69,787 $66,357 $59,079 $79,329
Long-term obligations... 787 2,085 1,124 1,598 609 783
Stockholders' equity.... 55,017 57,412 53,029 51,130 44,865 54,196
</TABLE>
- --------
(1) Unusual charges consist principally of merger costs in 1998 and writedown
of assets in each of 1998, 1996 and 1994.
45
<PAGE>
IVI CHECKMATE MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
IVI Checkmate is a full-service solutions provider in the electronic payment
industry in the U.S., Canada and Latin America. IVI Checkmate provides point-
of-service products such as terminals, check readers and software to facilitate
the processing of electronic payment transactions such as check, debit, credit,
smart card and electronic benefits transfer among consumers, merchants and
financial institutions.
The following discussion and analysis of IVI Checkmate's consolidated
financial condition and results of operations for the three months ended March
31, 1999 and 1998 and the years ended December 31, 1998 and 1997 should be read
in conjunction with the IVI Checkmate consolidated financial statements and
accompanying notes. The financial statements have been prepared based on U.S.
generally accepted accounting principles.
Results of Operations
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
(tabular amounts in thousands of U.S. dollars)
The following table sets forth certain items derived from IVI Checkmate's
consolidated statements of operations:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1999 1998
------------ ------------
Amount % Amount %
------- --- ------- ---
<S> <C> <C> <C> <C>
Revenues:
Electronic funds transfer........................ $10,448 69 $17,060 68
Check reader..................................... 2,343 16 5,486 22
Professional services............................ 2,319 15 2,443 10
------- --- ------- ---
15,110 100 24,989 100
Cost of sales...................................... 9,388 62 15,392 62
------- --- ------- ---
Gross profit....................................... 5,722 38 9,597 38
------- --- ------- ---
Operating expenses:
Selling, general and administrative.............. 6,560 43 5,843 23
Research and development......................... 1,236 8 1,457 6
Depreciation and amortization.................... 1,155 8 1,053 4
------- --- ------- ---
8,951 59 8,353 33
------- --- ------- ---
Operating income (loss)............................ (3,229) (21) 1,244 5
Interest and other income.......................... (51) -- 40 --
------- --- ------- ---
Income (loss) before income taxes.................. (3,280) (21) 1,284 5
Income tax benefit (expense)....................... 984 6 (240) (1)
------- --- ------- ---
Net income (loss).................................. $(2,296) (15)% $ 1,044 4%
======= === ======= ===
</TABLE>
Any historical trends that may be derived from the above tables are not
necessarily indicative of IVI Checkmate's future operations.
Revenues. Total revenues decreased 40% from $25.0 million for the three
months ended March 31, 1998 to $15.1 million for the three months ended March
31, 1999. The decrease in total revenues was attributed to: (1) a temporary
halt in shipments of eN-Touch 1000 terminals in order to carry out certain
technical changes;
46
<PAGE>
and (2) excess inventory of products, primarily check readers, that were owned
by value-added resellers that resulted in these resellers placing fewer orders
in the quarter for products.
Cost of Sales. Cost of sales decreased 39% from $15.4 million for the three
months ended March 31, 1998 to $9.4 million for the three months ended March
31, 1999 due to a 40% decline in sales in 1999. As a percentage of revenues,
cost of sales was constant at 62% for the three months ended March 31, 1999 and
1998.
Selling, General and Administrative. Selling, general and administrative
expenses increased 12% from $5.8 million for the three months ended March 31,
1998 to $6.6 million for the three months ended March 31, 1999, but were
consistent with the average quarterly expenses in the last half of fiscal 1998,
which reflected the mergers completed during 1998. As a percentage of revenues,
these expenses for the three months ended March 31, 1999 and 1998 were 43% and
23%, respectively. The increase in the percentage in 1999 was the result of a
40% decline in revenue.
Research and Development. Gross research and development expenditures
increased 11% from $2.5 million in the three months ended March 31, 1998 to
$2.7 million in the three months ended March 31, 1999. The increase in
expenditures is reflective of IVI Checkmate's business strategy of improving
its software capabilities. With this shift in expenditures towards software
development, a higher proportion of these costs were capitalized in accordance
with generally accepted accounting principles. Consequently, net research and
development expenses were $1.2 million for the three months ended March 31,
1999, as compared to $1.5 million in the same period in 1998. A summary of IVI
Checkmate's research and development efforts is as follows:
<TABLE>
<CAPTION>
Three Months
Ended March
31,
--------------
1999 1998
------ ------
(in thousands
of dollars)
<S> <C> <C>
Gross research and development expenditures..................... $2,717 $2,453
Capitalized software development costs.......................... 1,481 996
------ ------
Net research and development expense............................ 1,236 1,457
Amortization of previously capitalized costs.................... 631 469
------ ------
Total expense................................................... $1,867 $1,926
====== ======
Research and development, as a percent of revenues:
Gross expenditures............................................ 18.0% 9.8%
Net expense................................................... 8.2% 5.8%
Total expense................................................. 12.4% 7.7%
</TABLE>
Our effective tax rates for the three months ended March 31, 1999 and 1998
were 30% and 19%, respectively, which were below the statutory rate due to
utilization of tax losses from previous years.
Net Income (Loss). As a result of the above factors, IVI Checkmate recorded
a net loss for the three months ended March 31, 1999 of $2.3 million compared
to a net profit of $1.0 million for the three months ended March 31, 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. Total revenues increased 16% from $92.7 million in fiscal 1997 to
$107.1 million in fiscal 1998. The increase in total revenues was attributed
to:
. an 11% increase in sales of terminals and peripherals used for electronic
funds transfer due to the introduction of a new customer interactive
touch screen terminal, and the successful marketing of eN-Scribe point-
of-sale printer;
47
<PAGE>
. a 31% increase in check reader sales as a result of increased demand from
financial institutions and the success of eN-Check 3000 dial check
reader, the only stand-alone dial-based check reader available in the
market; and
. a 14% increase in professional service revenues as a result of long-term
hardware and software maintenance agreements and services provided
through the Total CARE program, IVI Checkmate's help desk facility.
Cost of Sales. Cost of sales increased 13% from $58.0 million in fiscal 1997
to $65.8 million in fiscal 1998 as a result of a 16% increase in revenues over
the same period. As a percentage of revenues, cost of sales decreased from 63%
in fiscal 1997 to 61% in fiscal 1998. The improvement is a result of continued
cost reduction programs and on-going business integration and manufacturing
efficiencies related to the combination of International Verifact and Checkmate
Electronics.
Selling, General and Administrative. Selling, general and administrative
expenses increased 1% from $24.8 million in fiscal 1997 to $25.1 million in
fiscal 1998. These expenses represented 27% and 23% of total revenues in fiscal
1997 and 1998, respectively. The decrease in selling, general and
administrative expenses as a percentage of revenues reflects synergies from the
combination of International Verifact and Checkmate Electronics and subsequent
mergers in fiscal 1998, the commitment to sell more effectively, and IVI
Checkmate's commitment to provide a wider range of end-to-end payment solutions
to its customers with limited increases in selling costs.
Research and Development. Gross development expenditures include research
and development expense and capitalized software development costs, and consist
primarily of labor. Gross product development expenditures fluctuate from
quarter to quarter and year to year depending on the timing of product
development projects. In fiscal 1998, IVI Checkmate announced several new
products, including the Elite 780 wireless point-of-sale terminal and the eN-
Touch 1000 terminal. Gross expenditures for fiscal 1998 are net of expenditures
of $669,000 that were incurred by NTN in its development of a Windows/NT
software platform, which costs were subsequently written off upon the merger
with Plourde and are classified in merger costs in the statements of
operations. Gross expenditures in fiscal 1997 included development costs of new
products such as the eN-Check 3000 dial check reader and the eN-Scribe
printers, as well as the development cost of the eN-Touch 1000 touch screen
terminal which continued into fiscal 1998 and 1999. The table set forth below
provides a summary of product development expenditures in the last three fiscal
years.
<TABLE>
<CAPTION>
Year Ended December
31
----------------------
1998 1997 1996
------ ------ ------
(In thousands of
dollars)
<S> <C> <C> <C>
Gross product development expenditures................. $9,076 $9,789 $6,912
Less: capitalized software development costs........... 4,113 4,186 2,453
------ ------ ------
Net research and development expense................... 4,963 5,603 4,459
Amortization of previously capitalized costs........... 2,075 1,041 780
------ ------ ------
Total expense.......................................... $7,038 $6,644 $5,239
====== ====== ======
Product development as a percentage of net revenues:
Gross expenditures................................... 8.5% 10.6% 8.9%
Net expense.......................................... 4.6% 6.0% 5.8%
Total expense........................................ 6.6% 7.2% 6.8%
</TABLE>
Depreciation and Amortization. Depreciation and amortization increased 47%
from $2.8 million in fiscal 1997 to $4.2 million in fiscal 1998, primarily as a
result of higher amortization of software development costs previously
capitalized.
48
<PAGE>
Unusual Charges. In fiscal 1998, IVI Checkmate recorded charges to earnings
in the amount of $12.6 million to reflect costs associated with the combination
of International Verifact and Checkmate Electronics and the subsequent mergers
with Plourde and Debitek. These costs consisted of the following:
. professional fees and other transaction costs;
. closure costs, including severance and employee relocation costs, in the
immediate closure of IVI Checkmate's U.S. operations in Boulder,
Colorado, and the transfer and integration of these operations into
operations in Atlanta, Georgia, which was completed in fiscal 1998,
including the termination of 35 employees;
. inventory obsolescence provision to reflect product redundancies;
. the write-off of a Windows/NT software platform under development by NTN
that was made redundant by the availability of Plourde's own commercially
viable Windows/NT platform; and
. the write-off of the remaining goodwill related to NTN as a result of a
permanent impairment in value which arose due to the termination of
development of a Windows/NT software platform by NTN.
Income Tax Benefit (Expense). IVI Checkmate's statutory tax rate is 34%.
However, income taxes were affected in fiscal 1998 and 1997 by utilization of
non-operating loss carryovers of previous years, and by a valuation allowance
adjustment on the realization of these non-operating loss carryovers in future
years. As a result of these factors, the taxes recorded on the statements of
operations in fiscal 1998 and 1997 may not have direct correlation to the level
of the pre-tax earnings in each of those years.
IVI Checkmate recorded income tax benefits of $580,000 and $855,000 for
fiscal 1998 and 1997, respectively. The net deferred tax assets at December 31,
1998 were $3.3 million, net of a valuation allowance of $6.3 million, primarily
relating to the tax benefits associated with net operating loss carry forwards.
Realization of net deferred tax assets depends on generating sufficient taxable
income in future years in appropriate tax jurisdictions to obtain benefit from
the reversal of temporary differences and from net operating loss and credit
carry forwards. IVI Checkmate believes that future levels of taxable income
will be sufficient to realize the net deferred tax asset. See Note 6 of Notes
to Consolidated Financial Statements.
Net Income (Loss). Net income (loss) for fiscal 1998 and 1997 was $(5.0)
million and $3.2 million, respectively. The decrease in net income was a result
of merger costs in fiscal 1998 associated with the combination of International
Verifact and Checkmate Electronics and subsequent mergers with Plourde and
Debitek, and a tax benefit recognized in fiscal 1997 due to an adjustment in
the valuation of U.S. tax loss carry forwards.
Liquidity and Capital Resources
IVI Checkmate's primary operating cash needs include the payment of
salaries, payment to suppliers, office rent and travel expenses, other general
and administrative expenses, as well as capital expenditures and research and
development. IVI Checkmate has historically financed these expenditures, as
well as acquisitions, with cash flow from operations and issuances of equity
securities.
IVI Checkmate had working capital of $34.2 million (including $6.1 million
in cash and cash equivalents) at March 31, 1999 as compared to working capital
of $36.0 million (including $9.8 million in cash and cash equivalents) at
December 31,1998.
During the three months ended March 31, 1999, net cash of $2.5 million was
used in operating activities, primarily due to a significant decline in
revenue, which resulted in (1) profit margins that failed to cover operating
expenses, and (2) an increase in inventory.
49
<PAGE>
Net cash used in investing activities of $2.4 million for the three months
ended March 31, 1999 consisted primarily of purchases of equipment and software
development expenditures. At March 31, 1999, IVI Checkmate did not have any
commitment for material capital expenditures in the remainder of the year.
Net cash provided by financing activities of $1.1 million for the three
months ended March 31, 1999 consisted primarily of issuances of capital stock
in connection with exercises of stock options.
Cash at IVI Checkmate's Canadian division, which is held in local currency
for normal operating needs, is subject to currency fluctuation. During the
three months ended March 31, 1999, the Canadian dollar strengthened against the
U.S. dollar. Consequently, the translation of cash held by the Canadian
division into U.S. dollar equivalence generated an economic benefit of
$123,000.
At March 31, 1999, IVI Checkmate had a total of $5 million available under
lines of credit under which there were no borrowings outstanding. An additional
$5 million unsecured line of credit was arranged in April 1999.
Management of IVI Checkmate believes that its working capital position at
March 31, 1999, together with anticipated future cash flows from operations and
the borrowings available under its revolving credit lines, will be sufficient
to meet its cash operating needs for the remainder of the year. Nevertheless,
as a result of timing of cash receipts and cash payments, it may be necessary
to temporarily borrow against lines of credit.
Year 2000 Issue
Many existing computer hardware and software systems are designed to use
only two digits to identify a year in date fields (e.g. "99" for "1999"). These
systems may not properly recognize a year that begins with "20" instead of
"19". If not corrected, these systems could fail or could create erroneous
results when working with dates beyond the year 1999. This is commonly referred
to as the "Year 2000 issue". IVI Checkmate believes that the Year 2000 issue
may affect it in two principal ways: through its products and through its
operations.
IVI Checkmate designates each of the statements made herein as a Year 2000
Readiness Disclosure. Such statements are being made pursuant to the Year 2000
Information and Readiness Disclosure Act.
IVI Checkmate's Readiness Status
IVI Checkmate develops and markets hardware and software products which are
date sensitive and affected by the Year 2000 issue. IVI Checkmate believes that
it has taken all steps necessary to ensure that its hardware and software
products are Year 2000 compliant. Nevertheless, the Year 2000 issue could
negatively affect the demand for products and the spending patterns of
customers.
Many hardware, operating system and application products developed by third
parties interact or operate with IVI Checkmate's hardware and software
products, as well as its operating systems. In addition, customers or others
may modify IVI Checkmate's hardware and software products or operating systems
after they have been installed. IVI Checkmate cannot assess the Year 2000
readiness of these hardware and software products, operating systems or
modified hardware and software products and operating systems. If these
products are not Year 2000 compliant, it could adversely affect the performance
and functionality of applications that work with these products. While IVI
Checkmate would not be responsible for these Year 2000 problems, it is unable
to assess the effect they may have on its business, financial condition and
results of operations.
IVI Checkmate principally relies on software products to support its
internal accounting, payables and invoicing operations. While these software
products have been or are in the process of being tested for Year 2000
compliance, IVI Checkmate also relies on third party systems developed by
others for many of its critical internal operations. In addition, IVI
Checkmate's internal operations may also be affected by Year 2000 issues
affecting third parties with whom IVI Checkmate has relationships, including
contract manufacturers and other
50
<PAGE>
vendors (e.g., utilities, distributors, banks and other suppliers). A Year 2000
problem affecting its systems or those of third parties that IVI Checkmate
relies upon may have a material adverse effect on its business, financial
condition and results of operations.
IVI Checkmate has assembled a Year 2000 taskforce consisting of
representatives from its development, marketing, support, information systems,
facilities and finance departments to assess the Year 2000 readiness of its
internal operations and the readiness of third parties on which it relies. The
taskforce has identified and assessed the Year 2000 readiness of most of the
material information technology and non-information technology systems used
internally as part of its operations, but such work is ongoing. The taskforce
has tested or will test these systems where feasible and practicable. IVI
Checkmate expects testing to be complete by mid-1999. IVI Checkmate believes
the taskforce to have appropriate plans in place to achieve timely Year 2000
readiness for its internal systems. However, its ongoing assessment program may
in the future reveal Year 2000 issues which are not currently identified or
fully understood.
The taskforce has identified those third parties on which IVI Checkmate's
operations materially rely. This includes IVI Checkmate's contract
manufacturers and other suppliers. The taskforce has gathered written materials
published by such third parties or otherwise communicated directly with such
third parties to determine the Year 2000 readiness of their business operations
or the readiness of the products or services they supply to IVI Checkmate.
While the taskforce collected many responses and other materials from such
third parties regarding their Year 2000 readiness, the process is ongoing. IVI
Checkmate expects this process to last until mid-1999.
IVI Checkmate's Costs to Address the Year 2000 Issue
IVI Checkmate has been seeking Year 2000 compliance while upgrading its
hardware and software in the ordinary course of business and has not separately
allocated Year 2000 expenses during such process. However, IVI Checkmate does
not believe that these Year 2000 costs are material. It does not expect to
incur material additional costs to remedy any remaining Year 2000 problems with
its products and internal systems. IVI Checkmate, however, cannot currently
assess the costs of remedying problems which may result from the Year 2000
issues of others.
Risks
IVI Checkmate's customer operations are heavily dependent on the constant
availability of telecommunications equipment and other utilities. As a result,
IVI Checkmate currently believes that the most reasonably likely worst case
Year 2000 scenario would involve the temporary interruption of electric power,
telephone or other utility supplies to its offices or its support operations
facilities due to a failure of a utility supplier to be Year 2000 compliant. In
addition, despite assurances and testing, it is also possible that internal
systems or those of IVI Checkmate's customers and suppliers may not be Year
2000 ready.
In addition, "business interruption" litigation may arise out of the Year
2000 issue. IVI Checkmate is not currently aware of any possible claim against
it arising from instances of business interruption. IVI Checkmate currently
believe its hardware and software products to be Year 2000 compliant, but
cannot ensure such compliance for software products which were designed exactly
to customer specifications for their internal systems. Consequently, IVI
Checkmate cannot assure that all of these customers are aware of the Year 2000
issue or that they have adopted appropriate corrective solutions, and will
therefore not bring Year 2000-related claims against IVI Checkmate which, with
or without merit, could be time consuming and expensive to defend or resolve.
Contingency Plans
IVI Checkmate will establish a contingency plan to address the most
reasonably likely worst case scenario if, in its assessments, IVI Checkmate
identifies a material business function that is substantially at risk. The
51
<PAGE>
assessments to date have not identified such a risk. IVI Checkmate has,
however, not completed the testing of those internal systems which it can test
feasibly and practically, and has not received all responses from those
suppliers on which it relies, to fully assess the potential Year 2000
exposures.
Cautionary Statements
The continued assessment, progress and timing of IVI Checkmate's Year 2000
readiness efforts and potential exposures as described above depend upon the
cooperation and responsiveness of third parties, the accuracy and reliability
of responses provided and testing procedures, and the availability of skilled
resources, both internal and external, to address Year 2000 issues that exist
or may arise. There can be no assurance that assessments to date will prove to
be accurate. Serious deficiencies which are not currently identified or fully
understood may arise in the future and may have a material adverse impact on
IVI Checkmate's business, financial condition and results of operations. IVI
Checkmate plans to continue its taskforce into the Year 2000 to assess Year
2000 issues affecting it, review the status of its findings and develop
appropriate contingency plans where necessary in an effort to minimize the
potential exposure to the Year 2000 issue.
Inflation
To date, IVI Checkmate believes that inflation has not had a material impact
on its operations.
Quantitative and Qualitative Disclosures About Market Risk
IVI Checkmate does not engage in trading market risk sensitive instruments.
We also do not purchase, for investment, hedging or for purposes "other than
trading," instruments that are likely to expose us to market risk, whether
interest rate, foreign currency exchange, commodity price or equity price risk,
except as discussed in the following paragraph. IVI Checkmate has issued no
debt instruments, entered into no forward or futures contracts, purchased no
options and entered into no swaps, except as discussed in the following
paragraph.
Our Canadian operations generate cash denominated in foreign currency.
Consequently, we are exposed to certain foreign currency exchange rate risks.
As a result, our financial results could be significantly affected by factors
such as changes in foreign currency exchange rates or weak economic conditions
in the foreign markets in which we distribute products. Our operating results
are exposed to changes in exchange rates between the U.S. dollar and the
Canadian dollar. When the U.S. dollar strengthens against the Canadian dollar,
the value of non-functional currency sales decreases. When the U.S. dollar
weakens, the value of non-functional currency sales increases.
IVI Checkmate, in the normal course of business, is exposed to certain
foreign currency exchange risks. Its exposure to foreign currency exchange risk
at December 31, 1998 with regard to Canadian dollars was reflected in a
currency translation adjustment to Stockholders' Equity of approximately $1.4
million. The weakened Canadian dollar further impacted, but to a lesser degree,
sales and expenses in 1998 that were denominated in Canadian currency. Any
strengthening or weakening of the U.S. dollar relative to the Canadian dollar
may have a material adverse effect on the earnings or cash flows of IVI
Checkmate.
52
<PAGE>
BUSINESS OF NTN
NTN designs, develops, integrates, markets and maintains host-based
electronic payment systems for use in retail applications. NTN software
products are used to perform some or all of the tasks involved in electronic
payment transactions, including the collection of payment-related data at the
point of sale, the secure transmission of this data to a processing computer,
the authorization of the transaction, the collection of the completed
transactions, and the processing of these transactions for accountability,
funds management, and reporting reasons. NTN also provides support services
relating to the deployment and on-going operation of these systems.
NTN designs host-based electronic payment systems together with the products
of IVI Checkmate as a part of an end-to-end solution for certain niches in the
retail industry. Components of an end-to-end electronic payment system may
include transaction terminals and peripherals, software at the point of sale
for originating transactions and communicating to other systems in the store,
such as electronic cash registers, communications methodologies for
transmitting the transactions to a processing computer, software for
authorizing, processing, or re-routing the transactions to a service provider,
and support services to ensure the smooth operation of these disparate parts.
The Mainsail Retail Host Switch accepts those transactions from the store
system and either authorizes them locally (in the case of checks and gift
certificates) or routes them to a third party processor, bank, or card
association for approval. IVI Checkmate provides the payment peripherals and
the in-store payment software.
NTN's Mainsail(TM) Software drives a retailer's corporate office-based, in-
house electronic payments processing system. An open system software
application, Mainsail receives all of a retailer's electronic payment
transactions routed to it from its store locations, distinguishes transaction
type, and wherever applicable, re-routes transactions to the appropriate
financial institution authorizer. Mainsail also maintains a relational data
base of customer transaction information against which it validates in-house
transactions relating to check authorization and other retailer-sponsored
programs. The product's capability in this area is used by retailers to reduce
fraudulent check activity and enable expanded customer loyalty, gift
certificate, and electronic marketing programs.
NTN PINnacle(TM) Payment Systems are a family of standardized DOS based
products which provide retailers with the ability to accept electronic payments
in a variety of operating environments. These payment systems must work in
conjunction with several characteristics of the retailer's store environment
including the type of store system (cash register) used, the routing of
transactions for processing and the communications methods employed for
transmitting financial transactions. In addition, the retailer may choose one
of several models of electronic payment terminals on the market and may choose
to control their payments in house using a retail host system. NTN had
developed a PINnacle(TM) NT product which was made redundant by IVI Checkmate's
purchase of Plourde.
NTN also assists its customers by offering a comprehensive set of
professional services necessary for the start-up and on-going support of
electronic payment systems. These services may include systems integration,
installation, training, and hardware and software maintenance, project
management, procurement and preparation of hardware components, custom software
design and development and new product evaluation for specific customers.
NTN's customer base consists of large retail companies, principally in the
supermarket industry, located throughout the United States. In 1998,
Albertsons, Inc. accounted for 59% of NTN's total revenue.
The principal executive offices of NTN are located at 117 Flanders Road,
Westborough, Massachusetts 01581, and its telephone number at such address is
(508) 870-3200. See "Where You Can Find More Information."
53
<PAGE>
NTN SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31
---------------------------------------- ----------------
1998 1997 1996 1995 1994 1999 1998
------- ------ ------ ------ ------- --------- ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 5,051 $5,318 $5,013 $8,006 $ 7,968 $1,005 $1,550
Cost of revenue......... 3,035 3,040 2,610 4,593 4,948 589 876
------- ------ ------ ------ ------- ------ ------
Gross margin............ 2,016 2,278 2,403 3,413 3,020 416 674
Total operating
expenses............... 3,656 2,690 3,038 3,518 4,272 446 781
------- ------ ------ ------ ------- ------ ------
Loss from operations.... (1,640) (412) (635) (105) (1,252) (30) (107)
Other income
(expenses)............. (166) (37) 20 16 16 (52) (41)
------- ------ ------ ------ ------- ------ ------
Net loss................ $(1,806) $ (449) $ (615) $ (89) $(1,236) $ (82) $ (148)
======= ====== ====== ====== ======= ====== ======
Loss per common share
(basic and diluted).... $ (.55) $ (.14) $ (.19) $ (.03) $ (.38) $ (.02) $ (.05)
======= ====== ====== ====== ======= ====== ======
Weighted average number
of Common Shares
outstanding............ 3,312 3,254 3,249 3,249 3,249 3,325 3,281
<CAPTION>
December 31,
---------------------------------------- March 31,
1998 1997 1996 1995 1994 1999
------- ------ ------ ------ ------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......... $ 110 $1,155 $ 427 $ 997 $ 993 $ (72)
Total assets............ 2,018 2,639 2,161 2,345 2,878 1,782
Long-term liabilities... 2,256 1,549 12 0 0 2,309
Stockholders' equity
(deficit).............. (1,589) 196 634 1,249 1,338 (1,671)
</TABLE>
54
<PAGE>
NTN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
NTN's business strategy focuses on the development and marketing of software
products and professional services designed to address the electronic payment
system needs of multi-lane retailers. Turn-key system solutions including
customer-activated payment terminals, in-store controllers, point of sale
system integration and transaction processing network interfaces are also
provided to customers. These solutions enable retailers to automate payment
transactions involving consumer debit (ATM) cards, bank and retailer issued
credit cards, paper check authorization, electronic government benefits and
electronic checks.
Results of Operations
Three Months Ended March 31, 1999 Compared To Three Months Ended March 31, 1998
Revenues. Revenue for the quarter ended March 31, 1999 decreased by 35.2% to
$1,005,014 compared to $1,550,745 for the quarter ended March 31, 1998. The
decrease in revenue was primarily due to a significant customer's decision to
convert and upgrade a large number of its systems in the quarter ended March
31, 1998. This customer accounted for approximately 42% of NTN's revenue in
first quarter of 1999 as compared to approximately 66% for the same period in
the prior year. Gross margins as a percent of revenue were 41.4% for the
quarter ended March 31, 1999 compared to 43.5% for the quarter ended March 31,
1998. The decrease in gross margin percentages between the two quarterly
periods was primarily due to increases in certain categories of expenses
resulting from the assignment of certain expenses to the cost of goods sold in
1998 using percentage of completion accounting that had previously been
assigned to product development expense. This was partially offset by a shift
in mix between hardware, software, and professional services revenues as well
as lower margins on certain hardware sales. For the quarter ended March 31,
1999, service revenue accounted for approximately 56% of total revenue compared
to approximately 45% of total revenue for the quarter ended March 31, 1998. The
increase in service revenue was the result of professional services associated
with NTN's Mainsail software and Year 2000 testing and compliance on various
operating platforms.
Operating Expenses. Total operating expenses for the quarter ended March 31,
1999 decreased by 42.8% to $446,504 compared to $781,216 for the quarter ended
March 31, 1998. Research and development expenses decreased by 25.6% to
$178,449 for the quarter ended March 31, 1999 compared to $239,787 for the
quarter ended March 31, 1998. Decreases in research and development expenses
between the two quarterly periods resulted from the reclassification of certain
product development expenses to cost of goods sold and an increase in
capitalization of certain software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise Marketed." For the quarter
ended March 31, 1999, capitalized software development costs totaled $165,026.
This reclassification was offset by an increase in outside consulting expenses
due to the utilization of contract programmers.
Selling, General and Administrative. Selling, general and administrative
expenses decreased by 51% to $268,055 for the quarter ended March 31, 1999
compared to $541,429 for the quarter ended March 31, 1998. This decrease was
related primarily to (i) decreases in compensation and fringe benefit expense
due to fewer staff positions and (ii) the reduction of travel and trade show
expense resulting from sales activities being facilitated by IVI Checkmate.
Other expense for the quarter ended March 31, 1999, totaled $52,373 which
consisted primarily of interest expense on convertible subordinated notes
payable to IVI Checkmate Inc.
55
<PAGE>
Year Ended December 31, 1998 Compared To Year Ended December 31, 1997
Revenues. Total revenue for the year ended December 31, 1998 decreased by 5%
to $5,051,077 compared to $5,318,371 for the year ended December 31, 1997. The
decrease in revenue was primarily due to a significant customer's decision to
use another vendor's software while continuing to purchase hardware from NTN in
1998. The revenue derived from this customer accounted for approximately 59% of
NTN's total revenue for the year ended December 31, 1998 compared to
approximately 57% of total revenue for the year ended December 31, 1997. This
decrease in revenue was partially offset by the maintenance revenue derived
from the acquisition of the Mainsail software product.
Gross Margins. Gross margins as a percent of revenue were 40% for the year
ended December 31, 1998 compared to 42.8% for the year ended December 31, 1997.
The decrease in gross margin percentage was primarily due to a shift in mix
between hardware, software, and professional services revenue. Higher margin
software and professional services revenue accounted for approximately 44.7% of
total revenue for the year ended December 31, 1998 compared to approximately
46.8% for the year ended December 31, 1997.
Operating Expenses. Total operating expenses for the year ended December 31,
1998 increased by 35.9% to $3,655,912 compared to $2,689,930 for the year ended
December 31,1997. The significant increase in research and development expense
was related to the write-off of the capitalized software development costs of
the PINnacle NT product. Management determined that the costs capitalized for
the PINnacle NT product, totaling approximately $670,000, were not recoverable
as the software was made redundant by the acquisition of Plourde by IVI
Checkmate. Accordingly, NTN has redirected its marketing and development
resources toward the NT platform product, developed by Plourde mentioned above,
as part of its complete payment solution with the Mainsail switch. NTN is
continuing to capitalize software development costs totalling $133,717 at
December 31, 1998 for Mainsail development in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed."
Research and Development Expenses. Research and development expenses
increased by 18% to $1,087,807 for the year ended December 31, 1998 compared to
$922,117 for the year ended December 31, 1997. The increase resulted from the
use of an outside contractor needed to support the Mainsail switch product
development and the additional salary and benefit expenses for development and
quality assurance engineers added in the fourth quarter of 1998. These
increases, which were partially capitalized as mentioned above, were partially
offset by lower recruiting expenses than in the year ended December 31, 1997.
Selling, General and Administrative. Selling, general and administrative
expenses increased by 7.4% to $1,898,186 in 1998 compared to $1,767,813 in
1997. The increase was primarily the result of the addition of staff positions
necessitated by the acquisition of Mainsail product from BancTec and increased
travel by NTN's sales force.
Other expense for the year ended December 31, 1998 totaled $165,599 as
compared to $37,297 and consisted primarily of interest expense on convertible
subordinated notes payable to IVI Checkmate. See "--Liquidity and Capital
Resources" below.
No tax provision was required in 1998 due to the net loss of $1,805,729.
Liquidity and Capital Resources
Cash balances at March 31, 1999 were $180,579 compared to $224,646 at
December 31, 1998. Net cash provided by operating activities was $135,222 for
the quarter ended March 31, 1999. The operating loss and increase in accrued
liabilities was offset by decreases in accounts receivable and inventory. Net
cash used in investing activities for the quarter ended March 31, 1999 totaled
approximately $178,000 and primarily represented the capitalization of certain
software development costs partially offset by the sale of the transaction
processing software license.
56
<PAGE>
NTN does not have a working capital line of credit with its bank. Sources of
liquidity for future needs cannot be generated from existing cash balances and
cash generated from operations. Management will depend on borrowings available
to NTN under its Convertible Subordinated Note Agreement with IVI Checkmate.
Year 2000 Readiness Disclosure Statement
Many currently installed computer systems and software products are designed
to accept only two-digit entries in the date code field. As a result, they may
have problems properly recognizing l/l/00 as January 1, 2000. In less than a
year, computer systems and software used by many companies may need to be
upgraded to comply with such "Year 2000" or "Y2K" requirements. Significant
uncertainty exists in the software industry concerning the potential effects
associated with the Year 2000 issue.
The latest versions of NTN's PINnacle software products were designed to be
"Year 2000 Compliant." NTN defines "Year 2000 Compliant" as the software
product's ability to accurately process date and time data (including
calculating, comparing and sequencing) from, into and between the years 1999
and 2000 and later, including calculating date and time data for leap years. In
addition, a software product that is Year 2000 Compliant, when used in
combination with other software, hardware or firmware, will accurately process
date and time data if such other software, hardware or firmware properly
exchanges date and time data with it. While the software has been tested, there
can be no assurance, however, that NTN's software products that are designed to
be Year 2000 Compliant contain all the necessary code changes and modifications
to be compliant with all possible Year 2000 issues.
While NTN's Mainsail product was designed to be Year 2000 Compliant, the
operating systems that are used to compile the product in several customer
locations are not compliant. NTN is currently working to transfer the product
onto several Year 2000 Compliant operating system platforms. This entire
project is expected to be completed no later than the second quarter of 1999.
NTN has undertaken various initiatives to ensure that its computer hardware
and certain computer software programs in its internal operations, including
applications used in product development, services, financial, administrative
and business systems will function into and beyond the Year 2000. NTN has
received responses from the majority of its vendors representing Year 2000
Compliance and is continuing to assess the areas within its business and
operations which could be adversely affected by Year 2000 issues and evaluating
the costs which may be associated with modifying and testing its systems for
Year 2000 Compliance. Based on its review to date, NTN management believes that
all material systems will be compliant by the Year 2000 and that the cost to
address the issues will not be material, and consists mainly of internal labor.
NTN believes that any Year 2000 issues relating to internal systems will not
have a material adverse effect on its business, financial condition or results
of operations. NTN, however, cannot currently assess the costs of remedying
problems which may result from the Year 2000 issues of others.
As part of the Year 2000 assessment, NTN is reviewing its relationships with
certain key outside vendors and others with whom it has significant business
relationships. Although the analysis is ongoing, NTN is not presently aware of
any exposure which would have a material adverse effect arising from potential
third party failures. However, there can be no assurances that the failure of
any such material third party to be Year 2000 compliant would not have a
material adverse effect on NTN's results of operations.
NTN's customer operations are heavily dependent on the constant availability
of telecommunications equipment and other utilities. As a result, NTN currently
believes that the most reasonable likely worst case Year 2000 scenario would
involve the temporary interruption of electric power, telephone, or other
utility supplies to NTN's offices or its support operations facilities due to a
failure of a utility supplier to be Year 2000 Compliant. In addition, despite
assurance and testing, it is also possible that NTN's internal systems or those
of its customers and suppliers may not be Year 2000 Compliant.
57
<PAGE>
In addition, "business interruption" litigation may arise out of the Year
2000 issue. NTN is not currently aware of any possible claim against it arising
from instances of business interruption. Management currently believes that its
software products are Year 2000 Compliant, but cannot ensure such compliance
for products which were designed exactly to customer specifications for their
internal systems. Consequently, NTN cannot ensure that all of these customers
are aware of the Year 2000 issue or that they have adopted appropriate
corrective solutions, and will therefore not bring Year 2000 related claims
against NTN which, with or without merit, could be time consuming and expensive
for NTN to defend or resolve.
Quantitative and Qualitative Disclosures about Market Risk
NTN, in the normal course of business, is subject to the risks associated
with fluctuations in interest rates. When possible, NTN invests cash balances
in excess of operating requirements in short term securities with maturities of
less than 90 days. In addition, NTN's Convertible Subordinated Note Agreement
provides for borrowings which bear interest at variable rates based on the
prime rate. NTN had $2,150,000 of borrowing outstanding pursuant to the Note
Agreement as of December 31, 1998. NTN believes that the effect, if any, of
reasonably possible near-term changes in interest rates on NTN's financial
position, results of operations and cash flows should not be material.
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
OF IVI CHECKMATE INC. AND NTN MERGER CORP.
Information Concerning Directors and Executive Officers of IVI Checkmate Inc.
The following table sets forth the name of each director and executive
officer of IVI Checkmate Inc. and a description of his position and offices
with IVI Checkmate Inc., if any; a brief description of his principal
occupation and business experience during at least the last five years; certain
directorships presently held by him in companies other than IVI Checkmate Inc.;
and certain other information including his age. Unless otherwise indicated,
the business address of each director and executive officer of IVI Checkmate
Inc. is that of IVI Checkmate at 1003 Mansell Road, Roswell, Georgia 30076.
Other than L. Barry Thomson, who is a Canadian citizen, each person listed
below is a citizen of the United States.
<TABLE>
<CAPTION>
Name Information
---- ------------
<C> <S>
J. Stanford Spence...... Mr. Spence has served as a director and Chairman of
the Board of IVI Checkmate and IVI Checkmate Inc.
since June 1998. Mr. Spence was the founder of
Checkmate Electronics, Inc., was the Chief Executive
Officer of Checkmate Electronics, Inc. since July
1997 and, except for two brief periods, has been
Chairman of the Board of IVI Checkmate Inc. and
certain of its predecessors since 1973. He also
served as interim Chief Executive Officer of
Checkmate Electronics, Inc. from May 1994 until
August 1994. Mr. Spence conceived of and managed the
development of the patented technology which led to
the point-of-sale check readers sold by IVI
Checkmate. Mr. Spence has been Chairman of the Board
of Directors, Chief Executive Officer and owner of
Stanford Technologies, Inc., a financial software
development company in Austin, Texas, since 1985. Mr.
Spence has previously owned companies in the mortgage
banking, real estate, insurance and software
industries. He is 69.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Name Information
---- -----------
<C> <S>
L. Barry Thomson........ Mr. Thomson has served as a director of IVI Checkmate
Inc. since June 1998. Mr. Thomson has been the
President, Chief Executive Officer and a director of
IVI Checkmate since June 1998. Mr. Thomson joined
International Verifact Inc. in April 1994 as
President and Chief Operating Officer. He was named a
director of International Verifact Inc. in May 1995
and was promoted to Chief Executive Officer in May
1996. Formerly President and CEO of Aluma Systems
Corporation, a construction technology company, Mr.
Thomson brought to International Verifact Inc.
extensive Canadian, U.S. and international experience
in managing the growth of a technological and market
driven organization. Mr. Thomson built Aluma over 21
years from start up to the largest company in its
industry in North America and one of the four largest
in the world. He also served as Executive Vice
President, director and member of the Executive
Committee of Aluma's parent company, Tridel
Enterprises, Inc., Canada's largest builder of
condominium dwellings. He graduated with a degree in
mechanical engineering from the University of Toronto
in 1967 and became a member of the Ontario
Association of Professional Engineers in 1968. In
1970, Mr. Thomson received his Chartered Accountant
designation from Clarkson Gordon (now Ernst & Young).
He is 57.
Gregory A. Lewis........ Mr. Lewis has served as a director and the President
and Chief Executive Officer of IVI Checkmate Inc.
since June 1998. Mr. Lewis joined Checkmate
Electronics, Inc. as President and Chief Operating
Officer in August 1997, and he was named a director
of Checkmate Electronics, Inc. in October 1997. From
1984 until joining Checkmate Electronics, Inc., Mr.
Lewis was employed by VeriFone, Inc., an electronic
payment provider. Mr. Lewis was one of the founding
executives of VeriFone and served in various
executive positions during his employment, most
recently as Vice President and General Manager of the
Emerging Markets Division. Earlier in his career, Mr.
Lewis held various executive positions during a 14
year career at National Data Corporation, a
transaction processing company, and also served as
Executive Vice President of Business Development with
BuyPass Corporation, a third party point-of-sale
processor and debit transaction acquiror. He is 53.
John J. Neubert......... Mr. Neubert has served as a director and the
Executive Vice President and Chief Financial Officer
of IVI Checkmate Inc. since . Mr. Neubert
has been the Executive Vice President--Finance and
Administration, Chief Financial Officer, Secretary
and Treasurer of IVI Checkmate since June 1998. Mr.
Neubert has served as the Senior Vice President-
Finance and Administration and Chief Financial
Officer of Checkmate Electronics, Inc. since 1990 and
a director of Checkmate Electronics, Inc. since 1994.
Mr. Neubert also was the Chief Operating Officer of
Checkmate Electronics, Inc. from May 1994 until
September 1997. Mr. Neubert was Executive Vice
President and Chief Financial Officer of Technology
Research Group, Inc., a software development and
system integrator company, from 1987 until 1990. He
was Vice President of RIM Incorporated, a
manufacturer and distributor of leisure furniture,
from 1985 to 1987. Prior to that time he was employed
by Uniroyal Incorporated in various financial and
operational positions for approximately 15 years. He
is 60.
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Name Information
---- -----------
<C> <S>
James W. Crowley........ Mr. Crowley has served as a director of IVI Checkmate
Inc. since June 1998. Mr. Crowley served as a
director of Checkmate Electronics, Inc. at various
times since 1976 and was most recently elected a
director in 1992. He has been retired for more than
seven years. Prior to his retirement, he was Chairman
of the Board of A.M.I., Inc., a technical school in
Daytona Beach, Florida. He also was a founder of
Repadco, Inc., an outdoor advertising company in
Daytona Beach, Florida. He is 78.
Frank C. Peters......... Mr. Peters has served as a director of IVI Checkmate
Inc. since June 1998. Mr. Peters served as a director
of Checkmate Electronics, Inc. from 1993 until June
1998. Mr. Peters has been a Senior Vice President and
Chief Financial Officer of TelephoNet Corp., an
internet and telephone provider, since April 1997.
From August 1995 until April 1997, Mr. Peters was the
President and Chief Executive Officer of MICR-Net
International, Inc., an authenticity verification
systems company. Mr. Peters served as Vice President
and Controller of Merry-Go-Round Enterprises, Inc., a
publicly-traded specialty retailer of men's and
women's apparel from 1974 until his retirement in
1995. In that capacity, Mr. Peters has served as a
principal accounting officer. He is 51.
Howard W. Yenke......... Mr. Yenke has served as a director of IVI Checkmate
Inc. since June 1998 and a director of Checkmate
Electronics, Inc. since 1993. From June 1998 to April
1999, Mr. Yenke was President and Chief Executive
Officer of Casino Data Systems, Inc., a private
company that manufactures slot machines and auditing
systems for the casino business. From December 1997
to June 1998, Mr. Yenke was the President and Chief
Executive Officer of Silent Systems, Inc., a private
company providing thermal and acoustical products to
the PC industry. From July 1996 to November 1997, Mr.
Yenke was the President and Chief Executive Officer
of LANart Corp., a private local area network
company. From November 1995 to June 1996, Mr. Yenke
was President of The Yenke Group, a business
consulting firm. From November 1994 to October 1995,
Mr. Yenke was the President and Chief Executive
Officer of Enterprise Development Corporation of Palm
Beach County, an economic development consulting
firm. From June 1994 to October 1994, Mr. Yenke was
President and Chief Executive Officer of Arco
Computer Products. From May 1989 to March 1994, Mr.
Yenke was employed by Boca Research, Inc. in several
capacities, including its President and Chief
Executive Officer from September 1991 through March
1994. Prior to that, Mr. Yenke was employed by IBM
Corporation in various executive management
positions. Mr. Yenke is a director of Communications
Systems International, Inc., Access Solutions
International, Inc., and several private companies.
He is 62.
</TABLE>
Information Concerning Directors and Executive Officers of NTN Merger Corp.
The current directors of NTN Merger Corp. are L. Barry Thomson, Chairman;
Gregory A. Lewis, George Whitton, a U.S. citizen, and John J. Neubert. The
current executive officers of NTN Merger Corp. are L. Barry Thomson, President
and Chief Executive Officer, and John J. Neubert, Vice President and Secretary.
Each of such directors and/or officers is currently a director or executive
officer of IVI Checkmate, NTN or IVI Checkmate Inc. Certain biographical
information regarding Messrs. Thomson, Lewis and Neubert is set forth in "--
Information Concerning Directors and Executive Officers of IVI Checkmate Inc."
above and certain biographical information regarding Mr. Whitton is included in
the documents incorporated by reference in this proxy statement-prospectus. See
"Where You Can Find More Information."
60
<PAGE>
SHARES BENEFICIALLY OWNED
The following table sets forth, to the knowledge of IVI Checkmate, IVI
Checkmate Inc., NTN or NTN Merger Corp., certain information regarding the
beneficial ownership of NTN common stock as of July 20, 1999, by: (a) each
person who is known by IVI Checkmate, IVI Checkmate Inc., NTN or NTN Merger
Corp. to be the beneficial owner of more than five percent of the 3,325,468
shares of NTN common stock outstanding at such date; (b) each director of IVI
Checkmate, IVI Checkmate Inc., NTN or NTN Merger Corp. (c) each executive
officer of IVI Checkmate, IVI Checkmate Inc., NTN or NTN Merger Corp.; and (d)
all persons listed under clause (b) and (c) above as a group.
<TABLE>
<CAPTION>
Name and
Address of
Beneficial Amount and Nature of
Owner Beneficial Ownership(1) Percent of Class(2)
---------- ----------------------- -------------------
<S> <C> <C>
IVI Checkmate Inc.................. 2,726,440 82.0%
IVI Checkmate Corp.(3).............
1003 Mansell Road
Roswell, GA 30076
Christopher F. Schellhorn.......... 15,000(4) *
Gregory A. Lewis(3)................ 0 0
L. Barry Thomson(3)................ 0 0
George C. Whitton(3)............... 0 0
All directors and executive
officers as a group (5 persons)... 15,000(4) *
</TABLE>
- --------
* Less than 1%
(1) Except as otherwise noted below, IVI Checkmate, IVI Checkmate Inc., NTN or
NTN Merger Corp. believes that each beneficial owner has sole voting and
investment power with respect to the number of shares of NTN common stock
shown as beneficially owned by such beneficial owner. Information with
respect to beneficial stock ownership is based upon information furnished
by such beneficial owner.
(2) Pursuant to the rules of the Securities and Exchange Commission, shares of
NTN common stock which an individual or group has a right to acquire within
60 days of July 20, 1999, pursuant to the exercise of presently exercisable
or outstanding options are deemed to be outstanding for the purpose of
computing the percentage ownership of such individual or group but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person or group shown in the table.
(3) IVI Checkmate Inc., which is the record owner of the shares shown, is a
wholly-owned subsidiary of IVI Checkmate. Consequently, IVI Checkmate is
considered to beneficially own the shares held by IVI Checkmate Inc.
Messrs. Lewis, Thomson and Whitton are directors and/or executive officers
of IVI Checkmate and/or IVI Checkmate Inc.
(4) Represents shares subject to currently exercisable options.
61
<PAGE>
EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS
Both NTN and IVI Checkmate are incorporated under the laws of the State of
Delaware, which, accordingly, govern the rights of both the NTN stockholders
and the IVI Checkmate stockholders. Additionally, the rights of NTN
stockholders are currently governed by the NTN certificate of incorporation and
bylaws. The rights of IVI Checkmate stockholders are currently, and after the
merger the rights of NTN stockholders will be, governed by the IVI Checkmate
certificate of incorporation and bylaws.
Because both NTN and IVI Checkmate stockholders are governed by Delaware law
and substantially similar certificates of incorporation and bylaws, many of the
stockholder rights do not differ. Set forth below is a summary of the material
differences between the rights of NTN stockholders and IVI Checkmate
stockholders. The description below is only a summary and is qualified by
reference to Delaware law, the IVI Checkmate certificate of incorporation and
bylaws, and the NTN certificate of incorporation and bylaws. Copies of the IVI
Checkmate certificate of incorporation and the IVI Checkmate bylaws are
incorporated by reference into this proxy statement-prospectus and will be sent
to NTN stockholders upon request. See "Where You Can Find More Information" on
page 67.
<TABLE>
<CAPTION>
NTN Stockholder Rights IVI Checkmate Stockholder Rights
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Corporate The rights of NTN stockholders are The rights of IVI Checkmate
Governance governed by Delaware law and NTN's stockholders are currently
certificate of organization and governed by Delaware law and the
bylaws. Upon completion of the IVI Checkmate certificate of
merger, the rights of NTN incorporation and bylaws. Upon
stockholders who become IVI completion of the merger, the
Checkmate stockholders in the rights of IVI Checkmate
merger will be governed by stockholders will continue to be
Delaware law and the IVI Checkmate governed by Delaware law and the
certificate of incorporation and IVI Checkmate certificate of
bylaws. incorporation and bylaws.
- -----------------------------------------------------------------------------------------
Authorized The authorized capital stock of The authorized capital of IVI
Capital Stock NTN consists of 20,000,000 shares Checkmate is set forth under
of common stock and 5,000,000 "Description of IVI Checkmate
shares of preferred stock. Capital Stock" on page .
- -----------------------------------------------------------------------------------------
Preferences Holders of NTN preferred stock, IVI Checkmate Series B Preferred
when and if issued, are entitled Stock represents the right to
to preferences over NTN common vote the outstanding shares of
stock, if any, as set forth in the IVI Checkmate, Ltd. exchangeable
resolutions of the NTN board of shares in accordance with
directors authorizing the issuance instructions received by the
of one or more series of preferred holders of the exchangeable
stock and the related certificate shares and a $1.00 liquidation
of designations. As of the date preference. Series D Convertible
hereof, there are no shares of NTN Preferred Stock entitles its
preferred stock outstanding. holders to the following
preferences over the holders of
IVI Checkmate common stock:
. Preferential right to
distributions upon the
liquidation, dissolution or
winding up of IVI Checkmate.
. Preferential right to dividends
and other distributions.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
NTN Stockholder Rights IVI Checkmate Stockholder Rights
- ------------------------------------------------------------------------------------------
<S> <C> <C>
. The right to veto any amendments
to the IVI Checkmate certificate
of incorporation or bylaws which
adversely affect their rights,
the authorization of a senior
series or class of capital
stock, the disposal of IVI
Checkmate's assets or any
transaction resulting in a
change of control of IVI
Checkmate.
. Right of first refusal to
purchase IVI Checkmate
securities issued in the future.
. Anti-dilution rights with
respect to IVI Checkmate
securities issued in the future.
- ------------------------------------------------------------------------------------------
Number of NTN's bylaws provide that the IVI Checkmate's bylaws provide
Directors number of directors will be as that the number of directors will
determined by the NTN board or the be as determined by the IVI
NTN stockholders but shall not be Checkmate board. The IVI Checkmate
less than one. The NTN board board currently consists of nine
currently consists of four directors. Each IVI Checkmate
directors. Each NTN director holds director holds office for a term
office for a term of one year. of one year.
- ------------------------------------------------------------------------------------------
Stockholder's The NTN board of directors has not IVI Checkmate's board of directors
Rights Plan adopted a Stockholder's Rights adopted a Stockholder Protection
Plan. Rights Agreement and, in
connection with the agreement,
designated 100,000 shares of
Series C junior participating
preferred stock. The Rights
Agreement provides that if a
person or group becomes a 15% or
more beneficial owner of IVI
Checkmate, then IVI Checkmate
stockholders shall be entitled to
buy one-thousandth of a share of
Series C junior participating
preferred stock at an exercise
price of $30.00. If certain
triggering events occur, the
holders of the rights will be able
to purchase IVI Checkmate common
stock at a substantial discount
from the market price. IVI
Checkmate's board of directors may
redeem the rights for $.01 per
right prior to the time they
become exercisable.
- ------------------------------------------------------------------------------------------
Special The NTN bylaws provide that the The IVI Checkmate bylaws provide
Meetings of chief executive officer of NTN, a that the chairman, vice chairman,
Stockholders majority of the NTN board or NTN president or secretary, or a
stockholders who hold at least 10% majority of the total number of
of the shares of common stock directors or IVI Checkmate
entitled to vote at the meeting stockholders who hold a majority
may call a special meeting of the of the outstanding shares entitled
NTN stockholders. to vote may call a special meeting
of the IVI Checkmate stockholders.
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
NTN Stockholder Rights IVI Checkmate Stockholder Rights
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Indemnification Delaware law permits, and the NTN Delaware law permits, and the IVI
of Directors, certificate of incorporation and Checkmate bylaws provide for,
Officers and bylaws provide for, indemnification of directors,
Others indemnification of directors, officers, employees and certain
officers, employees and certain others for expenses incurred by
others for expenses incurred by reason of their position with the
reason of their position with the corporation, if he or she has
corporation, if he or she has acted in good faith with a
acted in good faith with a reasonable belief that his or her
reasonable belief that his or her conduct was in the best interest
conduct was in the best interest of the corporation. The
of the corporation. indemnification sought must be in
Such determination must be made connection with a proceeding
by: authorized by the IVI Checkmate
.a majority of disinterested board.
directors, Such determination must be made
.a committee of disinterested by:
directors designated by the .at the request of the claimant,
disinterested directors, independent legal counsel,
.at the disinterested directors' .a majority of disinterested
direction or if there are no directors,
disinterested directors, .at the disinterested directors'
independent legal counsel, or direction or if there are no
.the stockholders holding a disinterested directors,
majority of the shares of stock independent legal counsel, or
entitled to vote at a meeting .at the disinterested directors'
called for such purpose. direction, the stockholders
However, indemnification is not holding a majority of the shares
available in actions brought by or of stock entitled to vote at a
in the right of the corporation, meeting called for such purpose.
unless approved by the Delaware However, indemnification is not
Court of Chancery. available in actions brought by or
in the right of the corporation,
unless approved by the Delaware
Court of Chancery.
- ------------------------------------------------------------------------------------------
Certain Business Section 203 of the Delaware IVI Checkmate's certificate of
Combinations General Corporation Law provides incorporation includes an election
that, if a person acquires 15% or not to be governed by Section 203
more of the stock of a Delaware of the Delaware General
corporation without the prior Corporation Law.
approval of the board of directors
of that corporation, thereby
becoming an "interested
stockholder," that person may not
engage in certain transactions
with the corporation for a period
of three years, unless one of the
following three exceptions
applies:
. the board of directors approved
the acquisition of stock or the
transaction prior to the time
that person became an interested
stockholder,
. the person became an interested
stockholder and 85% owner of the
voting stock of the corporation
in the transaction, excluding
voting stock owned by directors
who are also officers and
certain employee stock plans, or
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
NTN Stockholder Rights IVI Checkmate Stockholder Rights
- -----------------------------------------------------------------------------------------
<S> <C> <C>
. the transaction is approved by
the board of directors and by
the affirmative vote of two-
thirds of the outstanding voting
stock which is not owned by the
interested stockholder.
A Delaware corporation may elect
not to be governed by Section 203.
NTN has not so elected.
</TABLE>
65
<PAGE>
DESCRIPTION OF IVI CHECKMATE CAPITAL STOCK
IVI Checkmate is authorized to issue 99,000,000 shares of IVI Checkmate
common stock, of which approximately 18,114,000 shares were issued and
outstanding as of July 1, 1999. IVI Checkmate is also authorized to issue
1,000,000 shares of IVI Checkmate preferred stock, par value $0.01 per share.
IVI Checkmate has one share of Series B Preferred Stock outstanding which was
issued in the combination of International Verifact and Checkmate Electronics
on June 25, 1998. IVI Checkmate has 894,663 shares of Series D convertible
preferred stock outstanding which was issued in the acquisition of the assets
of DataCard Financial Services on April 20, 1999.
The holders of IVI Checkmate common stock are entitled to one vote for each
share held on all matters submitted to a vote of common stockholders. IVI
Checkmate common stock does not have cumulative voting rights, preemptive
rights, conversion rights, redemption rights or sinking fund provisions. IVI
Checkmate common stock is not subject to redemption by IVI Checkmate. Subject
to the rights of the holders of any class of capital stock of IVI Checkmate
having any preference or priority over the IVI Checkmate common stock, the
holders of IVI Checkmate common stock are entitled to dividends in such amounts
as may be declared by the IVI Checkmate board of directors from time to time
out of funds legally available for that purpose and, in the event of a
liquidation, to share ratably in any assets of IVI Checkmate remaining after
payment in full of all creditors and appropriate provision for any liquidation
preferences on any outstanding preferred stock ranking prior to the IVI
Checkmate common stock.
For a further description of IVI Checkmate's capital stock, see "Effect of
the Merger on Rights of Stockholders" on page 62.
OTHER MATTERS
As of the date of this proxy statement-prospectus, NTN's board of directors
knows of no matters that will be presented for consideration at the special
meeting other than as described in this proxy statement-prospectus. However, if
any other matters properly come before the special meeting or any adjournment
or postponement of the special meeting and are voted upon, the enclosed proxy
will be deemed to confer discretionary authority to the individuals named as
proxies to vote the shares represented by such proxy as to any such matters.
STOCKHOLDER PROPOSALS
If the merger is not completed for any reason, the NTN board of directors
will schedule the 1999 annual meeting of stockholders of NTN in accordance with
NTN's bylaws. NTN stockholders will be notified of the scheduled date of the
1999 annual meeting in accordance with the rules and regulations of the
Securities and Exchange Commission. At such time as stockholders are notified
of the scheduled date of the 1999 annual meeting, stockholders will be notified
of the deadline for submitting proposals for consideration at the 1999 annual
meeting, which, in accordance with the rules and regulations of the Securities
and Exchange Commission, shall be a deadline which is a reasonable time before
NTN begins to print and mail its proxy materials for the 1999 annual meeting.
EXPERTS
The consolidated financial statements of IVI Checkmate Corp. at December 31,
1998 and 1997 and for each of the three years in the period ended December 31,
1998, 1997 and 1996 included in this proxy statement-prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon, which at December 31, 1997 and as to the years ended December
31, 1997 and 1996, is based in part on the report of Coopers & Lybrand,
independent auditors. The consolidated financial statements referred to above
are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
66
<PAGE>
The financial statements and schedule of National Transaction Network, Inc.
at December 31, 1998 and for the year ended December 31, 1998 included in this
proxy statement-prospectus have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon (which contain an explanatory
paragraph describing conditions that raise substantial doubt about National
Transaction Network, Inc.'s ability to continue as a going concern as described
in Note 1 to the financial statements) appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
The financial statements of National Transaction Network, Inc. as of
December 31, 1997 and for each of the two years ended December 31, 1997
included and incorporated by reference in this proxy statement-prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are included and incorporated by reference herein, and have been
so included and incorporated in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
OPINIONS
Alston & Bird LLP, Atlanta, Georgia, counsel to IVI Checkmate, will opine as
to the legality of the shares of IVI Checkmate common stock to be issued in the
merger. Alston & Bird LLP also has opined as to certain tax consequences of the
merger.
WHERE YOU CAN FIND MORE INFORMATION
IVI Checkmate and NTN each file reports, proxy statements and other
information with the SEC. You can obtain copies of those reports, proxy
statements and other information:
. at the Public Reference Room of the SEC, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549;
. from the Internet site that the SEC maintains at http://www.sec.gov,
which contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC; and
. with regard to IVI Checkmate but not NTN, at the offices of The Nasdaq
Stock Market, Inc., Reports Section, 1735 K Street, N.W., Washington,
D.C. 20006.
You may obtain information on the operation of the SEC's Public Reference
Room by calling the SEC at 1-800-SEC-0330.
This proxy statement-prospectus is part of a registration statement that IVI
Checkmate filed with the SEC relating to the IVI Checkmate common stock offered
to the NTN stockholders. The registration statement contains more information
than this proxy statement-prospectus regarding IVI Checkmate and IVI
Checkmate's common stock, including certain exhibits. You can get a copy of the
registration statement (Registration No. 333- ) from the locations listed
above.
The SEC allows IVI Checkmate and NTN to "incorporate by reference"
additional information into this proxy statement-prospectus. This means that
IVI Checkmate and NTN can disclose additional important information about
themselves to you by referring you to another document that they have filed
separately with the SEC. The information incorporated by reference is
considered to be a part of this proxy statement-prospectus, except for any
incorporated information that is superceded by information contained directly
in this proxy statement-prospectus.
IVI Checkmate incorporates by reference the documents listed below, as well
as any future documents filed with the SEC (File No. 000-29772) under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act after the date of this
proxy statement-prospectus and prior to final adjournment of the special
meeting:
67
<PAGE>
. its annual report on Form 10-K for the fiscal year ended December 31,
1998, including those portions of its proxy statement for the 1999 annual
meeting of stockholders incorporated in the Form 10-K by reference;
. its quarterly report on Form 10-Q for the quarter ended March 31, 1999;
. its current reports on Form 8-K dated March 17, 1999 and April 27, 1999;
and
. the descriptions of IVI Checkmate's common stock and Series C junior
participating preferred stock purchase rights set forth in its
registration statements filed under Section 12 of the Securities Exchange
Act, and any amendment or report filed for the purpose of updating these
descriptions.
NTN incorporates by reference the documents listed below, as well as any
future documents filed with the SEC (File No. 000-10966) under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act after the date of this proxy
statement-prospectus and prior to final adjournment of the special meeting:
. its annual report on Form 10-K for the fiscal year ended December 31,
1998, as amended;
. its quarterly report on Form 10-Q for the quarter ended March 31, 1999;
. the descriptions of NTN's common stock set forth in its registration
statements filed under Section 12 of the Securities Exchange Act, and any
amendment or report filed for the purpose of updating these descriptions.
All information contained in this proxy statement-prospectus or incorporated
herein by reference with respect to IVI Checkmate was supplied by IVI
Checkmate, and all information contained in this proxy statement-prospectus
with respect to NTN was supplied by NTN.
PLEASE NOTE
We have not authorized anyone to provide you with any information other than
the information included in this proxy statement-prospectus and the documents
we refer you to. If someone provides you with other information, please do not
rely on it as being authorized by IVI Checkmate or NTN.
You can obtain free copies of this information by writing or calling.
Corporate Secretary
IVI Checkmate Corp.
1003 Mansell Road
Roswell, Georgia 30076
Telephone: (770) 594-6000
You may obtain copies of the information incorporated by reference in this
proxy statement-prospectus upon written or oral request. In order to obtain
timely delivery of the documents, you must request the information by ,
1999.
68
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
NATIONAL TRANSACTION NETWORK, INC.,
IVI CHECKMATE CORP.,
IVI CHECKMATE INC.
AND
NTN MERGER CORP.
DATED AS OF
July 20, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
The Merger
<TABLE>
<C> <S> <C>
Section 1.1 Company Action............................................... 2
1.2 The Merger................................................... 2
1.3 Conversion of Shares......................................... 2
1.4 Exchange Procedures.......................................... 3
1.5 Dissenting Shares............................................ 4
1.6 Stock Options................................................ 4
ARTICLE II
The Surviving Corporation
Section 2.1 Certificate of Incorporation................................. 4
2.2 Bylaws....................................................... 4
2.3 Directors and Officers....................................... 4
ARTICLE III
Representations and Warranties of the Company
Section 3.1 Corporate Existence and Power................................ 5
3.2 Corporate Authorization...................................... 5
3.3 Governmental Authorization................................... 5
3.4 Non-Contravention............................................ 5
3.5 Capitalization............................................... 5
3.6 SEC Filings.................................................. 5
3.7 Financial Statements......................................... 6
3.8 Disclosure Documents......................................... 6
3.9 Finders' and Bankers' Fees................................... 6
3.10 Opinion of Financial Advisor................................. 6
ARTICLE IV
Representations and Warranties of IVI Corp
Section 4.1 Corporate Existence and Power................................ 6
4.2 Corporate Authorization...................................... 6
4.3 Governmental Authorization................................... 7
4.4 Capitalization............................................... 7
4.5 Non-Contravention............................................ 7
4.6 Disclosure Documents......................................... 7
4.7 Finders' and Bankers' Fees................................... 7
4.8 SEC Filings.................................................. 8
ARTICLE V
Representations and Warranties of IVI Inc. and Merger Subsidiary
Section 5.1 Corporate Existence and Power................................ 8
5.2 Corporate Authorization...................................... 8
5.3 Governmental Authorization................................... 8
5.4 Non-Contravention............................................ 8
5.5 Disclosure Documents......................................... 8
5.6 Finders' and Bankers' Fees................................... 9
</TABLE>
i
<PAGE>
ARTICLE VI
Covenants of the Company
<TABLE>
<C> <S> <C>
Section 6.1 Conduct of the Company.................................... 9
6.2 Stockholder Meeting; Proxy Statement Material............. 10
6.3 Access to Information..................................... 10
6.4 Other Potential Bidders................................... 10
6.5 Notices of Certain Events................................. 10
ARTICLE VII
Covenants of Buyer
Section 7.1 Voting of Shares.......................................... 10
7.2 Director and Officer Liability............................ 11
7.3 Notices of Certain Events................................. 11
ARTICLE VIII
Covenants of Buyer and the Company
Section 8.1 Reasonable Efforts........................................ 11
8.2 Certain Filings........................................... 11
8.3 Public Announcements...................................... 11
8.4 Further Assurances........................................ 11
8.5 Registration Statement; Company Proxy Statement........... 12
ARTICLE IX
Conditions to the Merger
Section 9.1 Conditions to the Obligations of Each Party............... 12
9.2 Additional Conditions to the Obligations of Buyer and
Merger Subsidiary........................................ 13
9.3 Additional Conditions to the Obligations of the Company... 13
ARTICLE X
Termination
Section 10.1 Termination............................................... 14
10.2 Effect of Termination..................................... 14
ARTICLE XI
Miscellaneous
Section 11.1 Definitions............................................... 15
11.2 Notices................................................... 17
11.3 No Survival of Representations and Warranties............. 17
11.4 Amendments; No Waivers.................................... 17
11.5 Fees and Expenses......................................... 18
11.6 Successors and Assigns.................................... 18
11.7 Governing Law............................................. 18
11.8 Severability.............................................. 18
11.9 Captions.................................................. 18
11.10 Interpretations........................................... 18
11.11 Counterparts; Effectiveness............................... 18
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of July 20, 1999, by and among
NATIONAL TRANSACTION NETWORK, INC., a Delaware corporation (the "Company"), IVI
CHECKMATE CORP., a Delaware corporation ("IVI Corp."), IVI CHECKMATE INC., a
Georgia corporation and wholly-owned subsidiary of IVI Corp. ("IVI Inc.") (IVI
Corp. and IVI Inc. are sometimes referred to collectively as "Buyer"), and NTN
MERGER CORP., a Delaware corporation and wholly-owned subsidiary of IVI Inc.
("Merger Subsidiary").
WHEREAS:
A. The authorized capital stock of the Company consists of (i) 20,000,000
shares of common stock, $.15 par value (the "Company Common Stock"), of which
3,325,468 shares were issued and outstanding as of the close of business on
July 23, 1999, and (ii) 5,000,000 shares of preferred stock, $.10 par value
(the "Company Preferred Stock"), none of which shares are issued and
outstanding as of the date hereof.
B. IVI Inc. currently owns, and immediately prior to the Effective Time (as
defined herein) will own, 2,726,440 shares of Company Common Stock representing
approximately 82.0% of the total issued and outstanding Company Common Stock.
C. A special negotiating committee of the Board of Directors of the Company,
appointed on January 8, 1999 and comprised of the sole director who is neither
a member of management of the Company nor affiliated with Buyer or any
Affiliate, as defined herein, of Buyer (other than the Company) (the "Special
Committee"), has determined that the Merger, as defined herein, is fair to and
in the best interests of the stockholders of the Company other than Buyer (the
"Public Stockholders") and has approved this Agreement and recommends its
approval and adoption by the Board of Directors of the Company.
D. The Board of Directors of the Company, based in part on the
recommendation of the Special Committee, has determined that the Merger is fair
and in the best interests of the Public Stockholders and has resolved to
approve and adopt this Agreement and the transactions contemplated hereby and,
subject to the terms and conditions set forth herein, to recommend the approval
and adoption of this Agreement and the Merger by the stockholders of the
Company.
E. The Board of Directors of the Company, IVI Corp., IVI Inc. and Merger
Subsidiary each have approved the merger of Merger Subsidiary with and into the
Company (the "Merger") in accordance with the Delaware General Corporation Law
(the "DGCL") with respect to the Company, IVI Corp. and Merger Subsidiary, and
the Georgia Business Corporation Code (the "GBCC") with respect to IVI Inc.,
and the terms and conditions provided below, pursuant to which each Share, as
defined herein (other than Shares held by the Company as treasury stock, Shares
owned by Buyer immediately prior to the Effective Time and Shares as to which
appraisal rights have been perfected), shall be converted into the right to
receive the Merger Consideration.
F. Certain capitalized terms used herein are defined in Section 10.1.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements herein contained, the parties hereto agree as
follows:
A-1
<PAGE>
ARTICLE I
The Merger
Section 1.1 Company Action. The Company represents that its Board of
Directors, at a meeting duly called and held and acting, in part, on the
unanimous recommendation of the Special Committee, has (i) unanimously
determined that this Agreement and the transactions contemplated hereby,
including the Merger, are fair to and in the best interests of the Public
Stockholders, (ii) unanimously approved this Agreement and the transactions
contemplated hereby, including the Merger, and (iii) unanimously resolved to
recommend approval of this Agreement and the transactions contemplated hereby;
including the Merger, by the Company's stockholders, provided, that such
recommendation may be withdrawn, modified or amended by the Board of Directors
of the Company if the Board deems such withdrawal, modification or amendment
necessary in light of its fiduciary obligations to the Company's stockholders
after consultation with counsel.
Section 1.2 The Merger.
(a) At the Effective Time, Merger Subsidiary shall be merged with and into
the Company in accordance with the DGCL, whereupon the separate existence of
Merger Subsidiary shall cease, and the Company shall be the Surviving
Corporation, as defined herein.
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, the Company and Merger
Subsidiary shall file a certificate of merger with the Secretary of State of
the State of Delaware and make all other filings or recordings required by the
DGCL in connection with the Merger. The Merger shall become effective at such
time as such certificate of merger is duly filed with the Secretary of State of
the State of Delaware or at such later time as is specified in such certificate
of merger (the "Effective Time").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, liabilities and duties of the Company and Merger
Subsidiary, all as provided under the DGCL.
Section 1.3 Conversion of Shares. Subject to the provisions of this
Agreement, at the Effective Time, automatically by virtue of the Merger and
without any action on the part of any party or stockholder:
(a) the shares (excluding shares held by the Company or by Buyer or any of
its subsidiaries, in each case other than in a fiduciary capacity ("Non-Public
Shares"), and excluding shares held by Public Stockholders who perfect their
statutory dissenters' rights as provided in Section 1.5) of Company Common
Stock (each a "Share" and collectively the "Shares") issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for the right to receive the number of shares of the common stock, $.01 par
value, of IVI Corp. ("IVI Common Stock") that would be equal to $.30 multiplied
by the number of Shares (excluding Non-Public Shares) issued and outstanding
immediately prior to the Effective Time, as provided in Section 1.4 (the
"Merger Consideration"). For purposes of this calculation, the number of shares
of IVI Common Stock to be issued in exchange for the Shares shall be calculated
pursuant to a valuation determined by a base period trading price (the "Base
Period Trading Price"), which shall mean the average of the daily closing price
for shares of IVI Common Stock for the twenty (20) consecutive full trading
days on which such shares are actually traded on the Nasdaq National Market
ending at the close of trading on the second trading day immediately preceding
the Effective Time;
(b) each Share of Company Common Stock held as Non-Public Shares immediately
prior to the Effective Time shall be canceled and retired at the Effective Time
and no consideration shall be issued in exchange therefor;
(c) each share of common stock of Merger Subsidiary issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding and shall
be converted into one share of the common stock of the Surviving Corporation;
A-2
<PAGE>
(d) holders of Shares shall cease to be, and shall have no rights as,
stockholders of the Company, other than to receive (i) any dividend or other
distribution with respect to such Company Common Stock with a record date
occurring prior to the date hereof and (ii) the Merger Consideration provided
under this Section 1.3. After the Effective Time, there shall be no transfers
on the share transfer books of the Company or the Surviving Corporation of
shares of Company Common Stock; and
(e) notwithstanding any other provision hereof, no fractional shares of IVI
Common Stock and no certificates or scrip therefor, or other evidence of
ownership thereof, will be issued in the Merger; instead, Buyer shall pay to
each holder of Company Common Stock who would otherwise be entitled to a
fractional share of IVI Common Stock an amount in cash (without interest)
determined by multiplying such fraction by the Base Period Trading Price.
Section 1.4 Exchange Procedures.
(a) At or prior to the Effective Time, the Company shall appoint First Union
National Bank as agent (the "Exchange Agent") for the purpose of exchanging
certificates representing Shares ("Old Certificates") for the Merger
Consideration. At or prior to the Effective Time, Buyer shall deposit, or shall
cause to be deposited, with the Exchange Agent, for the benefit of the holders
of Old Certificates, for exchange in accordance with this Section 1.4,
certificates representing the shares of IVI Common Stock ("New Certificates")
and an estimated amount of cash (such New Certificates and cash, together with
any dividends or distributions with respect thereto (without any interest
thereon), being hereinafter referred to as the "Exchange Fund") to be paid
pursuant to Section 1.3 in exchange for outstanding Shares.
(b) As promptly as practicable after the Effective Time, Buyer shall send or
cause to be sent to each former holder of record of Shares immediately prior to
the Effective Time transmittal materials for use in exchanging such holder's
Old Certificates for the Merger Consideration. Buyer shall cause the New
Certificates representing shares of IVI Common Stock into which a holder's
Shares are converted at the Effective Time, together with any check in respect
of any fractional share interests or dividends or distributions which such
stockholder shall be entitled to receive, to be delivered to such stockholder
upon delivery to the Exchange Agent of Old Certificates representing such
Shares (or an affidavit and indemnity in form reasonably satisfactory to Buyer
and the Exchange Agent if any of such certificates are lost, stolen or
destroyed) owned by such holder. No interest will be paid on any such cash to
be paid pursuant to this Section 1 upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor any party
hereto shall be liable to any former holder of Shares for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(d) No dividends or other distributions with respect to IVI Common Stock
with a record date occurring after the Effective Time shall be paid to the
holder of any unsurrendered Old Certificate representing shares of Company
Common Stock converted in the Merger into the right to receive shares of such
IVI Common Stock until the holder thereof shall surrender such Old Certificate
in accordance with this Section 1.4. After the surrender of an Old Certificate
in accordance with this Section 1.4, the record holder thereof shall be
entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares
of IVI Common Stock represented by such Old Certificate.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of the Company for twelve months after the Effective Time shall be
paid to Buyer. Any stockholders of the Company who have not theretofore
complied with this Section 1.4 shall thereafter look only to Buyer for payment
of the shares of IVI Common Stock, cash in lieu of any fractional shares and
unpaid dividends and distributions on the IVI Common Stock deliverable in
respect of each share of Company Common Stock such holder of Shares holds as
determined pursuant to this Agreement, in each case without any interest
thereon. Any amounts remaining unclaimed by holders of Shares two years after
the Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any governmental
entity) shall, to the extent permitted by applicable Law, become the property
of the Buyer free and clear of any claims or
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interest of any Person previously entitled thereto; provided, however, that
nothing herein shall limit the obligations of the Buyer under Section 1.4(b).
Section 1.5 Dissenting Shares. Notwithstanding Section 1.3, Shares
outstanding immediately prior to the Effective Time and held by a holder who
has not voted in favor of the Merger or consented thereto in writing and who
has demanded appraisal for such Shares in accordance with Section 262 of the
DGCL shall not be converted into a right to receive the Merger Consideration
but shall be converted into the right to receive such consideration from the
Company as may be determined to be due in respect of such dissenting Shares
pursuant to Section 262 of the DGCL; provided, however, that if the holder of
such dissenting Shares shall have failed to perfect or shall have waived,
rescinded or otherwise lost (in each such instance, to the reasonable
satisfaction of the Surviving Corporation) its status as a "dissenting
shareholder" pursuant to Section 262 of the DGCL, then such holder of
dissenting Shares shall forfeit the right to dissent from the Merger and such
Shares shall thereupon be deemed to have been converted into the right to
receive, as of the Effective Time, the Merger Consideration. The Company shall
give Buyer prompt notice of any demands received by the Company for appraisal
of Shares, and Buyer shall have the right to participate in all negotiations
and proceedings with respect to such demands. The Company shall not, except
with the prior written consent of Buyer, make any payment with respect to, or
settle or offer to settle, any such demands.
Section 1.6 Stock Options. As of the Effective Time, each outstanding option
to purchase shares of Company Common Stock ("Company Options") pursuant to
stock options granted under the stock option plans of the Company, whether or
not exercisable, shall be converted into an option to purchase the number of
shares of IVI Common Stock that would equal $.30 divided by the Base Period
Trading Price (the "Option Exchange Ratio") multiplied by the number of shares
of Company Common Stock subject to such option at an exercise price per share
equal to (i) the exercise price in effect under such option immediately prior
to the Effective Time, divided by (ii) the Option Exchange Ratio, and otherwise
on substantially the same terms and conditions, including the terms under which
such option is exercisable, as in effect under such option immediately prior to
the Effective Time.
ARTICLE II
The Surviving Corporation
Section 2.1 Certificate of Incorporation. The certificate of incorporation
of the Company in effect at the Effective Time shall be the certificate of
incorporation of the Surviving Corporation until amended in accordance with
applicable Law.
Section 2.2 Bylaws. The bylaws of the Company in effect at the Effective
Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable Law.
Section 2.3 Directors and Officers. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable Law, (i) the directors of Merger Subsidiary at the Effective Time
shall be the directors of the Surviving Corporation, and (ii) the officers of
the Company at the Effective Time shall be the officers of the Surviving
Corporation.
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ARTICLE III
Representations and Warranties of The Company
The Company represents and warrants to Buyer that:
Section 3.1 Corporate Existence and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the Laws of the State
of Delaware and has all corporate powers and approvals required to carry on its
business as now conducted.
Section 3.2 Corporate Authorization. The execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby are within the Company's corporate powers, and
except for any required approval by the Company's stockholders in connection
with the consummation of the Merger, this Agreement will have been duly
authorized by all necessary corporate action. This Agreement constitutes a
valid and binding agreement of the Company.
Section 3.3 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby require no action by or in
respect of, or filing with, any Governmental Authority other than (i) the
filing of a certificate of merger in accordance with the DGCL, and (ii)
compliance with applicable requirements of the Securities Laws.
Section 3.4 Non-Contravention. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) contravene or conflict
with the certificate of incorporation or bylaws of the Company, (ii) assuming
compliance with the matters referred to in Section 3.3, contravene or conflict
with or constitute a violation of any provision of any Law or Order binding
upon or applicable to the Company or (iii) constitute or result in a default
under, or require any consent pursuant to, any material Contract of the
Company, except where such default or the absence of such consent is not likely
to result in a Material Adverse Effect to the Company .
Section 3.5 Capitalization. The authorized capital stock of the Company
consists of 20,000,000 authorized shares of Company Common Stock and 5,000,000
authorized shares of Company Preferred Stock. As of June 23, 1999, (a)
3,325,468 shares of Company Common Stock were issued and outstanding, (b) no
shares of Company Common Stock were held in the treasury of the Company, (c)
800,000 shares of Company Common Stock were reserved for future issuance
pursuant to employee stock options issued or issuable pursuant to the Company's
1988 Stock Plan, and (d) 300,000 shares of Company Common Stock were reserved
for future issuance pursuant to director stock options issued or issuable
pursuant to the Company's 1995 Director Stock Option Plan. As of June 23, 1999,
(a) no shares of Preferred Stock were issued and outstanding, and (b) no shares
of Preferred Stock were held in the treasury of the Company. All outstanding
shares of Company Common Stock have been duly authorized and validly issued and
are fully paid and nonassessable. Except as set forth in this Section and for
changes since June 23, 1999, resulting from the exercise of stock options
outstanding on such date, there are outstanding (i) no shares of capital stock
or other voting securities of the Company, (ii) no securities of the Company
convertible into or exchangeable for shares of capital stock or voting
securities of the Company, and (iii) no options or other rights to acquire from
the Company, and no obligation of the Company to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company (the items in clauses (i), (ii) and
(iii) being referred to collectively as the "Company Securities"). There are no
outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any Company Securities.
Section 3.6 SEC Filings. The Company has delivered to Buyer (i) its Annual
Report on Form 10-K, as amended, for its fiscal year ended December 31, 1998
(the "Company 10-K"), (ii) its proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of the
Company held since June 2, 1998, and (iii) all of its other reports,
statements, schedules and registration statements filed with the Securities and
Exchange Commission (the "SEC") since December 31, 1998. All reports filed by
the Company with the SEC (i) at the time filed, complied in all material
respects with the applicable requirements
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of the Securities Laws and other applicable Law and (ii) did not, at the time
they were filed (or, if amended or superseded by a filing prior to the date of
this Agreement, then at the date of such filing), contain any untrue statement
of a material fact or omit to state a material fact required to be stated in
such report or necessary to make the statements in such report, in light of the
circumstances under which they were made, not misleading.
Section 3.7 Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the Company's 10-K and in the Company's Quarterly Reports
on Form 10-Q filed for quarterly periods of fiscal year 1998 (the "Company
10-Qs") fairly present, in conformity with GAAP (except as may be indicated in
the notes thereto), the consolidated financial position of the Company as of
the dates thereof and its consolidated statements of operations and of cash
flows for the periods then ended (subject to normal year-end adjustments in the
case of any unaudited interim financial statements).
Section 3.8 Disclosure Documents. The information with respect to the
Company and its Affiliates that the Company furnishes to the Buyer in writing
specifically for use in each document required to be filed with the SEC in
connection with the transactions contemplated by this Agreement (the
"Disclosure Documents") will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading (i) in the case of the Registration Statement, which
includes the proxy statement of the Company (the "Company Proxy Statement") and
the Prospectus of IVI Corp. (the "IVI Corp. Prospectus"), at the time the
Company Proxy Statement or the IVI Corp. Prospectus or any amendment or
supplement thereto is first mailed to stockholders of the Company, at the time
the stockholders of the Company vote on the adoption of this Agreement and at
the Effective Time, and (ii) in the case of any Disclosure Document other than
the Registration Statement, at the time of the filing thereof and at the time
of any distribution thereof.
Section 3.9 Finders' and Bankers' Fees. There is no investment banker,
broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of the Company or the Special Committee who might
be entitled to any fee or commission from Buyer or any of its Affiliates upon
consummation of the transactions contemplated by this Agreement.
Section 3.10 Opinion of Financial Advisor. The Company has received the
opinion of Southeastern Appraisal Resource Associates, Inc., dated July 20,
1999, to the effect that the Merger Consideration to be paid to the
stockholders of the Company upon the consummation of the Merger is fair, from a
financial point of view, to the Company.
ARTICLE IV
Representations and Warranties of IVI Corp.
IVI Corp. represents and warrants to the Company that:
Section 4.1 Corporate Existence and Power. IVI Corp. is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to consummate the
transactions contemplated by this Agreement.
Section 4.2 Corporate Authorization. The execution, delivery and performance
by IVI Corp. of this Agreement and the consummation by IVI Corp. of the
transactions contemplated hereby are within the corporate powers of IVI Corp.,
and upon approval and adoption of this Agreement by the Board of Directors of
IVI Corp., will have been duly authorized by all necessary corporate action.
This Agreement constitutes a valid and binding agreement of IVI Corp.
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Section 4.3 Governmental Authorization. The execution, delivery and
performance by IVI Corp. of this Agreement and the consummation by IVI Corp. of
the transactions contemplated by this Agreement require no action by or in
respect of, or filing with, any Governmental Authority other than (i) the
filing of a certificate of merger in accordance with the DGCL, and (ii)
compliance with any applicable requirements of the Securities Laws.
Section 4.4 Capitalization. The authorized capital stock of IVI Corp.
consists of 99,000,000 authorized shares of IVI Common Stock and 1,000,000
authorized shares of preferred stock, $.01 par value ("IVI Preferred Stock").
As of July 1, 1999, (a) 12,498,000 shares of IVI Common Stock were issued and
outstanding, (b) 5,616,000 exchangeable shares of IVI Checkmate Ltd., which are
exchangeable by the holders for shares of IVI Common Stock on a share-for-share
basis, were issued and outstanding, (c) 332,150 shares of IVI Common Stock were
held in the treasury of IVI Corp., (d) 2,500,000 shares of IVI Common Stock
were reserved for future issuance pursuant to stock options issued or issuable
pursuant to IVI Corp.'s 1998 Long-Term Incentive Plan, and (e) 250,000 shares
of IVI Common Stock were reserved for future issuance pursuant to stock options
issued or issuable pursuant to IVI Corp.'s 1998 Directors Stock Option Plan. As
of July 1, 1999, (a) one share of IVI Series B Preferred Stock was issued and
outstanding, (b) 894,663 shares of IVI Series D Preferred Stock were issued and
outstanding and (c) no shares of IVI Preferred Stock were held in the treasury
of IVI Corp. All outstanding shares of IVI Common Stock and IVI Preferred Stock
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in this Section and on Schedule 4.4 and
except for changes since July 1, 1999, resulting from the exercise of employee
stock options outstanding on such date, there are outstanding (i) no shares of
capital stock or other voting securities of IVI Corp. (ii) no securities of IVI
Corp. convertible into or exchangeable for shares of capital stock or voting
securities of IVI Corp., and (iii) no options or other rights to acquire from
IVI Corp., and no obligation of IVI Corp. to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of IVI Corp. (the items in clauses (i), (ii) and (iii) being
referred to collectively as the "IVI Corp. Securities"). Other than certain
rights of the holders of IVI Corp.'s Series D Preferred Stock to have IVI Corp.
repurchase such shares, there are no outstanding obligations of IVI Corp. or
any IVI Corp. subsidiary to repurchase, redeem or otherwise acquire any IVI
Corp. Securities.
Section 4.5 Non-Contravention. The execution, delivery and performance by
IVI Corp. of this Agreement and the consummation by IVI Corp. of the
transactions contemplated hereby do not and will not (i) contravene or conflict
with the certificate of incorporation or bylaws of IVI Corp., (ii) assuming
compliance with the matters referred to in Section 4.3, contravene or conflict
with any material provision of Law or Order binding upon or applicable to IVI
Corp or (iii) constitute or result in a default under, or require any consent
pursuant to, any material Contract of the Company, except where such default or
the absence of such consent is not likely to result in a Material Adverse
Effect to IVI Corp.
Section 4.6 Disclosure Documents. The information with respect to IVI Corp.
and its Affiliates that IVI Corp. furnishes to the Company in writing
specifically for use in any Disclosure Document will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading (i) in the case of the Registration
Statement, which includes the Company Proxy Statement and the IVI Corp.
Prospectus, at the time the Company Proxy Statement and the IVI Corp.
Prospectus or any amendment or supplement thereto is first mailed to
stockholders of the Company, at the time the stockholders vote on adoption of
this Agreement and at the Effective Time, and (ii) in the case of any
Disclosure Document other than the Registration Statement, at the time of the
filing thereof and at the time of any distribution thereof.
Section 4.7 Finders' and Bankers' Fees. There is no investment banker,
broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of IVI Corp. who might be entitled to any fee or
commission from the Company if the transactions contemplated by this Agreement
are not consummated.
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Section 4.8 SEC Filings. IVI Corp. has delivered to the Company (i) the
Annual Report on Form 10-K for its fiscal year ended December 31, 1998 (the
"IVI Corp. 10-K"), (ii) its proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of IVI
Corp. held since June 23, 1998, and (iii) all of its other reports, statements,
schedules and registration statements filed with the SEC since December 31,
1998. All reports filed by IVI Corp. with the SEC (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Laws and other applicable Law and (ii) did not, at the time they
were filed (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
report or necessary to make the statements in such report, in light of the
circumstances under which they were made, not misleading.
ARTICLE V
Representations and Warranties of IVI Inc. and Merger Subsidiary
Each of IVI Inc. and Merger Subsidiary represent and warrant to the Company
that:
Section 5.1 Corporate Existence and Power. Each of IVI Inc. and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Georgia and the State of Delaware,
respectively, and each has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to consummate the
transactions contemplated by this Agreement. Since the date of its
incorporation, Merger Subsidiary has not engaged in any material activities
other than in connection with or as contemplated by this Agreement.
Section 5.2 Corporate Authorization. The execution, delivery and performance
by IVI Inc. and Merger Subsidiary of this Agreement and the consummation by IVI
Inc. and Merger Subsidiary of the transactions contemplated hereby are within
the corporate powers of IVI Inc. and Merger Subsidiary, and upon approval and
adoption of this Agreement by the respective Board of Directors of each such
corporation and by IVI Inc. as the sole stockholder of Merger Subsidiary, will
have been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and binding agreement of IVI Inc. and Merger Subsidiary.
Section 5.3 Governmental Authorization. The execution, delivery and
performance by IVI Inc. and Merger Subsidiary of this Agreement and the
consummation by IVI Inc. and Merger Subsidiary of the transactions contemplated
by this Agreement require no action by or in respect of, or filing with, any
Governmental Authority other than (i) the filing of a certificate of merger in
accordance with the DGCL, and (ii) compliance with any applicable requirements
of the Securities Laws.
Section 5.4 Non-Contravention. The execution, delivery and performance by
IVI Inc. and Merger Subsidiary of this Agreement and the consummation by IVI
Inc. and Merger Subsidiary of the transactions contemplated hereby do not and
will not (i) contravene or conflict with the articles or certificate of
incorporation or bylaws of IVI Inc. or Merger Subsidiary, (ii) assuming
compliance with the matters referred to in Section 5.3, contravene or conflict
with any material provision of Law or Order binding upon or applicable to IVI
Inc. or Merger Subsidiary or (iii) constitute or result in a default under, or
require any consent pursuant to, any material Contract of the Company, except
where such default or the absence of such consent is not likely to result in a
Material Adverse Effect to either IVI Inc. or Merger Subsidiary.
Section 5.5 Disclosure Documents. The information with respect to IVI Inc.
and its Affiliates that IVI Inc. furnishes to the Company or IVI Corp. in
writing specifically for use in any Disclosure Document will not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading (i) in the case of the
Registration Statement, which includes the Company Proxy Statement and the IVI
Corp. Prospectus, at the time the Company Proxy Statement and the IVI Corp.
Prospectus or any amendment or supplement thereto is first mailed to
stockholders of the Company, at the time the stockholders vote on
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adoption of this Agreement and at the Effective Time, and (ii) in the case of
any Disclosure Document other than the Registration Statement, at the time of
the filing thereof and at the time of any distribution thereof.
Section 5.6 Finders' and Bankers' Fees. There is no investment banker,
broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of either IVI Inc. or Merger Subsidiary who might
be entitled to any fee or commission from the Company if the transactions
contemplated by this Agreement are not consummated.
ARTICLE VI
Covenants of the Company
The Company agrees that:
Section 6.1 Conduct of the Company. From the date hereof until the
Effective Time, the Company shall conduct its business in the ordinary course
consistent with past practice (except for acts in connection with the Merger)
and shall use reasonable efforts to preserve intact its business organizations
and relationships with third parties and to keep available the services of its
present officers and employees. Without limiting the generality of the
foregoing, from the date hereof until the Effective Time, without the consent
of Buyer:
(a) the Company will not adopt or propose any change in its certificate
of incorporation or bylaws;
(b) the Company will not acquire, whether by purchase of equity
securities, merger or consolidation, any other Person or acquire a material
amount of assets of any other Person except (i) pursuant to existing
Contracts or commitments or (ii) in the ordinary course consistent with
past practice;
(c) the Company will not sell, lease, license or otherwise dispose of
any material assets or property except (i) pursuant to existing Contracts
or commitments or (ii) in the ordinary course consistent with past
practice;
(d) except as otherwise contemplated herein, the Company will not agree
or commit to do any of the foregoing;
(e) the Company will not authorize for issuance, issue, sell, deliver or
agree or commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any stock of any class or any other securities or
equity equivalents (including, without limitation, any stock options or
stock appreciation rights), except as required by outstanding options or
stock appreciation rights under the stock option plans of the Company as in
effect as of the date hereof, or amend any of the terms of any such
securities, options or rights outstanding as of the date hereof, except as
specifically contemplated by this Agreement;
(f) the Company will not split, combine or reclassify shares of its
capital stock, declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of its capital stock, or redeem or otherwise acquire any of its securities;
and
(g) the Company will not, except as may be required by Law, enter into,
adopt or amend or terminate any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, stock equivalent, stock purchase agreement,
pension, retirement, deferred compensation, employment, severance or other
employee benefit agreement, trust, plan, fund or other arrangement for the
benefit or welfare of any director, officer or employee in any manner, or
(except for normal increases in the ordinary course of business consistent
with past practice that, in the aggregate, do not result in a material
increase in benefits or compensation expense to the Company, or as required
under existing agreements) increase in any manner the compensation or
fringe benefits of any director, officer or employee or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including, without limitation, the granting of stock appreciation rights
or performance units).
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Section 6.2 Stockholder Meeting; Proxy Statement Material. The Company shall
cause a meeting of its stockholders (the "Company Stockholder Meeting") to be
duly called and held as soon as reasonably practicable for the purpose of
voting on the approval and adoption of this Agreement the transactions
contemplated hereby, including the Merger. The directors of the Company, acting
in part on the recommendation of the Special Committee, shall, subject to their
fiduciary duties after consultation with counsel, recommend approval and
adoption of this Agreement and the transactions contemplated hereby, including
the Merger, by the Company's stockholders. In connection with such meeting, but
subject to the terms hereof, the Company (i) will promptly prepare and file
with the SEC, will use reasonable efforts to have cleared by the SEC and will
thereafter mail to its stockholders as promptly as practicable the Company
Proxy Statement as set forth in Section 8.5 and all other proxy materials for
such meeting, and will prepare and file the Schedule 13E-3 Transaction
Statement required pursuant to Section 13(e) of the Securities Exchange Act of
1934, as amended (the "Schedule 13E-3"), (ii) will use reasonable efforts to
obtain the necessary approvals by its stockholders of this Agreement and the
transactions contemplated hereby and (iii) will otherwise comply with all legal
requirements applicable to such meeting.
Section 6.3 Access to Information. From the date hereof until the Effective
Time, the Company will give Buyer and its counsel, financial advisors, auditors
and other authorized representatives full access to the offices, properties,
books and records of the Company, will furnish to Buyer and its counsel,
financial advisors, auditors and other authorized representatives such
financial and operating data and other information as such Persons may
reasonably request and will instruct the Company's employees, counsel,
financial advisors and auditors to cooperate with Buyer in its investigation of
the business of the Company; provided that no investigation pursuant to this
Section shall affect any representation or warranty given by the Company to
Buyer hereunder.
Section 6.4 Other Potential Bidders. The Company shall, directly or
indirectly, furnish information and access, in each case in response to
unsolicited requests therefor received prior to or after the date of this
Agreement, to the same extent permitted by Section 6.3 hereof, to any Person
pursuant to appropriate confidentiality agreements, and may participate in
discussions and negotiate with any such Person concerning any merger, sale of
assets, sale of shares of capital stock or similar transaction involving the
Company or any division of the Company (any such transaction being referred to
herein as a "Competing Transaction"), if the Special Committee determines that
such action is necessary in light of its fiduciary obligations to the Company's
stockholders after consultation with counsel. In addition, the Company shall
direct its officers and other appropriate personnel to cooperate with and be
reasonably available to consult with any such Person. Except as set forth
above, the Company shall not solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any Person (other than Buyer)
concerning any merger, sale of assets, sale of shares of capital stock or
similar transaction involving the Company or any division of the Company.
Section 6.5 Notices of Certain Events. The Company shall promptly notify
Buyer of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement; and
(ii) any notice or other communication from any Governmental Authority
in connection with the transactions contemplated by this Agreement.
ARTICLE VII
Covenants of Buyer
Buyer agrees that:
Section 7.1 Voting of Shares. In any vote of the Company's stockholders with
respect to this Agreement and the transactions contemplated hereby, IVI Inc.
shall, and IVI Corp. shall cause IVI Inc. to, vote
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or cause to be voted all of the Shares then outstanding and beneficially owned
by IVI Inc. in favor of the approval and adoption of this Agreement and the
transactions contemplated hereby.
Section 7.2 Director and Officer Liability. For six years from and after the
Effective Time, Buyer will or will cause the Surviving Corporation to indemnify
and hold harmless the present and former officers and directors of the Company
in respect of acts or omissions occurring at or prior to the Effective Time to
the extent provided under the Company's certificate of incorporation and bylaws
in effect on the date hereof; provided that such indemnification shall be
available to the extent permitted by applicable Law. For such six years after
the Effective Time, Buyer will or will cause the Surviving Corporation to
provide officers' and directors' liability insurance in respect of acts or
omissions occurring at or prior to the Effective Time covering each such Person
currently covered by the Company's officers' and directors' liability insurance
policy on terms with respect to coverage and amount no less favorable than
those of such policy in effect on the date hereof, provided that if such
coverage is not obtainable at a cost less than or equal to two times the amount
per annum the Company paid in its last full fiscal year, Buyer shall or shall
cause the Surviving Corporation to purchase such lesser amount of coverage, on
terms as similar in coverage as practicable to such coverage in effect on the
date hereof, as may be obtained having a per annum cost not to exceed two times
the amount per annum the Company paid in its last full fiscal year, which
amount has been disclosed to Buyer.
Section 7.3 Notices of Certain Events. Buyer shall promptly notify the
Company of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement; and
(ii) any notice or other communication from any Governmental Authority
in connection with the transactions contemplated by this Agreement.
ARTICLE VIII
Covenants of Buyer and The Company
The parties hereto agree that:
Section 8.1 Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each party will use reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done all things necessary, proper
or advisable under applicable Laws to consummate the transactions contemplated
by this Agreement.
Section 8.2 Certain Filings. The Company and Buyer shall cooperate with one
another (a) in connection with the preparation of the Disclosure Documents as
set forth in Sections 6.2 and 8.5, (b) in determining whether any action by or
in respect of, or filing with, any Governmental Authority is required, or any
actions, consents, approvals or waivers are required to be obtained from
parties to any material Contracts, in connection with the consummation of the
transactions contemplated by this Agreement, and (c) in seeking any such
actions, consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith or with the Disclosure Documents
and seeking timely to obtain any such actions, consents, approvals or waivers.
Section 8.3 Public Announcements. Buyer and the Company will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable Law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation.
Section 8.4 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or
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Merger Subsidiary, any deeds, bills of sale, assignments or assurances and to
take and do, in the name and on behalf of the Company or Merger Subsidiary, any
other actions and things they may deem desirable to vest, perfect or confirm of
record or otherwise in the Surviving Corporation any and all right, title and
interest in, to and under any of the rights, properties or assets of the
Company acquired or to be acquired by the Surviving Corporation as a result of,
or in connection with, the Merger.
Section 8.5 Registration Statement; Company Proxy Statement.
(a) As soon as possible after the execution of this Agreement, the Company
and IVI Corp. shall prepare and file with the SEC the Registration Statement,
including therein the Company Proxy Statement and IVI Corp. Prospectus to be
sent to the stockholders of the Company, in connection with the registration
under the Securities Laws of the shares of IVI Common Stock to be issued to the
holders of Company Common Stock pursuant to the Merger. The Company and IVI
Corp. each shall use all reasonable efforts to cause the Registration Statement
to become effective as promptly as practicable, and, prior to the effective
date of the Registration Statement, IVI Corp. shall take all or any action
required under any applicable Securities Laws in connection with the issuance
of shares of IVI Common Stock pursuant to the Merger. As promptly as
practicable after the Registration Statement shall have become effective, the
Company shall mail the Company Proxy Statement and IVI Corp. Prospectus to its
stockholders. The Company Proxy Statement and IVI Corp. Prospectus shall
include the recommendation of the Board of Directors of the Company and the
recommendation of each of the Board of Directors of IVI Inc. and IVI Corp. in
favor of the Merger.
No amendment to the Registration Statement or supplement to the Company
Proxy Statement or IVI Corp. Prospectus shall be made by IVI Corp. or the
Company without the approval of the other party, which shall not be
unreasonably withheld. The Company or IVI Corp. each will advise the other,
promptly after it receives notice thereof, of the time when the Registration
Statement has become effective or any supplement or amendment has been filed,
the issuance of any stop order, the suspension of the qualification of the IVI
Common Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Registration
Statement or the Company Proxy Statement or comments thereon and responses
thereto or requests by the SEC for additional information.
(b) The Company, IVI Inc., IVI Corp. and Merger Subsidiary each hereby (i)
consents to the use of its name and, on behalf of its subsidiaries and
affiliates, the names of such subsidiaries and affiliates, and to the inclusion
of financial statements and business information relating to such party and its
subsidiaries and affiliates (in each case, to the extent required by applicable
Securities Laws), in the Registration Statement and the Company Proxy
Statement, (ii) agrees to use all reasonable efforts to obtain the written
consent of any person or entity retained by it which may be required to be
named (as an expert or otherwise) in the Registration Statement or the Company
Proxy Statement, and (iii) agrees to cooperate fully, and agrees to use all
reasonable efforts to cause its subsidiaries and affiliates to cooperate fully,
with any legal counsel, investment banker, accountant or other agent or
representative retained by any of the parties specified in clause (i) above in
connection with the preparation of any and all information required, as
determined after consultation with each party's counsel, to be disclosed by
applicable Securities Laws in the Registration Statement or the Company Proxy
Statement.
ARTICLE IX
Conditions to The Merger
Section 9.1 Conditions to the Obligations of Each Party. The obligations of
the Company, Buyer and Merger Subsidiary to consummate the Merger are subject
to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in part, by each of
the parties intended to benefit therefrom, to the extent permitted by
applicable Law:
(a) this Agreement and the transactions contemplated hereby, including
the Merger, shall have been approved and adopted by the Board of Directors
of the Company;
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(b) this Agreement and the transactions contemplated hereby, including
the Merger, shall have been approved and adopted by a majority of all
shares of the Company Common Stock entitled to vote thereon, in accordance
with Section 251 of the DGCL;
(c) no Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any Law or Order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger;
(d) all actions by or in respect of or filings with any Governmental
Authority required to permit the consummation of the Merger shall have been
obtained, other than the filing of the requisite certificate of merger with
the Secretary of State of the State of Delaware;
(e) the Registration Statement shall be effective under the Securities
Act of 1933, as amended, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding
or investigation by the SEC to suspend the effectiveness thereof shall have
been initiated and be existing, and all necessary clearances under the
Securities Laws relating to the issuance or trading of the shares of IVI
Common Stock issuable pursuant to the Merger shall have been received; and
(f) there shall be no action, suit, investigation or proceeding pending
against, or to the knowledge of the Company or Buyer, threatened against or
affecting, the Company, Buyer or any of their respective officers or
directors, which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the Merger or any of the other transactions
contemplated hereby.
Section 9.2 Additional Conditions to the Obligations of Buyer and Merger
Subsidiary. The obligations of Buyer and Merger Subsidiary to consummate the
Merger are also subject to the satisfaction at or prior to the Effective Time
of the following further conditions, any or all of which may be waived, in
whole or in part, by each of the parties intended to benefit therefrom, to the
extent permitted by applicable Law:
(a) the Company shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, the representations and warranties of the Company contained
in this Agreement and in any certificate delivered by the Company pursuant
hereto shall be true and correct in all respects, except where the breach
or inaccuracy thereof would not, individually or in the aggregate, have a
Material Adverse Effect, at and as of the Effective Time as if made at and
as of such time, except that those representations and warranties which
address matters only as of a particular date shall remain true and correct
as of such date, and Buyer shall have received a certificate signed by the
principal financial officer of the Company to the foregoing effect;
(b) no Material Adverse Effect shall have occurred;
(c) Buyer shall have received or be satisfied that it will receive all
consents and approvals contemplated by Section 3.3 and any other consents
of third parties necessary in connection with the consummation of the
Merger if the failure to obtain any such consent would have a Material
Adverse Effect; and
(d) Buyer shall have received all documents it may reasonably request
relating to the existence of the Company and the authority of the Company
to enter into this Agreement, all in form and substance reasonably
satisfactory to Buyer.
Section 9.3 Additional Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are also subject to the
satisfaction at or prior to the Effective Time of the following further
conditions, any or all of which may be waived, in whole or in part, by the
Company to the extent permitted by applicable Law:
(a) Buyer and Merger Subsidiary shall have performed in all material
respects all of their respective obligations hereunder required to be
performed by them at or prior to the Effective Time, the representations
and warranties of Buyer contained in this Agreement and in any certificate
delivered by Buyer or Merger Subsidiary pursuant hereto shall be true and
correct in all material respects at and as of
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the Effective Time as if made at and as of such time, except that those
representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, and the
Company shall have received a certificate signed by the President or any
Vice President of each of Buyer and Merger Subsidiary to the foregoing
effect;
(b) the Company shall have received all documents it may reasonably
request relating to the existence of Buyer or Merger Subsidiary and the
authority of Buyer or Merger Subsidiary to enter into this Agreement, all
in form and substance reasonably satisfactory to the Company;
(c) Southeastern Appraisal Resource Associates, Inc. shall have
reaffirmed in writing the fairness opinion described in Section 3.10, as if
such opinion was issued at the Effective Time; and
(d) this Agreement and the Merger shall have been approved and adopted
by the Board of Directors of each of IVI Corp., IVI Inc. and Merger
Subsidiary and by IVI Inc. as the sole stockholder of Merger Subsidiary.
ARTICLE X
Termination
Section 10.1 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the stockholders of the Company):
(a) by mutual written consent of the Company and Buyer;
(b) by either the Company or Buyer, if the Merger has not been
consummated by September 30, 1999;
(c) by either the Company or Buyer, if there shall be any Law that makes
consummation of the Merger illegal or otherwise prohibited or if any Order
enjoining Buyer or the Company from consummating the Merger is entered and
such Order shall become final and nonappealable;
(d) by either the Company or Buyer if this Agreement and the Merger
shall fail to be approved and adopted by the stockholders of the Company at
the Company Stockholder Meeting called for such purpose, as set forth in
Section 9.1(b) above;
(e) by either the Company (such determination to be made on behalf of
the Company by the Special Committee in its sole discretion) or Buyer, if,
consistent with the terms of this Agreement, the Board of Directors of the
Company or the Special Committee withdraws, modifies or changes its
recommendation of this Agreement or the Merger in a manner adverse to Buyer
or Merger Subsidiary or shall have resolved to do any of the foregoing or
the Board of Directors of the Company or the Special Committee shall have
recommended to the stockholders of the Company any Competing Transaction or
resolved to do so.
Section 10.2 Effect of Termination. If this Agreement is terminated pursuant
to Section 10.1, this Agreement shall become void and of no effect with no
liability on the part of any party hereto, except that the agreements contained
in Section 11.5 shall survive the termination hereof; provided, however, that,
except as specifically provided herein, nothing herein shall relieve any party
hereto of liability for any breach of this Agreement.
ARTICLE XI
Miscellaneous
Section 11.1 Definitions. As used herein, the following terms have the
following respective meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
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"Affiliate" means, with respect to a Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such given Person.
"Agreement" means this Agreement and Plan of Merger, as the same may be
supplemented, modified or amended from time to time.
"Contract" means any written agreement, arrangement, authorization,
commitment, contract, indenture, instrument, lease, obligation, plan,
practice, restriction, understanding, or undertaking of any kind or character,
or other document to which any Person is a party or that is binding on any
Person or its capital stock, assets or business.
"Expenses" means all reasonable out-of-pocket expenses (including, without
limitation, all fees and expenses of counsel, accountants, investment bankers,
experts and consultants (which shall not include fees and expenses of officers
or directors of Buyer and/or Affiliates thereof) and commitment fees and other
financing fees and expenses) incurred by Buyer, Merger Subsidiary or the
Company or on behalf of any such party in connection with or related to the
authorization, preparation, negotiation, execution and performance of this
Agreement, the preparation, printing, filing and mailing of the Registration
Statement and the Company Proxy Statement and IVI Corp. Prospectus and the
Schedule 13E-3, the solicitation of the stockholder approvals and all other
matters related to the consummation of the transactions contemplated hereby.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"Governmental Authority" means any federal, state, county, local, foreign
or other governmental or public agency, instrumentality, commission,
authority, board or body, and any court, arbitrator, mediator or tribunal.
"Law" means any code, law, ordinance, regulation, rule or statute of any
Governmental Authority.
"Material Adverse Effect" means any matter that would reasonably be
expected to affect materially and adversely the business, condition (financial
or otherwise) or results of operations of the Company considered as a whole.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency or other Governmental Authority.
"Person" means an individual, a corporation, a partnership, an association,
a trust, a limited liability company or any other entity or organization,
including a government or political subdivision or any agency or
instrumentality thereof.
"Registration Statement" means the Registration Statement on Form S-4, or
other appropriate form, including any pre-effective or post-effective
amendments or supplements thereto, filed with the SEC by IVI Corp. under the
Securities Act of 1993, as amended, with respect to the shares of IVI Corp. to
be issued to the stockholders of the Company in connection with the
transactions contemplated by the Agreement.
"Securities Laws" means the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder, and all applicable state securities or "blue sky" laws
and regulations.
"Surviving Corporation" means the Company as the surviving corporation
resulting from the Merger.
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The following terms are defined in the following Sections of this Agreement:
<TABLE>
<CAPTION>
Term Section
---- -------
<C> <S>
"Base Period Trading Price" 1.3(a)
"Buyer" Opening Paragraph
"Company" Opening Paragraph
"Company Common Stock" Recital A
"Company Options" 1.6
"Company Preferred Stock" Recital A
"Company Proxy Statement" 3.8
"Company Securities" 3.5
"Company Stockholder Meeting" 6.2
"Company 10-K" 3.6
"Company 10-Qs" 3.7
"Competing Transaction" 6.4
"DGCL" Recital E
"Disclosure Documents" 3.8
"Effective Time" 1.2(b)
"Exchange Agent" 1.4(a)
"Exchange Fund" 1.4(a)
"GBCC" Recital E
"IVI Common Stock" 1.3(a)
"IVI Corp." Opening Paragraph
"IVI Corp. Prospectus" 3.8
"IVI Corp. Securities" 4.4
"IVI Corp. 10-K" 4.8
"IVI Inc." Opening Paragraph
"IVI Preferred Stock" 4.4
"Merger" Recital E
"Merger Consideration" 1.3(a)
"Merger Subsidiary" Opening Paragraph
"New Certificates" 1.4(a)
"Non-Public Shares" 1.3(a)
"Old Certificates" 1.4(a)
"Option Exchange Ratio" 1.6
"Public Stockholders" Recital C
"Schedule 13E-3" 6.2
"SEC" 3.6
"Share" 1.3(a)
"Shares" 1.3(a)
"Special Committee" Recital C
</TABLE>
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Section 11.2 Notices. Unless otherwise specifically provided herein, any
notice, demand, request or other communication herein requested or permitted to
be given shall be in writing and may be personally served, sent by overnight
courier service, or sent by telecopy with a confirming copy sent by United
States first-class mail, each with any postage or delivery charge prepaid. For
the purposes hereof, the addresses of the parties hereto (until notice of a
change thereof is delivered as provided in this Section) shall be as follows:
If to the Company: National Transaction Network, Inc.
117 Flanders Road
Westborough, MA 01581
Attn: Christopher F. Schellhorn
Telephone: (508) 870-3200
Telecopy: (508) 870-3201
With a copy (which shall Nelson Mullins Riley & Scarborough, L.L.P.
not constitute notice) to:
First Union Plaza
999 Peachtree Street
Atlanta, GA 30309
Attn: Robert D. Pannell
Telephone: (404) 812-6177
Telecopy: (404) 817-6050
If to Buyer or Merger IVI Checkmate Corp.
Subsidiary: 1003 Mansell Road
Roswell, Georgia 30076
Attn: John J. Neubert
Telephone: (770) 594-6010
Telecopy: (770) 594-6041
With a copy (which shall Alston & Bird LLP
not constitute notice) to:
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attn: M. Hill Jeffries, Esq.
Telephone: 404-881-7823
Telecopy: 404-881-7777
Any notice provided hereunder shall be deemed to have been given on the date
delivered in person, or on the next business day after deposit with an
overnight courier service, or on the date received by telecopy transmission.
Section 11.3 No Survival of Representations and Warranties. The
representations and warranties contained herein and in any certificate
delivered pursuant hereto shall not survive the Effective Time or the
termination of this Agreement.
Section 11.4 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived prior to the
Effective Time if, and only if, such amendment or waiver is in writing and
signed by all parties hereto, or in the case of a waiver, by the party against
whom the waiver is to be effective; provided that any such amendment and any
such waiver by the Company shall have been approved by the Board of Directors
of the Company, acting on the recommendation of the Special Committee; and
provided, further, that after the adoption of this Agreement by the
stockholders of the Company, no such amendment or waiver shall, without the
further approval of such stockholders, alter or change (i) the amount or kind
of consideration to be received in exchange for any shares
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of capital stock of the Company or (ii) any of the terms or conditions of this
Agreement if such alteration or change would adversely affect the holders of
any shares of capital stock of the Company.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 11.5 Fees and Expenses. Except as otherwise provided in this
Section, all Expenses incurred in connection with this Agreement shall be paid
by the party incurring such Expense, including the cost of any fairness
opinion, which shall be borne by the Company; provided that, if the Merger is
not consummated, all printing expenses and filing fees associated with the
preparation and distribution of the Registration Statement and the Company
Proxy Statement and IVI Corp. Prospectus shall be paid by Buyer.
Section 11.6 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto, except that Buyer may transfer
or assign, in whole or from time to time in part, to one or more of its
Affiliates, its rights under this Agreement, but any such transfer or
assignment will not relieve Buyer of its obligations under this Agreement or
prejudice the rights of stockholders to receive the Merger Consideration for
Shares properly surrendered in accordance with Section 1.4. This Agreement
shall not be construed so as to confer any right or benefit upon any Person
other than the parties to this Agreement and their respective successors and
assigns.
Section 11.7 Governing Law. Regardless of the place or places where this
Agreement may be executed, delivered or consummated, this Agreement shall be
governed by and construed in accordance with the Laws of the State of Delaware,
without regard to any applicable conflicts of Laws.
Section 11.8 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
Section 11.9 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
Section 11.10 Interpretations. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether
under any rule of construction or otherwise. No party to this Agreement shall
be considered the draftsman. The parties acknowledge and agree that this
Agreement has been reviewed, negotiated and accepted by all parties and their
attorneys and shall be construed and interpreted according to the ordinary
meaning of the words used so as fairly to accomplish the purposes and
intentions of all parties hereto.
Section 11.11 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures were upon the same instrument. This Agreement shall
become effective when each party hereto shall have received counterparts hereof
signed by all of the other parties hereto.
[Signatures on the Following Page]
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In Witness Whereof, each of the parties has caused this Agreement to be
executed on its behalf as of the day and year first above written.
National Transaction Network, Inc.
Attest:
/s/ Gregory A. Lewis
By: _________________________________
/s/ L. Barry Thomson
_____________________________________
L. Barry Thomson, Secretary
Gregory A. Lewis
Name: _______________________________
President and Chief Executive
Officer
Title: ______________________________
IVI Checkmate Corp.
Attest:
/s/ L. Barry Thomson
By: _________________________________
/s/ John J. Neubert
_____________________________________
John J. Neubert, Secretary
L. Barry Thomson
Name: _______________________________
President and Chief Executive
Officer
Title: ______________________________
IVI Checkmate Corp.
Attest:
/s/ John J. Neubert
By: _________________________________
/s/ Margaret Burkett
_____________________________________
Margaret Burkett, Secretary
John J. Neubert
Name: _______________________________
Executive Vice President and
Title: ______________________________
Chief Financial Officer
_____________________________________
NTN Merger Corp.
Attest:
/s/ L. Barry Thomson
By: _________________________________
/s/ John J. Neubert
_____________________________________
John J. Neubert, Secretary
L. Barry Thomson
Name: _______________________________
President
Title: ______________________________
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APPENDIX B
Section 262 of the Delaware General Corporation Law
(S) 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of the stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall
B-2
<PAGE>
be such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
B-3
<PAGE>
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
B-4
<PAGE>
APPENDIX C
SOUTHEAST APPRAISAL
Resource Associates, Inc.
1100 Circle 75 Parkway, Suite 800
Atlanta, Georgia 30339
Tele: (770) 859-0338 / 800 899-0338
Fax: (770) 859-9597
July 20, 1999
Board of Directors
National Transaction Network, Inc.
117 Flanders Road
Westborough, Massachusetts 01581
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of ordinary shares of National Transaction Network, Inc.
("NTN") of the consideration to be received by such holders pursuant to the
terms and subject to the conditions set forth in the Agreement and Plan of
Merger, dated as of July 20, 1999 (the "Agreement") among IVI Checkmate Corp.,
IVI Checkmate, Inc., NTN Merger Corp. and NTN which is attached as Exhibit A
hereto. As more fully described in the Agreement, with the proposed merger of
NTN Merger Corp., a wholly-owned subsidiary of IVI Checkmate, Inc., into NTN,
(the "Merger"), the shares (excluding shares held by NTN or by IVI Checkmate
Corp. or any of its subsidiaries) of NTN common stock, $0.15 par value ("NTN
Common Stock"), issued and outstanding immediately prior to the Merger becoming
effective (the "Effective Time") shall become and be converted into the right
to receive the number of shares of the common stock, $0.01 par value, of IVI
Checkmate Corp. ("IVI Common Stock") that would have a value equal to $0.30
multiplied by the number of shares of NTN Common Stock issued and outstanding
immediately prior to the Effective Time. For purposes of this calculation, the
number of shares of IVI Common Stock shall be calculated pursuant to a
valuation of the IVI Common Stock determined by a Base Period Trading Price,
which shall mean the average of the daily closing sale prices for the shares of
IVI Common Stock for the twenty (20) consecutive full trading days on which
such shares are actually traded on The NASDAQ National Market ending at the
close of trading on the second trading day immediately preceding the Effective
Time.
In arriving at our opinion, we reviewed the Agreement, and held discussions
with certain senior officers, directors and other representatives and advisors
of NTN and certain senior officers and other representatives and advisors of
IVI Checkmate, Inc. concerning the businesses, operations and prospects of NTN
and IVI. We examined certain publicly available business and financial
information relating to NTN and IVI as well as certain financial forecasts and
other information and data for NTN and IVI which were provided to or otherwise
discussed with us by the respective managements of NTN and IVI, including
information relating to certain strategic implications and operational benefits
anticipated to result from the Merger. We reviewed the financial terms of the
Agreement in relation to, among other things:
i. Current and historical market prices and trading volumes of the NTN
Common Stock and IVI Common Stock;
ii. The historical and projected earnings and other operating data of NTN
and IVI; and
iii. The capitalization and financial condition of NTN and IVI.
Business Enterprise and Intangible Asset Valuations; Real Property,
Machinery/Equipment and Inventory Appraisals; Feasibility Studies, Solvency
Opinions, Fairness Opinions; Reviews of Appraisals/Valuations of Others
C-1
<PAGE>
We considered, to the extent available, the financial terms of other
transactions recently effected which we considered relevant in evaluating the
Merger and analyzed certain financial, stock market and other publicly
available information relating to the businesses of other companies whose
operations we considered relevant in evaluating those of NTN and IVI. We also
evaluated the potential proforma financial impact of the Merger on IVI.
In addition to the foregoing, we conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as we deemed appropriate in arriving at our opinion. In rendering our opinion,
we have assumed and relied, without independent verification, upon the accuracy
and completeness of all financial and other information and data publicly
available or furnished to or otherwise reviewed by or discussed with us. With
respect to financial forecasts and other information and data provided to or
otherwise reviewed by or discussed with us, we have been advised by the
managements of NTN and IVI that such forecasts and other information and data
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of NTN and IVI as to the future
financial performance of NTN and IVI and the strategic implications and
operational benefits anticipated to result from the Merger. We have assumed,
with your consent, that the Merger will be treated as a tax-free reorganization
for U.S. federal income tax purposes and as a purchase transaction in
accordance with U.S. generally accepted accounting principles.
Our opinion, as set forth herein, relates to the relative values of NTN and
IVI. We are not expressing any opinion as to what the value of the IVI Common
Stock actually will be when issued to NTN shareholders pursuant to the Merger
or the price at which the IVI Common Stock will trade subsequent to the Merger.
We completed an independent appraisal of the Fair Market Value of the common
stock of NTN, on a minority interest basis, as of December 31, 1998 (the
"Appraisal"). In the Appraisal, we opined that the Fair Market Value of a share
of common stock of NTN was equitably represented in the amount of $0.26 per
share. In connection with our engagement, we were not requested to, and we did
not, solicit third party indications of interest in the possible acquisition of
NTN. We were not asked to consider, and our opinion does not address, the
relative merits of the Merger as compared to any alternative business
strategies that might exist for NTN or the effect of any other transaction in
which NTN might engage. Our opinion is necessarily based upon information
available to us and financial, stock market and other conditions and
circumstances existing and disclosed to us, as of the date hereof. Southeast
Appraisal Resource Associates, Inc. has not acted as financial advisor to NTN
in connection with the proposed Merger and our fee for rendering this opinion
is not contingent upon the consummation of the Merger. Our opinion expressed
herein is provided for the information of the Board of Directors of NTN in its
evaluation of the proposed Merger. Our opinion is not intended to be and does
not constitute a recommendation to any shareholder of NTN as to how such
shareholder should vote, or take any other action, with respect to the
Agreement or any matters relating to the Agreement.
Based on the foregoing and our general experience in the valuations for
corporate, estate and other purposes, we are of the opinion that on the date
hereof that the consideration to be received by the shareholders of NTN
(excluding shares held by NTN or by IVI Checkmate Corp. or any of its
subsidiaries) through the proposed Merger is fair to them from a financial
point of view.
This opinion is prepared for the information of the Board of Directors of
NTN in connection with the Merger and shall not be reproduced, summarized,
described or referred to, provided to any person or otherwise made public
without the prior written consent of Southeast Appraisal Resource Associates,
Inc., provided however, (i) that this letter may be included in communications
to the shareholders of NTN and (ii) this letter may be included in any required
filing with the Securities and Exchange Commission.
Very truly yours,
/s/ Southeast Appraisal Resource Associates, Inc.
- -------------------------------------
Southeast Appraisal Resource Associates, Inc.
C-2
<PAGE>
APPENDIX D
[Form of Alston & Bird LLP Tax Opinion Letter]
July , 1999
IVI Checkmate Corp.
1003 Mansell Road
Roswell, GA 30076
RE: Registration Statement on Form S-4 (the "Registration Statement") with
respect to shares issued pursuant to the Agreement and Plan of Merger
by and among National Transaction Network Inc. ("Company"), IVI
Checkmate Corp. ("IVI Corp."), IVI Checkmate Inc. ("IVI Inc.") and NTN
Merger Corp. ("Merger Subsidiary") dated as of July , 1999 (the
"Agreement")
Ladies and Gentlemen:
We have acted as counsel to IVI Corp. in connection with the registration
of 146,409 shares of its Common Stock, par value $.01 per share (the "Common
Stock"), issuable pursuant to the Agreement, as set forth in the Registration
Statement that is being filed on the date hereof by IVI Corp. with the
Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"). This opinion is
provided pursuant to the requirements of Item 21(a) of Form S-4 and Item
601(b)(8) of Regulation S-K. All capitalized terms not otherwise defined
herein shall have the meanings given to them in the Agreement.
In the Merger, Merger Subsidiary (a transitory entity that is wholly owned
by IVI Inc.) will merge into Company, pursuant to Georgia law, and each
outstanding share of Company Common Stock (the only class outstanding) other
than stock owned by IVI Inc. is to be converted into shares of IVI Corp.
Common Stock. Cash will be paid in lieu of issuance of fractional shares.
Company shareholders are entitled by state law to dissent to the Merger. All
shares of IVI Corp. Common Stock issued in the Merger will have attached
certain stock purchase rights ("Rights") issued under a shareholder rights
plan. As used herein, "IVI Corp. Common Stock" includes the attached Rights.
In giving this opinion we have reviewed, and with your permission we have
relied upon the representations and warranties contained in or the facts
described in the Agreement, the Registration Statement, and certificates dated
July , 1999 in which officers of Company and officers of IVI Corp. make
certain representations on behalf of Company and IVI Corp. and IVI Inc.
regarding the Merger (which statements we have neither investigated nor
verified) ("Tax Certificates"). We also have reviewed such other documents as
we have considered necessary and appropriate for the purposes of this opinion.
In giving this opinion we have with your permission assumed that the
statements in the Tax Certificates will be true as of the Effective Time, and
that any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification. As to all matters
in which a person or entity has represented that such person or entity either
is not a party to, or does not have, or is not aware of, any plan or
intention, understanding or agreement, we have assumed that there is in fact
no such plan, intention, understanding or agreement. We also assume that (a)
the Merger will be consummated in accordance with the Agreement, and (b)
Company's only outstanding stock (as that term is used in Section 368 of the
Internal Revenue Code) is the Company Common Stock.
Based on the foregoing, and subject to the limitations herein, we are of
the opinion that under existing law, upon consummation of the Merger in
accordance with the Agreement, for federal income tax purposes:
(1) The Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code.
D-1
<PAGE>
(2) No gain or loss will be recognized by the shareholders of Company
upon the receipt of IVI Corp. Common Stock (including any fractional share
interest to which they may be entitled) solely in exchange for their shares
of Company Common Stock.
(3) The aggregate adjusted basis of the IVI Corp. Common Stock
(including any fractional share interest to which they may be entitled) to
be received by the shareholders of Company will be the same as the
aggregate adjusted basis of the Company Common Stock surrendered in
exchange therefor.
(4) The holding period of the IVI Corp. Common Stock (including any
fractional share interest to which they may be entitled) to be received by
the shareholders of Company in the Merger will include the holding period
of the Company Common Stock surrendered in exchange therefor, provided the
Company Common Stock was held as a capital asset by the shareholder of
Company on the date of the exchange.
(5) Cash received by a dissenting shareholder of Company will be treated
as having been received by such shareholder as a distribution in redemption
of his or her Company stock, subject to the provisions and limitations of
Section 302 of the Code. If, as a result of such distribution, a
shareholder owns no IVI Corp. stock either directly or through the
application of Section 318(a) of the Code, the redemption will be a
complete termination of interest within the meaning of Section 302(b)(3) of
the Code and such cash will be treated as a distribution in exchange for
his or her Company stock, as provided in Section 302(a) of the Code. Under
Section 1001 of the Code, gain (or subject to the limitations of Section
267 of the Code) loss will be realized and recognized by such shareholder
in an amount equal to the difference between the amount of such cash and
the adjusted basis of the Company shares surrendered.
(6) The payment of cash to Company shareholders in lieu of fractional
share interests of IVI Corp. Common Stock will be treated for federal
income tax purposes as if the fractional shares were distributed as part of
the exchange and then were redeemed by IVI Corp. These cash payments will
be treated as distributions in full payment in exchange for the stock
redeemed as provided in Section 302(a) of the Code.
We express no opinion as to the laws of any jurisdiction other than the
United States of America. Further, our opinion is limited to the specific
conclusions set forth above, and no other opinions are expressed or implied.
The opinions stated with respect to shares of Company Common Stock do not apply
to any stock rights, warrants or options to acquire Company Common Stock. The
opinions stated as to Company shareholders are general in nature and do not
necessarily apply to any particular Company shareholder, and, for example, may
not apply to shareholders who are corporations, trusts, dealers in securities
or must mark securities to market, financial institutions, insurance companies,
tax exempt organizations; or to persons who are not United States citizens or
resident aliens or domestic entities (partnerships or trusts), subject to the
alternative minimum tax (to the extent that tax affects the tax consequences),
or are subject to the "golden parachute" provisions of the Code (to the extent
that tax affects the tax consequences); or to shareholders who acquired Company
Common Stock pursuant to employee stock options or otherwise as compensation,
who do not hold their shares as capital assets, or who hold their shares as
part of a "straddle" or "conversion transaction."
This opinion represents our best legal judgment, but it is not binding on
any governmental agency and is not a guarantee of result. Changes to the Code,
regulations, the rulings thereunder, or changes by the courts in the
interpretation of the authorities relied upon, may be applied retroactively and
may affect the opinions expressed herein. Any material defect in any assumption
or representation on which we have relied would adversely affect our opinions.
We furnish this opinion to you solely to support the discussion set forth
under the headings "SUMMARY--The Merger--Certain Federal Income Tax
Consequences," "THE MERGER--The Reorganization Agreement--Conditions to the
Merger," and "THE MERGER--Certain Federal Income Tax Consequences of the
Merger" in the Registration Statement, and we do not consent to its use for any
other purpose. We hereby consent to be named in the Registration Statement
under the foregoing headings and to the filing of a copy of
D-2
<PAGE>
this opinion as Exhibit 8 to the Registration statement. In giving this
consent, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the Securities Act, or the rules and
regulations of the Commission thereunder.
Very truly yours,
ALSTON & BIRD LLP
Jasper L. Cummings, Jr.
A partner of the firm
JLC/ppb
D-3
<PAGE>
APPENDIX E
IVI CHECKMATE CORP. FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP.............................................. E-2
Report of Coopers & Lybrand.............................................. E-3
Consolidated Balance Sheets as of December 31, 1998 and 1997............. E-4
Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996..................................................... E-5
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996........................................ E-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996..................................................... E-7
Notes to Consolidated Financial Statements............................... E-8
Condensed Consolidated Balance Sheets as of March 31, 1999 (unaudited)
and
December 31, 1998....................................................... E-23
Condensed Consolidated Statements of Operations for the Three Months
Ended
March 31, 1999 (unaudited) and 1998 (unaudited)......................... E-24
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended
March 31, 1999 (unaudited) and 1998 (unaudited)......................... E-25
Notes to Condensed Consolidated Financial Statements..................... E-26
</TABLE>
E-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
IVI Checkmate Corp.
We have audited the consolidated balance sheets of IVI Checkmate Corp. as of
December 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1998. Our responsibility is to express an opinion
on these financial statements based on our audits. We did not audit the
financial statements of International Verifact Inc. which statements reflect
total assets constituting 39% at December 31, 1997 of the related consolidated
financial statement totals, and which reflect net revenues constituting
approximately 50% and 45% of the related consolidated financial statement
totals for the years ended December 31, 1997 and 1996, respectively. Those
statements were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to data included for International
Verifact Inc., is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of IVI Checkmate Corp. at
December 31, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
February 12, 1999
Atlanta, Georgia
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<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Directors of
International Verifact Inc.
We have audited the consolidated balance sheet of International Verifact
Inc. as of December 31, 1997 and the consolidated statements of operations,
stockholders' equity, and cash flows for years ended December 31, 1997 and
1996. These consolidated financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the company
as at December 31, 1997, and the consolidated results of its operations and
cash flows for years ended December 31, 1997 and 1996 in accordance with
generally accepted accounting principles in the United States.
COOPERS & LYBRAND
February 12, 1998
Toronto, Ontario
E-3
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except for Share Amounts)
<TABLE>
<CAPTION>
December 31
------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 9,846 $ 9,390
Investments............................................... -- 3,572
Accounts receivable, less allowance of $715 and $477 at
December 31, 1998 and 1997, respectively................. 31,820 21,086
Inventories............................................... 15,743 18,111
Deferred tax asset........................................ 4,060 3,765
Refundable income taxes................................... -- 809
Prepaid expenses and other assets......................... 1,581 1,198
-------- --------
Total current assets................................... 63,050 57,931
Property and equipment, net................................ 8,224 8,567
Deferred development costs, net of accumulated amortization
of $4,765 and $2,900 at December 31, 1998 and 1997,
respectively.............................................. 10,150 8,234
Identifiable intangible assets, net of accumulated
amortization of $1,295 and $1,014 at December 31, 1998 and
1997, respectively........................................ 1,320 1,159
Goodwill................................................... -- 642
Other assets............................................... 85 51
-------- --------
$ 82,829 $ 76,584
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank line of credit....................................... $ -- $ 938
Accounts payable.......................................... 17,547 10,150
Accrued liabilities....................................... 6,622 4,141
Deferred revenue.......................................... 2,805 1,628
Other..................................................... 51 230
-------- --------
Total current liabilities.............................. 27,025 17,087
Deferred tax liability..................................... 769 1,872
Minority interest and other................................ 18 213
-------- --------
27,812 19,172
Stockholders' Equity
Preferred stock, $0.01 par value
Authorized--1,000,000 shares, none issued................ -- --
Common stock, $0.01 par value
Authorized--99,000,000 shares
Issued and outstanding--17,835,000 and 17,399,000 at
December 31, 1998 and 1997, respectively................ 178 174
Additional paid-in capital................................ 80,109 78,285
Accumulated deficit....................................... (23,132) (18,161)
Foreign currency translation adjustment................... (2,138) (727)
-------- --------
55,017 59,571
Less: treasury stock, at cost--332,150 shares at
December 31, 1997........................................ -- (2,159)
-------- --------
Total stockholders' equity............................. 55,017 57,412
-------- --------
$ 82,829 $ 76,584
======== ========
</TABLE>
See accompanying notes.
E-4
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars, Except for Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
Net revenues...................................... $107,122 $92,665 $ 77,385
Cost of sales..................................... 65,818 58,015 47,378
-------- ------- --------
Gross profit...................................... 41,304 34,650 30,007
-------- ------- --------
Operating expenses:
Selling, general and administrative.............. 25,118 24,769 20,327
Research and development......................... 4,963 5,603 4,459
Depreciation and amortization.................... 4,153 2,823 2,198
Merger and related costs (Note 10)............... 11,334 -- --
Write-off of long-lived assets (Note 10)......... 1,300 -- 8,023
-------- ------- --------
46,868 33,195 35,007
-------- ------- --------
Operating income (loss)........................... (5,564) 1,455 (5,000)
Other:
Minority interest................................ 53 448 20
Share of equity investee loss.................... (342) -- (147)
Interest income.................................. 423 588 585
Interest expense................................. (121) (110) (73)
-------- ------- --------
Income (loss) before income taxes................. (5,551) 2,381 (4,615)
Income tax benefit (expense)...................... 580 855 (5,684)
-------- ------- --------
Net income (loss)................................. $ (4,971) $ 3,236 $(10,299)
======== ======= ========
Net income (loss) per share:
Basic............................................ $ (0.28) $ 0.19 $ (0.69)
Diluted.......................................... $ (0.28) $ 0.19 $ (0.69)
Weighted average shares outstanding (000's):
Basic............................................ 17,528 16,817 15,011
Diluted.......................................... 17,528 17,318 15,011
</TABLE>
See accompanying notes.
E-5
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Common Stock
$0.01 Par Foreign
Value Additional Currency Total
------------- Paid-in Accumulated Translation Treasury Stockholders'
Shares Amount Capital Deficit Adjustment Stock Equity
------ ------ ---------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... 14,578 $146 $62,034 $(11,073) $ 514 $ -- $ 51,621
Comprehensive loss:
Net loss.............. -- -- -- (10,299) -- -- (10,299)
Currency translation
adjustment........... -- -- -- -- (69) -- (69)
--------
Comprehensive loss..... (10,368)
Exercise of stock
options............... 380 4 2,588 -- -- -- 2,592
Issuance of common
stock................. 1,443 14 7,513 -- -- -- 7,527
Issuance of common
stock on acquisition
of subsidiary......... 230 2 1,259 -- -- -- 1,261
Exercise of warrants... -- -- 4 -- -- -- 4
Tax benefit related to
employee stock
options............... -- -- 392 -- -- -- 392
------ ---- ------- -------- ------- ------- --------
Balance at December 31,
1996................... 16,631 166 73,790 (21,372) 445 -- 53,029
Comprehensive income:
Net income............ -- -- -- 3,236 -- -- 3,236
Currency translation
adjustment........... -- -- -- -- (1,172) -- (1,172)
--------
Comprehensive income... 2,064
Exercise of stock
options............... 739 7 3,866 -- -- -- 3,873
Issuance of common
stock................. 29 1 409 -- -- -- 410
Purchase of treasury
stock................. -- -- -- -- -- (2,159) (2,159)
Exercise of warrants... -- -- 4 -- -- -- 4
Capital dividend....... -- -- -- (25) -- -- (25)
Tax benefit related to
employee stock
options............... -- -- 216 -- -- -- 216
------ ---- ------- -------- ------- ------- --------
Balance at December 31,
1997................... 17,399 174 78,285 (18,161) (727) (2,159) 57,412
Comprehensive loss:
Net loss.............. -- -- -- (4,971) -- -- (4,971)
Currency translation
adjustment........... -- -- -- -- (1,411) -- (1,411)
--------
Comprehensive loss..... (6,382)
Exercise of stock
options............... 363 4 1,396 -- -- -- 1,400
Issuance of common
stock................. 73 -- 333 -- -- -- 333
Sale of treasury
stock................. -- -- 95 -- -- 2,159 2,254
------ ---- ------- -------- ------- ------- --------
Balance at December 31,
1998................... 17,835 $178 $80,109 $(23,132) $(2,138) $ -- $ 55,017
====== ==== ======= ======== ======= ======= ========
</TABLE>
See accompanying notes.
E-6
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................... $ (4,971) $ 3,236 $(10,299)
Adjustments to reconcile net income (loss) to
net cash provided by (used) in operating
activities:
Depreciation and amortization................. 6,174 3,682 2,732
Minority interest............................. (54) (448) (20)
Share of equity investee loss................. 342 -- 147
Accretion of marketable securities discount... 9 30 74
Deferred income taxes......................... (1,398) (554) 4,214
Write-off of goodwill......................... 630 -- 6,806
Product writedown............................. -- -- 1,217
Changes in operating assets and liabilities:
Accounts receivable.......................... (11,284) (4,931) 2,720
Inventories.................................. 2,181 (2,541) (4,489)
Refundable income taxes...................... 809 (469) 99
Prepaid expenses and other assets............ (423) 258 (718)
Accounts payable and accrued liabilities..... 10,267 1,301 442
Deferred revenue............................. 1,202 (568) 986
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... 3,484 (1,004) 3,911
-------- -------- --------
INVESTING ACTIVITIES
Purchase of property and equipment.............. (3,559) (4,156) (3,061)
Deferred development costs...................... (4,113) (4,186) (2,455)
Purchases of investments........................ (10,656) (11,673) (21,483)
Proceeds from sale of investments............... 14,390 12,882 21,293
Purchase of intangible assets................... (514) -- (990)
Cash acquired on acquisition of subsidiary...... -- -- 662
Other........................................... (600) (8) (28)
-------- -------- --------
Net cash used in investing activities........... (5,052) (7,141) (6,062)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock.......... 3,987 4,282 10,123
Borrowings of debt.............................. -- 500 195
Repayments of debt.............................. (1,260) (141) (747)
Received from minority stockholders............. 20 411 --
-------- -------- --------
Net cash provided by financing activities....... 2,747 5,052 9,571
-------- -------- --------
Effect of exchange rate fluctuations on cash.... (723) (472) (37)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... 456 (3,565) 7,383
Cash and cash equivalents at beginning of year.. 9,390 12,955 5,572
-------- -------- --------
Cash and cash equivalents at end of year........ $ 9,846 $ 9,390 $ 12,955
======== ======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest......................... $ 121 $ 86 $ 73
======== ======== ========
Cash paid for income taxes..................... $ 439 $ 300 $ 1,073
======== ======== ========
</TABLE>
See accompanying notes.
E-7
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
IVI Checkmate (also "we" and "our") designs, develops and markets point-of-
sale payment systems in North and South America. Our automated payment
solutions handle electronic payment transactions such as check, debit, credit,
smart card and electronic benefits transfer, serving the retail, financial,
hospitality, banking, healthcare and transportation industries. The industry in
which we operate is subject to rapid change due to the development of new
competing technologies and products.
Basis of Presentation
In June 1998, the operations of International Verifact Inc. ("IVI") and
Checkmate Electronics, Inc. ("Checkmate") were combined pursuant to the
Combination Agreement ("the Combination"). Under the terms of the Combination,
IVI stockholders received, for each IVI common share, either one share of
common stock of IVI Checkmate, or one IVI exchangeable share, which can be
exchanged at any time for the IVI Checkmate common stock. Checkmate
stockholders received 1.2775 shares of IVI Checkmate common stock for each
Checkmate common stock and, accordingly, approximately 5,140,000 shares were
converted. The Combination was accounted for as a pooling-of-interests, and
accordingly, the consolidated financial statements have been restated to
reflect the historical results of both companies for all periods presented.
Information concerning common stock and per share data has been restated on an
equivalent share basis and assumes the exchange of all exchangeable shares.
In 1998, we also completed mergers with Plourde Computer Services, Inc.
("Plourde") and Debitek Holdings Limited ("Debitek"). These mergers were also
accounted for as a pooling-of-interests and, accordingly, our consolidated
financial statements have been restated for all prior periods to give effect to
these mergers.
The consolidated financial statements include the accounts of our
subsidiaries: IVI Checkmate Inc. (formerly Checkmate Electronics, Inc.), IVI
Checkmate Ltd. (formerly International Verifact Inc.), Plourde, Debitek and 82%
owned National Transaction Network, Inc. ("NTN"). In addition, financial
statements presented for 1997 also include the consolidation of IVI Ingenico
Inc., a 51% owned business venture formed in January 1997. However, in January
1998, we reduced our ownership in IVI Ingenico Inc. to 50%, with a third party
owning the other 50% interest. Consequently, the financial statements presented
for 1998 reflect a prospective change in accounting policy in accordance with
U.S. GAAP, as the investment in IVI Ingenico Inc. was accounted for under the
equity method, instead of consolidation. All intercompany balances and
transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the amounts reported in our consolidated financial statements and
accompanying notes. Actual results may differ from those estimates, and such
differences could be material to our consolidated financial statements.
Foreign Currency Translation
Our Canadian subsidiary considers the Canadian dollar to be its functional
currency. The assets and liabilities of our Canadian operations are translated
at year-end rates of exchange and revenues and expenses are translated at the
weighted average monthly rates of exchange during the year.
E-8
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Gains and losses resulting from currency translation are accumulated as a
separate component of stockholders' equity. Gains and losses resulting from
foreign currency transactions are included in the determination of net income.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, bank deposits and highly liquid
investments with maturities of three months or less when purchased, and are
stated at cost plus accrued interest which approximates market value.
Investments
Investments consist of U.S. Treasury bills with maturities greater than
three months when purchased and are stated at cost plus accrued interest, which
approximate market value. At December 31, 1998 and 1997, investments held were
$0 and $3.6 million, respectively.
Inventories
Inventories are valued at the lower of cost or market using the first-in,
first-out method:
<TABLE>
<CAPTION>
December 31
----------------
1998 1997
------- -------
(In thousands
of dollars)
<S> <C> <C>
Finished goods................................................ $ 6,222 $ 8,302
Work in process............................................... 1,320 874
Raw materials and supplies.................................... 11,944 10,898
------- -------
19,486 20,074
Less: obsolescence reserve.................................... (3,743) (1,963)
------- -------
$15,743 $18,111
======= =======
</TABLE>
Obsolenscence expense, including additional charges for product writedown
and redundancy (see Note 10) approximated $2.8 million, $393,000 and $1.3
million for the years ended December 31, 1998, 1997 and 1996, respectively.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed over the
estimated useful lives of the related assets (generally three to five years)
using the straight-line method for financial reporting purposes and accelerated
methods for income tax purposes. Property and equipment comprises the
following:
<TABLE>
<CAPTION>
December 31
-----------------
1998 1997
-------- -------
(In thousands of
dollars)
<S> <C> <C>
Equipment.................................................... $ 17,444 $15,180
Furniture and fixtures....................................... 2,465 2,554
-------- -------
19,909 17,734
Less: accumulated depreciation............................... (11,685) (9,167)
-------- -------
$ 8,224 $ 8,567
======== =======
</TABLE>
Depreciation expense approximated $3.8 million, $2.3 million and $1.8
million for the years ended December 31, 1998, 1997 and 1996, respectively.
E-9
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred Development Costs
Costs related to internally developed software for new products and
subsequent enhancements are capitalized only after the establishment of
technological feasibility. Software development costs incurred prior to
achieving technological feasibility are considered research and development
expenditures and are expensed as incurred. Capitalized costs are amortized over
the greater of the amount computed using (a) the ratio that current gross
revenues for a product bear to the total of current anticipated future gross
revenues for that product or (b) the straight-line method over the estimated
economic life of the related product (currently not to exceed five years).
Amortization expense was approximately $2.1 million, $1.0 million and $780,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
Identifiable Intangible Assets
Identifiable intangible assets consist of costs related to copyrights;
patents; trademarks; technology property rights; licensing rights; and non-
compete agreements. Such assets are being amortized on a straight-line basis
from five to eleven years, with amortization expense of approximately $292,000,
$216,000 and $133,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Goodwill
Goodwill is amortized on a straight-line basis over its useful life, not to
exceed 10 years. Amortization expense was approximately $38,000, $75,000 and
$19,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Goodwill is written down to its estimated net recoverable amount when it is
determined that a permanent impairment in value has occurred. The
recoverability of unamortized goodwill is assessed based on an estimate of
undiscounted cash flows over the remaining period of amortization for each
business to which the goodwill relates.
Revenue Recognition
Revenues are derived from sales of products and related service agreements.
Revenues from hardware product sales are recognized at the time of shipment.
Revenue from the sale and installation of proprietary software products are
recognized using the percentage of completion method, as the products may
require significant customization and modification of the software during
installation. Revenues from maintenance agreements are deferred and recognized
ratably over the life of the related service agreements.
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. Such amounts are measured using
enacted tax rates and laws that are expected to be in effect when the
differences reverse.
Employee Stock Options
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation" ("Statement 123"). Under Statement 123, we could continue
following previously existing accounting rules or adopt a new fair value method
of valuing stock-based awards to employees. We have elected to continue
following the existing accounting rules under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and
related Interpretations in accounting for employee stock options. The pro forma
effect on the accompanying consolidated statements of operations of reporting
under Statement 123 is presented in Note 4.
E-10
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Net Earnings Per Share of Common Stock
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share"
("Statement 128"), which establishes standards for computing and presenting
earnings per share for entities with publicly held common stock. Statement 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. Potential common stock is
not included in the per share calculations where the effect of its inclusion
would be anti-dilutive. Statement 128 requires the presentation of basic and
diluted earnings per share on the face of the income statement for all entities
with complex capital structures. We adopted Statement 128 in 1997. All earnings
(loss) per share amounts for all periods have been presented and, where
appropriate, restated to conform to the provisions of Statement 128.
Impact of Recently Issued Accounting Standards
In 1998, we adopted FASB Statement No. 130, "Reporting Comprehensive Income"
("Statement 130"). This statement establishes rules for the reporting of
comprehensive income and its components. Comprehensive income consists of net
income and foreign currency translation adjustments and is presented in the
Consolidated Statements of Stockholders' Equity. The adoption of Statement 130
had no impact on total stockholders' equity. Prior year consolidated financial
statements have been reclassified to conform to the Statement 130 requirements.
In 1998, we adopted FASB Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("Statement 131"). This statement
establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Statement 131 also establishes standards for related disclosures
about products and services, geographic areas and major customers. Prior year
consolidated financial statements have been reclassified to conform to the
Statement 131 requirements.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities", was released.
The statement requires the recognition of all derivatives as either assets or
liabilities in the balance sheet and the measurement of those instruments at
fair value. The accounting for changes in the fair value of a derivative
depends on the planned use of the derivative and the resulting designation. We
are required to implement the statement in the first quarter of fiscal 2000. We
have not used derivative instruments and we believe the impact of adoption of
this statement will not have significant effect on our financial statements.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use." This statement is effective for fiscal
years beginning after December 15, 1998. This statement provides guidance on
accounting for the cost of computer software developed or obtained for internal
use. We adopted this statement on January 1, 1999 and are currently in the
process of evaluating its impact.
E-11
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassifications and Restatements
Certain reclassifications were made in the 1997 and 1996 consolidated
financial statements to conform with the 1998 presentation. In addition, share
information and amounts have been restated to reflect the effects of the
pooling-of-interests of IVI, Checkmate, Plourde and Debitek.
2. FINANCIAL INSTRUMENTS AND CONCENTRATIONS
Financial instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and trade accounts receivable.
IVI Checkmate maintains cash and cash equivalents and certain other
financial instruments with various financial institutions. Our policy is
designed to limit exposure at any one institution.
We try to maintain a diversity of customers such that total revenues are not
dependent on any one customer. In each of 1997 and 1998, no one customer
accounted for more than 10% of total revenues, while in 1996, one such customer
accounted for 15% of total revenues in that year.
We perform ongoing credit approvals of our customers. Trade receivables are
unsecured, and we are at risk to the extent such amounts become uncollectible.
However, losses on receivables have in the past been within our expectations.
For the years ended December 31, 1998, 1997 and 1996, we recorded bad debts
expense of $226,000, $178,000 and $163,000, respectively.
The carrying amounts reported in the balance sheet for cash and cash
equivalents, investments, accounts receivable, accounts payable and bank lines
of credit approximate their estimated fair values based on discounted cash flow
analyses using current market rates.
3. BORROWINGS AND OTHER DEBT
Borrowings and other debt consist of bank lines of credit with a total of $0
and $938,000 outstanding at December 31, 1998 and 1997, respectively. We
currently have several lines of credit available to us that expire throughout
1999, with total borrowings available of approximately $5 million at various
interest rate terms.
4.EQUITY
Exchangeable Shares
Effective June 25, 1998, as a result of the Combination, IVI stockholders
received, for each IVI common share, either one share of common stock of IVI
Checkmate or one IVI exchangeable share. Accordingly, 6.0 million exchangeable
shares were issued. Each exchangeable share is intended to have substantially
identical economic and legal rights as, and will ultimately be exchanged on a
one-for-one basis for, a share of IVI Checkmate common stock. As of December
31, 1998, we had 17.8 million shares outstanding, including 5.8 million
exchangeable shares still outstanding as of December 31, 1998.
E-12
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.EQUITY (continued)
Preferred Stock
The board of directors of IVI Checkmate is authorized to issue up to
1,000,000 shares of Preferred Stock, par value $.01 per share, in one or more
series and to fix the powers, voting rights, designations and preferences of
each series. IVI Checkmate designated and issued one share of Series A
Preferred Stock and one share of Series B Preferred Stock in connection with
the Combination. The one share of Series A Preferred Stock was cancelled as a
result of the Combination. The one share of Series B Preferred Stock remains
outstanding and does not entitle its holder to any rights to dividends but does
entitle its holder to voting rights equivalent to the number of exchangeable
shares outstanding from time to time and a $1.00 liquidation preference. On
September 16, 1998, the board of directors designated 100,000 shares of Series
C Junior Participating Preferred Stock. See "--Stockholder's Rights Plan" below
for a description of the Series C Junior Participating Preferred Stock.
Stockholder's Rights Plan
On September 16, 1998, the board of directors adopted a Stockholder
Protection Rights Agreement and, in connection with such agreement, designated
100,000 shares of Series C Junior Participating Preferred Stock. The rights
plan committee of the board of directors declared a dividend of one stock
purchase right on each outstanding share of common stock and exchangeable
share. The right will be exercisable only if a person or group becomes a 15% or
more beneficial owner of IVI Checkmate. Each right entitles stockholders to buy
one one-thousandth (1/1000th) of a share of the Series C Junior Participating
Preferred Stock at an exercise price of $30.00. If certain triggering events
occur, the holders of the rights will be able to purchase shares of common
stock at a price substantially discounted from the then applicable market price
of our common stock. Prior to the time that they become exercisable, the rights
are redeemable for one cent per right at the option of the board of directors.
Stock Option Plans
We reserved 2,500,000 common shares for issuance pursuant to our 1998 Long-
Term Incentive Plan and 250,000 common shares for issuance pursuant to our 1998
Director Plan (the "Plans"). The Plans provide for the awarding of non-
qualified stock options and director options, to purchase common shares from
time to time at our discretion. At December 31, 1998, options totaling 952,000
were issued and outstanding under these Plans.
In connection with the Combination, in June 1998 we assumed 380,000 and
1,796,000 outstanding options to purchase common stock originally issued under
stock option plans of IVI and Checkmate, respectively. In connection with our
merger with Plourde, in September 1998 we assumed an additional 370,000 options
to purchase common stock that were originally issued and outstanding under
Plourde's stock option plan. Upon our assumption of the stock option
obligations of IVI, Checkmate and Plourde, no further options were granted
under their respective plans. As of December 31, 1998, a total of 4,972,000
shares of common stock are reserved for issuance under various stock option
plans, including 2,222,000 options still outstanding under the stock option
plans of IVI, Checkmate and Plourde.
E-13
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.EQUITY (continued)
Stock Option Plans (continued)
The following table summarizes stock option plan activities.
<TABLE>
<CAPTION>
Weighted
Number Average
Of Exercise
Options Price
------- --------
(000's)
<S> <C> <C>
Outstanding at January 1, 1996............................. 2,724 $7.25
Granted................................................... 1,041 5.89
Exercised................................................. (380) 6.84
Canceled.................................................. (330) 9.59
------
Outstanding at December 31, 1996........................... 3,055 $6.58
Granted................................................... 1,875 5.93
Exercised................................................. (739) 5.24
Canceled.................................................. (1,504) 7.73
------
Outstanding at December 31, 1997........................... 2,687 $5.81
Granted................................................... 1,152 6.80
Exercised................................................. (363) 4.00
Canceled.................................................. (302) 6.69
------
Outstanding at December 31, 1998........................... 3,174 $6.29
======
Options Exercisable:
At December 31, 1996...................................... 1,796 $6.25
At December 31, 1997...................................... 1,519 $5.60
At December 31, 1998...................................... 2,489 $6.16
</TABLE>
The following table summarizes information concerning options outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------------- ----------- ----------- -------- ----------- --------
(000's) (Years) (000's)
<S> <C> <C> <C> <C> <C>
$1.35--$ 2.70 368 6.95 $2.67 359 $2.67
$4.65--$ 6.66 707 3.64 $5.79 707 $5.79
$6.81--$ 6.85 1,855 7.25 $6.81 1,179 $6.81
$7.05--$11.55 244 6.74 $9.26 244 $9.26
----- -----
3,174 2,489
===== =====
</TABLE>
We have elected to follow APB 25 and related Interpretations in accounting
for our employee stock options because, as discussed below, the alternative
fair value accounting provided for under Statement 123, requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, when the exercise price of our employee stock options is
equal to or greater than the market price of the underlying stock on the date
of grant, no compensation expense is recognized.
E-14
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.EQUITY (continued)
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if we have accounted for our employee stock options granted
subsequent to December 31, 1994 under the fair value method of that statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996: risk-free interest rates of approximately
4.5%-6.0%; no dividend yields; volatility factor of the expected market price
of our common stock of 35%-60%; and a weighted-average expected life of the
options of 1-4 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because our employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in our opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of our employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Our pro forma
information, assuming Statement 123 had been adopted, is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------
<S> <C> <C> <C>
1998 1997 1996
-------- ------- ---------
(In thousands of dollars,
except per share amounts)
Pro forma net income (loss)...................... $ (6,104) $1,409 $(11,916)
Pro forma net income (loss) per share:
Basic........................................... $ (0.35) $ 0.08 $ (0.79)
Diluted......................................... $ (0.35) $ 0.08 $ (0.79)
Weighted average per share fair value of options
granted......................................... $ 2.69 $ 3.83 $ 5.87
</TABLE>
5.OPERATING LEASES
We lease certain property and equipment under non-cancelable lease
agreements. Rental expense under operating leases was approximately $1.4
million, $1.1 million and $1.0 million for the years ended December 31, 1998,
1997 and 1996, respectively.
Future minimum payments under non-cancelable operating leases with terms of
one year or more consisted of the following at December 31, 1998:
<TABLE>
<CAPTION>
1999.............................................................. $1,177
<S> <C>
2000.............................................................. 1,164
2001.............................................................. 1,040
2002.............................................................. 380
2003.............................................................. 340
Thereafter........................................................ 329
------
Total future minimum lease payments............................... $4,430
======
</TABLE>
E-15
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6.INCOME TAXES
For U.S. federal income tax purposes, we had at December 31, 1998
approximately $16.8 million of net operating loss carryforwards available to
offset future taxable income. These loss carryforwards began expiring in 1998,
and will continue to expire through 2018. Utilization of these net operating
loss carryforwards for income tax purposes is subject to certain limitations.
Further, the utilization of net operating loss carryforwards to offset future
taxable income may be further limited by any future changes in ownership in IVI
Checkmate. In addition, we had at December 31, 1998 approximately $7.4 million
of Federal and Provincial Canadian undepreciated capital and scientific
research and development costs available for deduction in future years with no
time limits, and unutilized Canadian scientific research and development income
tax credits of approximately $1.6 million, which originated from fiscal years
1989 to 1998. The utilization of these Canadian tax credits are subject to a
ten year limitation from the date of original claim and these credits begin to
expire in 1999. Furthermore, we had Canadian capital loss carryforward of
$500,000 at December 31, 1998 available to offset Federal capital gains in
future years with no time limits on its expiration, and $700,000 Provincial
non-capital loss carryforward available to offset future Provincial taxable
income with an expiration date of fiscal year 2001.
The valuation allowance consists primarily of the deferred tax benefit of
our net operating loss carryforwards in the U.S., due to the uncertainty
regarding the utilization of these loss carryforwards in future years.
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
Year Ended December
31
----------------------
1998 1997 1996
------ ----- -------
(In thousands of
dollars)
<S> <C> <C> <C>
Current income tax benefit (expense):
Federal............................................... $ (703) $ 256 $(1,301)
State................................................. (115) 45 (151)
------ ----- -------
Total current income tax benefit (expense)............. (818) 301 (1,452)
------ ----- -------
Deferred income tax benefit (expense):
Federal............................................... 863 (243) (1)
State................................................. 140 (43) --
Foreign............................................... 395 840 (4,231)
------ ----- -------
Total deferred income tax benefit (expense)............ 1,398 554 (4,232)
------ ----- -------
Provision for income tax benefit (expense)............. $ 580 $ 855 $(5,684)
====== ===== =======
</TABLE>
E-16
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6.INCOME TAXES (continued)
A reconciliation of the provision of income taxes to the U.S. Federal
statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1998 1997 1996
------- ------- -------
(In thousands of
dollars)
<S> <C> <C> <C>
Tax benefit (expense) at statutory rate............. $ 1,887 $ (810) $ 1,569
State taxes, net of Federal tax benefit (expense)... 237 (95) 185
Research and development costs...................... -- -- 51
Change in valuation allowance....................... -- 2,898 (4,611)
Tax carryforward items.............................. -- (1,139) (236)
Permanent differences............................... (1,544) 1 (2,642)
------- ------- -------
Provision for income tax benefit (expense).......... $ 580 $ 855 $(5,684)
======= ======= =======
</TABLE>
The tax effects of temporary differences and carryforwards that give rise
to significant portions of deferred tax assets (liabilities) consist of the
following:
<TABLE>
<CAPTION>
December 31
----------------
1998 1997
------- -------
(In thousands
of dollars)
<S> <C> <C>
Deferred tax assets:
Asset valuation allowances................................... $ 1,396 $ 579
Deferred revenue............................................. 780 452
Accrued liabilities.......................................... 94 210
Investment tax credits....................................... 626 2,833
Capital loss carryforwards................................... -- 3
Net operating loss carryforwards............................. 7,052 8,313
Other........................................................ 590 295
------- -------
10,538 12,685
Deferred tax liabilities:
Depreciation................................................. (537) (661)
Amortization................................................. (388) (1,116)
------- -------
9,613 10,908
Valuation allowances.......................................... (6,322) (9,015)
------- -------
Net deferred tax assets....................................... $ 3,291 $ 1,893
======= =======
</TABLE>
7.DEFINED CONTRIBUTION BENEFIT PLAN
We maintain several contributory retirement plans for our U.S. employees
which qualify under Section 401(k) of the Internal Revenue Code. Under these
plans, participants may contribute a portion of their annual compensation and
receive, at management's discretion, matching employer contributions to
specified maximum limits.
Total contributions under these plans that were charged to expense were
approximately $214,000, $177,000 and $126,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
E-17
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. NET INCOME (LOSS) PER SHARE
Net income (loss) per share on a basic and diluted basis as required by
Statement 128 is calculated as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1998 1997 1996
------- ------- --------
(In thousands, except
per share amounts)
<S> <C> <C> <C>
Net income (loss).................................. $(4,971) $ 3,236 $(10,299)
======= ======= ========
Calculation of weighted average shares outstanding
plus assumed conversions:
Weighted average basic shares outstanding........ 17,528 16,817 15,011
Effect of dilutive stock options................. -- 501 --
------- ------- --------
Weighted average diluted shares outstanding...... 17,528 17,318 15,011
======= ======= ========
Basic net income (loss) per share.................. $ (0.28) $ 0.19 $ (0.69)
======= ======= ========
Diluted net income (loss) per share................ $ (0.28) $ 0.19 $ (0.69)
======= ======= ========
</TABLE>
9. MERGERS, ACQUISITIONS AND ALLIANCES
Mergers
During 1998, IVI, Checkmate, Plourde and Debitek were merger together in
separate transactions that were accounted for as poolings-of-interest. In
connection with these mergers, approximately $12.6 million in related costs
(see Note 10) were charges to earnings.
Separate results of these combined entities for the quarter ended March 31,
1998 (the last quarter of public reporting for IVI and Checkmate), and for the
years ended December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
Unaudited Years Ended
Quarter Ended December 31
March 31, -----------------
1998 1997 1996
------------- ------- --------
(In thousands of dollars)
<S> <C> <C> <C>
Revenues:
IVI........................................... $13,238 $51,419 $ 35,038
Checkmate..................................... 9,641 33,526 35,104
Debitek....................................... 1,399 5,040 5,211
Plourde....................................... 711 2,680 2,032
------- ------- --------
$24,989 $92,665 $ 77,385
======= ======= ========
Net income (loss)
IVI........................................... $ 584 $ 3,507 $(12,936)
Checkmate..................................... 416 (129) 2,555
Debitek....................................... 159 (202) (100)
Plourde....................................... (115) 60 182
------- ------- --------
$ 1,044 $ 3,236 $(10,299)
======= ======= ========
</TABLE>
There were no significant intercompany transactions between the four
companies and no significant conforming accounting adjustments.
E-18
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. MERGERS, ACQUISITIONS AND ALLIANCES (continued)
Ingenico S.A.
In December 1996, a global strategic alliance with Ingenico, S.A.
("Ingenico") of Paris, France was formed (see also Note 11--Related Party
Transactions). A summary of the terms are:
. IVI Checkmate received an exclusive right to distribute Ingenico's
products in the Americas through 2006;
. in consideration for a payment of $1.0 million, which has been recorded
as an identifiable intangible assets to be amortized over 10 years, IVI
Checkmate received an irrevocable, royalty-free, exclusive license to
use and incorporate the UNICAPT technology and related intellectual
property of Ingenico into the Company's products;
. joint development of future products to lower manufacturing costs and
enhance the universal acceptance of products;
. establishment of a business venture to become the exclusive distributor
of IVI Checkmate and Ingenico products in Latin America; and
. Ingenico acquired 1,439,000 common shares from IVI Checkmate, which
represented an ownership in IVI Checkmate of approximately 9% as of
December 31, 1998, for a purchase price of $7.2 million less issuance
costs of $339,000.
National Transaction Network, Inc.
In September 1996, we acquired approximately 84% of the outstanding shares
of National Transaction Network, Inc. The purchase price of $1.3 million was
satisfied by the issuance of 230,850 shares of common stock of IVI Checkmate.
The acquisition was accounted for as a purchase transaction, which resulted in
goodwill of $746,000 (see also Note 10).
10.MERGER COSTS AND OTHER UNUSUAL CHARGES
Year Ended December 31, 1998
In 1998, we incurred costs pertaining to the combination of IVI and
Checkmate and the subsequent mergers of Plourde and Debitek. The description of
and the amount of costs incurred in each of these transactions are as follows:
<TABLE>
<CAPTION>
Combination
of IVI and Plourde Debitek
Checkmate Merger Merger Total
----------- ------- ------- -------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Professional fees......................... $4,007 $ 380 $381 $ 4,768
Closure of facilities in Boulder,
Colorado................................. 1,565 -- -- 1,565
Write-down of long-lived assets........... -- 1,300 -- 1,300
Inventory reserve for product redundancy.. 2,624 -- -- 2,624
Other expenses............................ 1,699 274 404 2,377
------ ------ ---- -------
Total..................................... $9,895 $1,954 $785 $12,634
====== ====== ==== =======
</TABLE>
E-19
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10.MERGER COSTS AND OTHER UNUSUAL CHARGES (continued)
Professional Fees. Costs consist of fees paid for legal and accounting,
financial advisors and other consultants in connection with the corresponding
transactions, filing and other regulatory fees, share issuance costs and other
stockholder related expenses.
Closure of Facilities in Boulder, Colorado. On the effective date of the
Combination, IVI's facilities in Boulder, Colorado were immediately closed, and
the operations relocated and combined with Checkmate's operations in Atlanta,
Georgia. The Boulder operations employed 52 people as at December 31, 1997, and
all were terminated upon closure of the facilities except for 17 people who
were transferred to the Atlanta operations. Costs of $1.6 million were incurred
for the transfer of operations to Atlanta, facility closure costs, severance
costs to terminated employees and employee relocation costs.
Write-down of Long-Lived Assets. NTN was in development of a Windows/NT
software platform to improve its market share in the software point-of-sale
business. This development, however, was immediately terminated upon the merger
with Plourde, which already had a viable and marketable Windows/NT platform. As
a result, we wrote off all of NTN's Windows/NT development costs previously
deferred, in the amount of $670,000. Furthermore, without a Windows/NT
platform, the future profitability of NTN was uncertain, and as a result, we
also wrote off entirety the remaining unamortized goodwill of $630,000 related
to the acquisition of NTN in 1996.
Inventory Reserve for Product Redundancy. While IVI and Checkmate sold
different payment solutions, there were in certain areas a duplication of
products that resulted upon the combination of these two companies. Upon
completion of the combination, we reviewed and assessed our inventory and
determined that, due to product redundancy, a permanent impairment in value in
the amount of $2.6 million had resulted.
Other Expenses. Costs include transitional operating costs such as system
integration and conversion for accounting and other operational systems, and
marketing and other setup costs to reflect a change in the organization's name,
logo and business.
Year Ended December 31, 1996
In 1996, we reviewed the recoverability of unamortized goodwill that arose
from the acquisition of Soricon Corporation ("Soricon") in December 1994. The
financial results of Soricon subsequent to the acquisition were below
anticipated results upon which we based the Soricon purchase price. Soricon did
not meet sales targets for its check reader, and costs were much higher than
anticipated. As a result, in accordance with our accounting policy, we compared
the unamortized goodwill against an estimate of the undiscounted cash flows
arising from the business to which the goodwill related, over the remaining
amortization period. On the basis of this, we determined that there was a
permanent impairment in the carrying value of the goodwill, and wrote off in
1996 the entire unamortized balance of $6.8 million which remained at December
31, 1995 as the estimated net recoverable amount and fair value of this
goodwill was zero. These undiscounted cash flows were only sufficient to
recover the value of the fixed assets of approximately $655,000 which
approximated fair value.
The alliance agreement entered into with Ingenico in December 1996 required
us to incorporate the UNICAPT technology into our products. As a result, in our
opinion, certain inventory products became unmarketable and deferred
development costs related to these products became unrecoverable. This resulted
in a charge of $1.2 million against 1996 earnings.
E-20
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11.RELATED PARTY TRANSACTIONS
In a marketing and distribution agreement that we entered into in December
1996 with Ingenico, we became the exclusive distributor of Ingenico's products
in the Americas. Consequently, during 1998 and 1997, we purchased products from
Ingenico totaling $6.8 million and $1.7 million, respectively, to satisfy
customer demands. At December 31, 1998 and 1997, approximately $2.1 million and
$910,000, respectively, of these purchases were still payable.
12.GEOGRAPHIC SEGMENT DISCLOSURES
We operate in a single operating segment, the electronic transactions
industry. Our revenues, however, are derived primarily from two geographical
regions: the U.S. and Canada. Consequently, our organization is managed based
on operating decisions made in each of these regions. The following table
presents how we, the management of IVI Checkmate, view our company based on
revenue, earnings and identifiable assets.
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------
1998 1997 1996
-------- ------- --------
(In thousands of dollars)
<S> <C> <C> <C>
Revenue:
United States.................................. $ 79,473 $62,647 $ 55,113
Canada......................................... 27,649 30,018 22,272
-------- ------- --------
$107,122 $92,665 $ 77,385
======== ======= ========
Income (loss)
United States.................................. $ 3,301 $(2,858) $ 953
Canada......................................... 3,769 4,313 2,070
-------- ------- --------
7,070 1,455 3,023
Corporate:
Unusual charges................................ (12,634) -- (8,023)
Taxes.......................................... 580 855 (5,684)
Other.......................................... 13 926 385
-------- ------- --------
$ (4,971) $ 3,236 $(10,299)
======== ======= ========
Identifiable assets:
United States.................................. $ 60,341 $54,176
Canada......................................... 22,488 22,408
-------- -------
$ 82,829 $76,584
======== =======
</TABLE>
E-21
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13.QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly consolidated financial data for 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
Quarter
---------------------------------
First Second Third Fourth
------- ------- ------- -------
(In thousands of dollars,
except per share amounts)
<S> <C> <C> <C> <C>
1998:
Net revenues............................... $24,989 $25,748 $29,928 $26,457
Gross profit............................... 9,596 10,149 11,531 10,028
Merger costs............................... -- (9,946) (1,953) (735)
Net income (loss).......................... 1,044 (7,209) 465 729
Basic net income (loss) per share.......... $ 0.06 $ (0.41) $ 0.03 $ 0.04
Diluted net income (loss) per share........ $ 0.06 $ (0.41) $ 0.03 $ 0.04
1997:
Net revenues............................... $22,361 $20,002 $25,599 $24,703
Gross profit............................... 8,892 7,085 9,533 9,140
Net income (loss).......................... 865 (637) 1,340 1,668
Basic net income (loss) per share.......... $ 0.05 $ (0.04) $ 0.08 $ 0.10
Diluted net income (loss) per share........ $ 0.05 $ (0.04) $ 0.08 $ 0.09
</TABLE>
E-22
<PAGE>
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of U.S. Dollars Except Per Share Data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
<CAPTION>
Current assets:
<S> <C> <C>
Cash and cash equivalents............................. $ 6,140 $ 9,846
Accounts receivable, net.............................. 24,813 31,820
Inventories........................................... 21,439 15,743
Deferred tax asset.................................... 5,044 4,060
Prepaid expenses and other assets..................... 1,092 1,581
-------- --------
Total current assets................................. 58,528 63,050
Property and equipment, net............................ 8,387 8,224
Deferred development costs, net........................ 11,087 10,150
Identifiable intangible assets, net.................... 1,258 1,320
Other assets........................................... 69 85
-------- --------
Total assets........................................... $ 79,329 $ 82,829
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
Current liabilities:
<S> <C> <C>
Accounts payable and accrued liabilities.............. $ 21,312 $ 24,169
Deferred revenue...................................... 3,026 2,805
Other................................................. 12 51
-------- --------
Total current liabilities............................ 24,350 27,025
Deferred tax liability................................. 769 769
Minority interest...................................... 14 18
-------- --------
Total liabilities...................................... 25,133 27,812
-------- --------
Stockholders' Equity:
Common stock, $0.01 par value......................... 181 178
Additional paid-in capital............................ 81,263 80,109
Retained deficit...................................... (25,428) (23,132)
Foreign currency translation adjustments.............. (1,820) (2,138)
-------- --------
Total stockholders' equity........................... 54,196 55,017
-------- --------
Total liabilities and stockholders' equity............. $ 79,329 $ 82,829
======== ========
</TABLE>
See notes to condensed consolidated financial statements
E-23
<PAGE>
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of U.S. Dollars Except Share and Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
----------------
1999 1998
------- -------
<S> <C> <C>
Net revenues.................................................. $15,110 $24,989
Cost of goods sold............................................ 9,388 15,392
------- -------
Gross profit.................................................. 5,722 9,597
------- -------
Operating expenses:
Selling, general and administrative.......................... 6,560 5,843
Research and development..................................... 1,236 1,457
Depreciation and amortization................................ 1,155 1,053
------- -------
8,951 8,353
------- -------
Operating income (loss)....................................... (3,229) 1,244
Interest and other income (expense)........................... (51) 40
------- -------
Income (loss) before income taxes............................. (3,280) 1,284
Income tax benefit (expense).................................. 984 (240)
------- -------
Net income (loss)............................................. $(2,296) $ 1,044
======= =======
Net income (loss) per share:
Basic........................................................ $ (0.13) $ 0.06
======= =======
Diluted...................................................... $ (0.13) $ 0.06
======= =======
Weighted average number of shares outstanding: (000's)
Basic........................................................ 18,071 17,178
======= =======
Diluted...................................................... 18,071 17,863
======= =======
</TABLE>
See notes to condensed consolidated financial statements
E-24
<PAGE>
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
1999 1998
------- -------
<S> <C> <C>
Operating activities:
Net income (loss)............................................ $(2,296) $ 1,044
Depreciation and amortization................................ 1,398 1,263
Deferred income taxes and other.............................. (873) (18)
Change in non-cash working capital........................... (777) (1,730)
------- -------
Net cash provided by operating activities..................... $(2,548) $ 559
------- -------
Investing activities:
Purchases of property and equipment.......................... (833) (568)
Deferred development costs................................... (1,481) (996)
Purchase of intangible assets................................ (2) (314)
Other........................................................ (81) (99)
------- -------
Net cash used in investing activities......................... (2,397) (1,977)
------- -------
Financing activities:
Proceeds from issuance of common stock....................... 1,158 2,771
Other........................................................ (42) (500)
------- -------
Net cash provided by financing activities..................... 1,116 2,271
------- -------
Effect of exchange rate fluctuations on cash.................. 123 59
------- -------
Net decrease in cash and cash equivalents..................... (3,706) 912
Cash and cash equivalents at beginning of period.............. 9,846 9,390
------- -------
Cash and cash equivalents at end of period.................... $ 6,140 $10,302
======= =======
</TABLE>
See notes to condensed consolidated financial statements
E-25
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars, except per share data)
(Unaudited)
March 31, 1999
1.Basis of Presentation
On June 25, 1998, IVI Checkmate Corp. (the "Company") was formed through the
combination of International Verifact Inc. and Checkmate Electronics, Inc.,
which was accounted for as a pooling-of-interests. These condensed consolidated
financial statements have been restated to reflect the historical results of
both companies for all periods presented.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In our opinion, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. These statements should be read in conjunction with our audited
financial statements for the year ended December 31, 1998. Operating results
for the three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999 or any other
interim period.
2.Inventories
Inventories are summarized by class as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Finished goods........................................ $10,511 $ 6,222
Work in process....................................... 1,244 1,320
Raw materials and supplies............................ 13,307 11,944
------- -------
Gross inventories................................... 25,062 19,486
Less obsolescence reserves............................ (3,623) (3,743)
------- -------
Total................................................. $21,439 $15,743
======= =======
</TABLE>
3.Net Income (Loss) Per Share
Net income (loss) per share on a basic and diluted basis as required by
Statement No. 128 is calculated as follows:
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
----------------
1999 1998
------- -------
<S> <C> <C>
Net income (loss)......................................... $(2,296) $ 1,044
======= =======
Calculation of weighted average shares outstanding plus
assumed conversions (000's):
Weighted average basic shares outstanding............... 18,071 17,178
Effect of dilutive stock options........................ -- 685
------- -------
Weighted average diluted shares outstanding............. 18,071 17,863
======= =======
Basic net income (loss) per share......................... $ (0.13) $ 0.06
======= =======
Diluted net income (loss) per share....................... $ (0.13) $ 0.06
======= =======
</TABLE>
E-26
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3.Net Income (Loss) Per Share (continued)
Due to our net loss for the quarter ended March 31, 1999, the amounts
reported for basic and diluted in that period are the same. Stock options in
the amount of 3,386,000 could potentially dilute basic earnings per share in
the future and were not included in the computation of diluted EPS because they
would have been anti-dilutive for the quarter ended March 31, 1999.
4.Geographic Information
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
--------- ------------
<S> <C> <C>
Revenue:
United States........................................... $ 10,091 $18,913
Canada.................................................. 5,019 6,076
-------- -------
$ 15,110 $24,989
======== =======
Income (loss):
United States........................................... $ (3,623) $ 478
Canada.................................................. 394 766
-------- -------
(3,229) 1,244
Corporate:
Taxes.................................................. 984 (240)
Other.................................................. (51) 40
-------- -------
$ (2,296) $ 1,044
======== =======
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Identifiable assets:
United States........................................... $ 58,593 $60,341
Canada.................................................. 20,736 22,488
-------- -------
$ 79,329 $82,829
======== =======
</TABLE>
5.Comprehensive Income
Total comprehensive income (loss), which consists of net income and foreign
currency translation adjustments, was $(2.0) million and $2.3 million for the
three months ended March 31, 1999 and 1998, respectively.
6.Subsequent Event
In April 1999, the acquisition of the net assets of the financial systems
point-of-sale business of DataCard Corporation was completed for approximately
$8,052,000. The purchase price was satisfied through the issuance of (i)
894,663 shares of Series D Preferred Stock of IVI Checkmate Corp., par value
$0.01 per share with 9% cumulative dividends, and (ii) a warrant to purchase
200,000 shares of Common Stock of IVI Checkmate Corp. at $6.00 per share on the
third anniversary date of the acquisition. The acquisition will be accounted
for as a purchase transaction.
E-27
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6.SUBSEQUENT EVENT (continued)
On or about April 30, 1999, we filed a lawsuit against Samsung Display
Devices, Inc. and Samsung Display Devices Co., Ltd. ("Samsung") in the State
Court of Fulton Country, Georgia, Civil Action No. 99-vs-15287J. The lawsuit
seeks damages in excess of $5 million for Samsung's failure to deliver in a
timely and/or working fashion components essential to our eN-Touch 1000
product. Samsung's failure to deliver working components and its failure to
deliver the components in the time-frame promised has caused us substantial
damages, including lost profits, which we intend to recover through this
action.
E-28
<PAGE>
APPENDIX F
NATIONAL TRANSACTION NETWORK, INC. FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP.............................................. F-2
Report of Deloitte & Touche LLP.......................................... F-3
Balance Sheets as of December 31, 1998 and 1997.......................... F-4
Statements of Operations for the Years Ended December 31, 1998, 1997 and
1996 ................................................................... F-6
Statements of Stockholders' Equity for the Years Ended December 31, 1998,
1997 and 1996........................................................... F-7
Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and
1996.................................................................... F-8
Notes to Financial Statements............................................ F-9
Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998.... F-17
Statements of Operations for the Three Months Ended March 31, 1999
(unaudited) and 1998 (unaudited)........................................ F-19
Statements of Cash Flows for the Three Months Ended March 31, 1999
(unaudited) and 1998 (unaudited)........................................ F-20
Notes to Financial Statements............................................ F-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
National Transaction Network, Inc.
We have audited the accompanying balance sheet of National Transaction
Network, Inc. as of December 31, 1998, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the year ended
December 31, 1998. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Transaction
Network, Inc. at December 31, 1998, and the results of its operations and its
cash flows the year ended December 31, 1998 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that
National Transaction Network, Inc. will continue as a going concern. As more
fully described in Note 1, the Company is dependent on IVI Checkmate Corp. to
provide financial support. IVI Checkmate Corp. is not obligated to provide this
support through 1999. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in note 1. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification
of liabilities that may result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Atlanta, Georgia
February 12, 1999
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of National Transaction Network, Inc.
We have audited the accompanying balance sheet of National Transaction
Network, Inc. (the "Company") as of December 31, 1997, and the related
statements of operations, stockholders' equity (deficit), and cash flows for
each of the two years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1997, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 17, 1998
F-3
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash & equivalents................................... $ 224,646 $ 457,857
Accounts receivable (less allowance for doubtful
accounts of $40,000 in 1998 and 1997 respectively).. 1,028,009 785,597
Inventory............................................ 159,116 754,919
Prepaid expenses..................................... 48,977 50,482
---------- ----------
Total current assets............................... 1,460,748 2,048,855
---------- ----------
PROPERTY, PLANT & EQUIPMENT:
Furniture and fixtures............................... 144,377 130,401
Machinery and equipment.............................. 801,816 871,602
---------- ----------
Total.............................................. 946,193 1,002,003
Less accumulated depreciation and amortization....... (791,915) (712,981)
---------- ----------
Property and equipment--net.......................... 154,278 289,022
---------- ----------
OTHER ASSETS:
Capitalized software development costs............... 133,717 286,228
Purchased technology................................. 255,853 --
Deposits and other................................... 13,263 14,663
---------- ----------
Total other assets................................. 402,833 300,891
---------- ----------
TOTAL.................................................. $2,017,859 $2,638,768
========== ==========
</TABLE>
See notes to financial statements
F-4
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 322,269 $ 265,708
Accounts payable to stockholder................... 66,503 318,858
Customer deposits................................. 13,955 11,709
Accrued liabilities............................... 420,803 211,748
Deferred revenue.................................. 525,635 49,067
Short-term portion of capital lease............... 1,182 36,598
------------ ------------
Total current liabilities........................ 1,350,347 893,688
------------ ------------
LONG-TERM LIABILITIES:
Long-term portion of capital lease................ -- 24,384
Convertible subordinated notes payable to
stockholder....................................... 2,256,257 1,524,208
------------ ------------
Total long-term liabilities...................... 2,256,257 1,548,592
------------ ------------
Total liabilities................................ 3,606,604 2,442,280
------------ ------------
COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.10 par value--authorized
5,000,000 shares; none outstanding...............
Common stock, $.15 par value--authorized
20,000,000 and 6,666,667 shares; issued and
outstanding 3,325,468 and 3,273,162 shares in
1998 and 1997, respectively...................... 498,827 490,974
Additional paid-in capital........................ 12,609,216 12,596,573
Accumulated deficit............................... (14,696,788) (12,891,059)
------------ ------------
Total stockholders' equity (deficit)............. (1,588,745) 196,488
------------ ------------
TOTAL.............................................. $ 2,017,859 $ 2,638,768
============ ============
</TABLE>
See notes to financial statements
F-5
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
REVENUE:
Systems and equipment................... $ 2,793,917 $2,828,153 $2,823,236
Software and services................... 2,257,160 2,490,218 2,189,787
----------- ---------- ----------
Total revenue.......................... 5,051,077 5,318,371 5,013,023
----------- ---------- ----------
COSTS AND EXPENSES:
Cost of revenue......................... 3,035,295 3,039,907 2,609,901
Sales, general and administrative....... 1,898,186 1,767,813 2,091,158
Research and development................ 1,087,807 922,117 947,087
Impairment of capitalized software as-
set.................................... 669,919 -- --
----------- ---------- ----------
Total costs and expenses............... 6,691,207 5,729,837 5,648,146
----------- ---------- ----------
LOSS FROM OPERATIONS..................... (1,640,130) (411,466) (635,123)
----------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense........................ (165,734) (39,143) (4,168)
Interest income......................... 135 1,846 24,296
----------- ---------- ----------
Total other income (expense)........... (165,599) (37,297) 20,128
----------- ---------- ----------
NET LOSS................................. $(1,805,729) $( 448,763) $( 614,995)
=========== ========== ==========
BASIC AND DILUTED LOSS PER COMMON SHARE.. $ (0.55) $ (0.14) $ (0.19)
=========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING............................. 3,312,494 3,254,055 3,248,606
=========== ========== ==========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock
------------------ Additional Total
Shares Paid-in Accumulated Stockholders'
Issued Amount Capital Deficit Equity (Deficit)
--------- -------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1995................... 3,248,606 $487,291 $12,589,255 $(11,827,301) $ 1,249,245
Net loss............... -- -- -- $ (614,995) $ (614,995)
--------- -------- ----------- ------------ -----------
BALANCE, DECEMBER 31,
1996................... 3,248,606 $487,291 $12,589,255 $(12,442,296) $ 634,250
Net loss............... -- -- -- $ (448,763) $ (448,763)
Stock issued under stock
option plan............ 24,556 $ 3,683 $ 7,318 -- $ 11,001
--------- -------- ----------- ------------ -----------
BALANCE, DECEMBER 31,
1997................... 3,273,162 $490,974 $12,596,573 $(12,891,059) $ 196,488
Net loss............... -- -- -- $ (1,805,729) $(1,805,729)
Stock issued under stock
option plan............ 52,306 $ 7,853 $ 12,643 -- $ 20,496
--------- -------- ----------- ------------ -----------
BALANCE, DECEMBER 31,
1998................... 3,325,468 $498,827 $12,609,216 $(14,696,788) $(1,588,745)
========= ======== =========== ============ ===========
</TABLE>
See notes to financial statements.
F-7
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $(1,805,729) $ (448,763) $(614,995)
Adjustments to reconcile net loss to net
cash (used for) provided by operating ac-
tivities:
Depreciation and amortization............ 160,465 134,949 117,427
Interest on converted subordinated notes
payable to stockholder.................. 82,049 24,208 --
Loss on sale of property and equipment... 13,905 -- --
Write-off of capitalized software devel-
opment costs............................ 669,919 -- --
Increase (decrease) in cash from:
Accounts receivable...................... (242,412) 620,516 (21,891)
Inventory................................ 595,803 (521,329) 40,569
Prepaid expenses......................... 1,505 (14,088) (9,547)
Deposits and other assets................ 1,400 (2,732) (8,252)
Accounts payable to stockholder.......... (252,355) 223,571 (152,115)
Customer deposits........................ 2,246 9,543 (23,099)
Accounts payable and accrued liabili-
ties.................................... 308,117 (366,733) 67,480
Deferred revenue......................... 476,568 (514,856) 517,846
----------- ---------- ---------
Net cash (used for) provided by operat-
ing activities......................... 11,481 (855,714) (86,577)
----------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...... (81,164) (141,949) (47,512)
Proceeds from the sale of equipment...... 11,898 -- --
Acquisition of purchased technology...... (313,555) -- --
Capitalization of software development
costs................................... (517,408) (286,228) --
----------- ---------- ---------
Net cash used in investing activities... (900,229) (428,177) (47,512)
----------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease............... (14,956) (35,298) (7,123)
Proceeds from issuance of convertible
subordinated debt....................... 650,000 1,500,000 --
Proceeds from stock issued under stock
option plans............................ 20,496 11,001 --
Proceeds from bank line of credit........ 100,000 700,000 --
Repayments to bank line of credit........ (100,000) (700,000) --
----------- ---------- ---------
Net cash provided by (used in) financing
activities............................. 655,540 1,475,703 (7,123)
----------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVA-
LENTS..................................... (233,208) 191,812 (141,212)
CASH AND EQUIVALENTS, BEGINNING OF YEAR.... 457,854 266,045 407,257
----------- ---------- ---------
CASH AND EQUIVALENTS, END OF YEAR.......... $ 224,646 $ 457,857 $ 266,045
----------- ---------- ---------
SUPPLEMENTAL INFORMATION--Cash paid for in-
terest.................................... $ 2,249 $ 14,740 $ 4,168
=========== ========== =========
NON CASH TRANSACTIONS:
Capital lease additions................... $ -- $ 75,000 $ 28,400
Transfer of capital lease in conjunction
with sale of software license............ 44,844 -- --
Return of purchased software.............. 42,500 -- --
Accrued interest due to stockholder
converted to convertible subordinated
notes payable to stockholder............. 59,839 24,208 --
</TABLE>
See notes to financial statements.
F-8
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
1.Nature of Business and Summary of Significant Accounting Policies
Nature of Business--National Transaction Network, Inc. (the "Company")
designs, integrates and markets point-of-sale electronic payment systems and
software, principally to the retail industry.
On September 13, 1996, International Verifact, Inc. ("IVI") acquired
beneficial ownership of approximately 84% of the outstanding common stock of
the Company. In June 1998, International Verifact Inc. and Checkmate
Electronics, Inc. merged to form IVI Checkmate Corp. ("IVI Checkmate"), one of
the largest electronic payment solutions providers in North America. In the
past, the Company had relied on IVI Checkmate to finance its operations.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. However, because of the Company's
recurring losses and declining revenues, such realization of assets and
liquidation of liabilities is subject to significant uncertainty. The Company's
ability to continue as a going concern is dependent upon its ability to
generate revenue and cash flows from operations, and/or obtain financing or
additional capital.
As shown in the financial statements, the Company incurred a net loss of
$1,805,729 in 1998, and an accumulated deficit of $14,696,788. The Company
experienced minimal cash flows from operations of $11,481. The Company
maintains a cash balance of $224,646 as of December 31, 1998. The funds result
form the proceeds of borrowings under its Convertible Note Agreement with IVI
Checkmate and have enabled the Company to meet its obligations during 1998
despite a reduction in positive cash flows. However, the Company will not be
able to depend solely on funds of $224,646 to meet its obligations during 1999,
these conditions substantial doubt about the Company's ability to continue as a
going concern. The Company may seek additional financing from its significant
stockholders or a third party. It is not possible to predict the outcome of the
Company's efforts and there is no assurance that the Company will be successful
in increasing revenues, obtaining financing and continuing operations.
On September 29,1998, IVI Checkmate acquired Plourde Computing Services.
Inc. ("Plourde"). This independent software company has a Windows/NT based
payments application which has made the Company's PINnacle NT platform product
redundant.)
In January 1998, the Company purchased the rights to certain software
products from BancTec USA, Inc. ("BancTec"). Also included in the purchase were
certain customer software maintenance contracts and tangible assets to support
such contracts. The Mainsail software product, acquired from BancTec, allows
the retailer to control their electronic payments through owning a local host
payment switch thereby reducing their costs of accepting electronic payments.
The Mainsail product, in conjunction with its relationship with IVI Checkmate,
allows NTN to offer to retailers complete end-to-end payment solutions.
Use of Estimates in the Preparation of Financial Statements--The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
F-9
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
1.Nature of Business and Summary of Significant Accounting Policies (continued)
Financial Instruments--The carrying values of cash and equivalents, accounts
receivable, and accounts payable approximate fair value due to the short-term
nature of these instruments. The carrying value of the Convertible Notes
Payable to Stockholder approximates fair value because the notes carry interest
rates that are variable and reflect current market trends.
Revenue Recognition--Revenue from hardware and software sales is generally
recognized upon shipment. Revenue from maintenance agreements is deferred and
recognized ratably over the term of the related service agreements. The Company
enters into fixed price software development contracts and recognizes revenue
under these contracts using the percentage of completion method. Consulting
services revenue is recognized as services are performed.
Cash and Cash Equivalents--The Company considers all highly liquid
investments purchased with a remaining maturity of three months or less to be
cash equivalents.
Inventory--Inventory is recorded at the lower of cost or market using the
first-in, first out method and consists primarily of electronic payment
terminals and related peripherals.
Property and Equipment--Property and equipment are recorded at cost.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of the assets which range from three to five years.
Depreciation expense was approximately $106,428, $135,000, and $117,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
Capitalized Software Costs--Costs incurred to establish the technological
feasibility of software products are research and development expense and are
charged to expense as incurred. The Company capitalizes costs incurred between
the point of establishing technological feasibility and general release when
such costs are material. At December 31, 1998, the Company has capitalized
software costs of $133,717.
Long-Lived Assets--The Company reviews its long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company believes that no material impairment existed at
December 31, 1998.
Stock-Based Compensation--In October 1995, the FASB issued Statement No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Under SFAS 123,
the Company can elect to follow previously existing accounting rules or adopt a
new fair value method of valuing stock-based awards to employees. The Company
has elected to continue following existing accounting rules under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), and related interpretations in accounting for employee stock
options. The pro forma effect on the accompanying statements of operations for
reporting under SFAS 123 is presented in Note 4. Compensation expense
associated with awards of stock or options to employees is measured using the
intrinsic value method. Compensation expense associated with awards to non
employees is measured using the fair value method
Loss Per Common Share-- In 1997, the Company adopted the provision of
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," and has restated all periods presented to conform to the new
presentation. SFAS No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Basic net
loss per common share is computed using the weighted-average number of shares
of common stock outstanding. In determining the denominator for dilutive loss
per common share, no shares resulting from the assumed exercise of options
using the treasury stock method or resulting from the conversion of the
convertible subordinated notes payable to stockholder are added to the
denominator because the inclusion of such shares would be antidilutive due to
the net loss for each of the years presented. Accordingly, diluted loss per
common share is equal to basic loss per common share and is not separately
disclosed.
F-10
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
1.Nature of Business and Summary of Significant Accounting Policies (continued)
Income Taxes--The Company follows the asset and liability method of
accounting for income taxes, under which deferred income taxes are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which the temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rate is recognized in income in the
period that includes the enactment date.
Recently Issued Accounting Standards--In October 1997, the Accounting
Standards Executive Committee issued Statement of Position ("SOP") 97-2,
"Software Revenue Recognition." SOP 97-2 provides guidance on when revenue
should be recognized and in what amounts for licensing, selling, leasing, or
otherwise marketing computer software. SOP 97-2 supersedes SOP 91-1, "Software
Revenue Recognition," and was adopted by the Company for transactions entered
into after December 31, 1997. Adoption of SOP 97-2 did not significantly change
the way the Company recognized revenue.
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income
(SFAS 130). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. Comprehensive income
consists of net income and foreign currency translation adjustments and is
presented in the Statements of Stockholder's Equity. The adoption of SFAS 130
had no impact on total stockholder's equity.
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The SFAS was adopted by the Company during 1998 and did not have a
material effect on its financial position and results of operations.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS 133) was released. The statement requires the
recognition of all derivatives as either assets of liabilities in the balance
sheet and the measurement of those instruments at fair value. The accounting
for changes in the fair value of a derivative depends on the planned use of the
derivative and the resulting designation. The Company is required to implement
SFAS 133 in the first quarter of fiscal 2000. The Company has not used
derivatives instruments and believes the impact of adoption will not have a
significant effect on the financial statements.
In March 1998, the American Standards Executive Committee issued Statement
of Position 98-1, "Accounting for Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1). This statement provides guidance on
accounting for the cost of computer software developed or obtained for internal
use. The Company will adopt this SOP on January 1, 1999. The Company is
currently in the process of evaluating its impact.
Reclassification--Certain items in the 1996 and 1997 financial statements
have been reclassified to conform to the 1998 presentation.
2.Line of Credit
The Company's working capital line of credit with its bank which was to
expire on January 4, 1999 has been terminated without penalty. Future working
capital advances will be provided by IVI Checkmate.
F-11
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
3.Convertible Subordinated Notes Payable to Stockholder
On August 18, 1997, the Company entered into a Convertible Subordinated Note
Purchase Agreement (the "Note Agreement") with IVI whereby the Company may from
time to time issue and sell to IVI the Company's Convertible Subordinated Notes
(the "Notes") up to an aggregate amount of $2,000,000, as stated in the October
31, 1997 amendment to the Note Agreement. The Notes have a five-year term, bear
interest at a rate per annum equal to the prime rate plus 2% (9.75% at December
31, 1998), and are secured by the Company's assets. Interest payments on the
Notes are deferred until maturity.
The Notes are convertible into the Company's common stock at any time, at
the option of the holder, in accordance with the terms of the Note Agreement.
The conversion price shall be equal to no less than the fair market value. The
Notes are also subject to certain registration rights in the event that the
Company determines to register additional shares of common stock.
On September 19, 1997, and November 24, 1997, the Company issued Notes in
the amounts of $400,000, and $1,100,000, respectively. Both Notes mature in
2002. During 1998, the Company was advanced additional funding under the Note
Agreement from IVI Checkmate in the amount of $650,000. Accrued interest under
the Notes aggregated $106,248 and $24,208 at December 31, 1998 and 1997.
4.Stock Options
Stock Option Plans--Under the Company's 1988 and 1983 Stock Option Plans
(the "Plans"), incentive stock options to purchase up to a maximum of 933,333
shares of common stock may be granted to certain employees, officer,
consultants, and directors at exercise prices not less than fair market value
at the date of the grant. Options become exercisable in varying annual
installments. The period within which any option may exercised cannot exceed
ten years from the date of the grant. At December 31, 1998, 550,168 shares were
available for grant under the Plans.
Director Stock Option Plans Under the company's 1995 and 1993 Directors
Stock Option Plans (the "Director Plans"), non-qualified options to purchase up
to a maximum of 320,000 shares of common stock may be granted to members of the
Board of Directors (the "Board"). The exercise price of the options may not be
less than fair market value on the date of grant. Options under the Director
Plans become exercisable upon grant and continue for the period determined by
the Board but may not exceed ten years. As of December 31, 1998, 193,333 shares
were available for grant under the Director Plans.
<TABLE>
<CAPTION>
Number of Exercisable Weighted Average
Options Granted Options Exercise Price
--------------- ----------- ----------------
<S> <C> <C> <C>
Outstanding January 1, 1996... 591,985 $0.67
Granted....................... 251,000 0.42
Expired or Canceled........... (220,605) 0.88
--------
Outstanding December 31,
1996......................... 622,380 270,601 0.50
Granted....................... 63,000 0.64
Exercised..................... (24,556) 0.45
Expired or Canceled........... (13,195) 0.55
--------
Outstanding at December 31,
1997......................... 647,629 393,258 0.51
Granted....................... 108,000 0.49
Exercised..................... (52,306) 0.40
Expired or Canceled........... (193,491) 0.42
--------
Outstanding at December 31,
1998......................... 509,832 336,430 $0.53
========
</TABLE>
F-12
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
4.Stock Options (continued)
The following table summarizes options at December 31, 1998:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
---------------------------- ----------------
Weighted
Weighted Average Weighted
Number Average Contractual Number Average
of Exercise Life of Exercise
Range of Exercise Price Options Price (years) Options Price
----------------------- ------- -------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.22--0.44................... 392,165 $0.40 6.92 283,433 $0.40
0.56--0.83................... 101,000 0.63 8.75 36,332 0.63
3.00......................... 16,667 3.00 3.67 16,665 3.00
</TABLE>
The Company follows the requirements of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to employees" to account for its stock
option plan and, accordingly, compensation cost is recognized in the
consolidated statements of options for the stock plan to the extent the options
are granted at prices below fair market value. The Company adopted SFAS 123,
which requires certain disclosures about stock-based employee compensation
arrangements. SFAS 123 requires pro forma disclosure of the impact on net
income and earnings per share if the fair market value method defined in SFAS
123 had been used. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing valuation model for options
granted with the following weighted-average assumptions: a weighted average
risk-free interest rate of 5.75%; a dividend yield of 0%;a volatility factor of
the expected market price of the common stock of .63 for options granted during
1998 and 1.2 and 1.48 for options granted during 1997 and 1996 respectively,
and a weighted average expected life of 7.67 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restriction and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options. Because change in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
The weighted average grant date fair value of options granted in 1998, 1997,
and 1996, is $ $0.30, $0.62, and $0.42 per share, respectively. The options
granted during 1998, 1997, and 1996 had exercise prices at fair market value.
For purposes of pro-forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
SFAS 123 pro-forma information is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Pro-forma net loss...................... $(1,826,746) $(501,220) $(653,876)
Pro-forma basic and diluted loss per
share.................................. $ (0.56) $ (0.15) $ (0.20)
</TABLE>
F-13
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
5.Income Taxes
Significant components of the Company's deferred tax assets and liabilities
as of December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable............................... $ 32,000 $ 31,000
Inventory reserve................................. 23,498 23,000
Accrued liabilities............................... 51,296 16,000
Commissions....................................... 11,206 --
Deferred revenue.................................. 194,254 --
Subordinated debt................................. 42,503 --
Net operating loss carryfwds...................... 950,200 4,816,000
----------- -----------
Deferred tax assets................................ 1,304,957 4,886,000
Deferred tax liabilities
Depreciation...................................... (1,511) (3,000)
----------- -----------
Deferred tax asset................................. 1,303,442 4,883,000
Valuation allowance................................ (1,303,442) (4,883,000)
----------- -----------
Deferred taxes, net................................ $ -- $ --
=========== ===========
</TABLE>
For the years ended December 31, 1998 and 1997, the net changes in the
valuation allowance are primarily related to the change in net deferred tax
assets as such assets are fully reserved in each year.
A reconciliation between the U.S. statutory tax rate and the effective tax
rate for the years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate..................................... (34)% (34)% (34)%
State rate, net of federal benefit..................... (6)% (6)% (6)%
Change in valuation allowance due to the of future
realization of currently generated net
Operating loss carryforwards........................... 36 % 38 % 39 %
Non deductible expenses................................ 4 % 2 % 1 %
Effective tax rate..................................... -- % -- % -- %
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards for
tax purposes of approximately $950,000 which expire in varying amounts through
2013. Due to changes in ownership in 1989 and in 1996, the Company's ability to
utilize these carryforwards is likely to be limited by the Internal Revenue
Service in the aggregate.
6.Capitalized Software
The Company accounts for certain software development costs in accordance
with Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." It
is the Company's policy to capitalize costs relating to the development of its
products once technological feasibility has been achieved until the products
are available for general release to customers, provided that the
recoverability of such costs is reasonably assured through expected sales
revenue less related selling expenses. Upon availability of products for
general release to customers, all related capitalized development costs are
amortized over a suitable period based on the products' estimated economic
F-14
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
life. Due to IVI Checkmate's acquisition of Plourde, management has determined
that the costs capitalized for the PINnacle NT product, totaling $669,919, are
not recoverable and therefore impaired. Accordingly, these costs were written
off in the current year. The Company is continuing to capitalize costs for its
Mainsail product, which totaled $133,717 at December 31, 1998.
7.Commitments
Office Lease--In November of 1996, the Company signed a noncancelable lease
for new office space, which commenced in February 1997. The lease requires
reimbursement of certain tenant improvements and operating costs throughout the
term of the lease. The lease has a five-year term with one five-year renewal
option to extend the lease through January 2007.
Rent expense for the years ended December 31, 1998, 1997, and 1996 was
approximately $197,000, $119,000 and $87,000, respectively. Future minimum
lease payments, as of December 31, 1998, under this noncancelable operating
lease approximate the following:
<TABLE>
<S> <C>
1999................................................................ $126,000
2000................................................................ 126,000
2001................................................................ 130,000
2002................................................................ 13,000
2003................................................................ --
--------
Total........................................................... $395,000
========
</TABLE>
8.Capital Lease
In 1997 and 1996, the Company entered into capital leases for certain
software and equipment, respectively. The 1997 software capital lease was sold
to and lease payments assigned to a third party. The software capital lease had
been capitalized at the present value of the future minimum rental payments and
is included in machinery and equipment at December 31, 1997 at a value of
$103,400, less accumulated amortization of $12,500. The capital lease for
equipment had been capitalized at the present value of the future minimum
rental payments and is included in machinery and equipment at December 31,
1998, 1997 and 1996 at a value $28,400, less accumulated amortization of
$8,974, $10,313, and $7,123 respectively.
9.Financial Instruments and Concentrations of Customers
Financial instruments that potentially subject us to significant
concentrations of credit risk consist primarily of cash and cash equivalents
and trade accounts receivable.
The Company performs ongoing credit approvals of its customers. Trade
receivables are unsecured, and the Company is at risk to the extent such
amounts become uncollectible. However, losses on receivables have in the past
been within expectations.
The Company's customer base consists of large retail companies, principally
in the supermarket industry, located throughout the United States.
Major customers accounted for the following percentages of revenue:
<TABLE>
<CAPTION>
Customers 1998 1997 1996
--------- ---- ---- ----
<S> <C> <C> <C>
A)......................................................... 59% 57% 48%
B)......................................................... -- -- 13%
C)......................................................... 8% -- 10%
</TABLE>
F-15
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
10.Related Party Transactions
Product Distribution Agreement--the Company sold certain products under the
terms of a product distribution agreement (the "Agreement") with IVI, now IVI
Checkmate. The Agreement granted the Company the nonexclusive right to market,
distribute or sell IVI's products in the United States. The Agreement expired
on December 31, 1992, and the Company and IVI Checkmate have continued to
transact business under an informal extension of the Agreement. Total purchases
from IVI Checkmate were approximately, $1,050,000, $1,870,000, and $453,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. Sales to IVI
were approximately $65,000 and $168,000 for the years ended December 31, 1998
and 1997, respectively. At December 31, 1998, 1997 and 1996 accounts payable to
IVI Checkmate were $66,503, $318,858 and $95,287, respectively.
11.401(k) Retirement Savings Plan
The Company has a 401(k) Retirement Saving Plan (the "401(k) plan") covering
substantially all employees. Under the 401(k) plan, participants are allowed to
contribute an amount not to exceed 20% of compensation, subject to certain
limitations. The Company may make matching contributions at its discretion. No
contributions were made by the Company during 1998, 1997, or 1996.
F-16
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents................................. $ 180,579 $ 224,646
Accounts receivable (Net of allowance for doubtful
accounts of $40,000 at March 31, 1999 and December
31, 1998)........................................... 737,920 1,028,009
Accounts receivable-stockholder...................... 12,120 --
Inventory............................................ 90,275 159,116
Prepaid expenses..................................... 52,049 48,977
---------- ----------
TOTAL CURRENT ASSETS............................... 1,072,943 1,460,748
---------- ----------
PROPERTY AND EQUIPMENT................................ 959,274 946,193
Less accumulated depreciation and amortization....... (812,767) (791,915)
---------- ----------
PROPERTY AND EQUIPMENT--NET........................ 146,507 154,278
---------- ----------
OTHER ASSETS
Capitalized software development costs............... 298,743 133,717
Purchased technology, net............................ 240,103 255,853
Deposits and other................................... 24,156 13,263
---------- ----------
Total other assets................................... 563,002 402,833
---------- ----------
TOTAL............................................. $1,782,452 $2,017,859
========== ==========
</TABLE>
See Notes to Financial Statements.
F-17
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 185,691 $ 322,269
Accounts payable-stockholder...................... 33,013 66,503
Accrued liabilities............................... 477,676 434,758
Deferred revenue.................................. 448,521 525,635
Short term portion of capital lease............... -- 1,182
------------ ------------
TOTAL CURRENT LIABILITIES........................ 1,144,901 1,350,347
------------ ------------
LONG TERM LIABILITIES:
Convertible notes payable to stockholder.......... 2,308,664 2,256,257
------------ ------------
TOTAL LONG TERM LIABILITIES...................... 2,308,664 2,256,257
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value; authorized,
5,000,000 shares;
none issued and outstanding...................... -- --
Common stock, $.15 par value; authorized,
20,000,000 shares; issued and outstanding,
3,325,468 shares at March 31, 1999 and December
31, 1998......................................... 498,827 498,827
Additional paid-in capital........................ 12,609,216 12,609,216
Accumulated deficit............................... (14,779,156) (14,696,788)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY....................... (1,671,113) (1,588,745)
------------ ------------
TOTAL.......................................... $ 1,782,452 $ 2,017,859
============ ============
</TABLE>
See Notes to Financial Statements.
F-18
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
REVENUE............................................... $1,005,014 $1,550,745
---------- ----------
COST AND EXPENSES
Cost of revenue...................................... 588,505 876,560
Research and development............................. 178,449 239,787
Selling, general and administrative.................. 268,055 541,429
---------- ----------
Total............................................... 1,035,009 1,657,776
---------- ----------
LOSS FROM OPERATIONS.................................. (29,995) (107,031)
---------- ----------
OTHER INCOME:
Interest expense..................................... (52,373) (41,045)
---------- ----------
Total............................................... (52,373) (41,045)
---------- ----------
NET LOSS........................................... $ (82,368) $ (148,076)
========== ==========
NET LOSS PER COMMON SHARE............................. $ (0.02) $ (0.05)
========== ==========
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING................................... 3,325,468 3,281,439
========== ==========
</TABLE>
See Notes to Financial Statements
F-19
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss................................................ $ (82,368) $(148,076)
--------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization.......................... 36,602 40,409
Interest on conv. subordinated note payable to stock-
holder................................................ 52,407 39,375
Loss on sales of property and equipment................ -- 13,905
Increase (decrease) in cash from:
Accounts receivable.................................... 290,089 (44,033)
Accounts receivable--stockholder (12,120) (65,006)
Inventory.............................................. 68 841 441,369
Prepaid expenses....................................... (3,072) 6,237
Deposits............................................... (10,893) --
Accounts payable--stockholder.......................... (33,490) (264,545)
Accounts payable and accrued liabilities............... (93,660) 347,629
Deferred revenue....................................... (77,114) 225,323
--------- ---------
Total adjustments...................................... 217,590 740,663
--------- ---------
Net cash provided by operating activities............. 135,222 592,587
--------- ---------
Cash Flows From Investing Activities:
Purchases of property and equipment.................... (13,081) (26,188)
Proceeds from the sale of equipment.................... -- 11,898
Acquisition of purchased technology.................... -- (313,555)
Capitalization of software development costs........... (165,025) (142,097)
--------- ---------
Net cash used for investing activities................ (178,106) (469,942)
Cash Flows From Financing Activities:
Proceeds from stock issued under stock option plan..... -- 14,425
Proceeds from bank line of credit...................... -- 100,000
Repayment to bank line of credit....................... -- (100,000)
Repayment of Capital Lease............................. (1,182) (6,660)
--------- ---------
Net cash provided by (used for) financing activities.. (1,182) 7,765
--------- ---------
Net increase (decrease) in cash and equivalents.......... (44,066) 130,410
--------- ---------
Cash and Equivalents, Beginning of Period................ 224,645 457,857
--------- ---------
Cash and Equivalents, End of Period...................... $ 180,579 $ 588,267
========= =========
</TABLE>
See Notes to Financial Statements.
F-20
<PAGE>
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
1. The accompanying financial statements and notes do not include all of the
disclosures made in the Company's Form 10-K for the year ended December 31,
1998 which should be read in conjunction with these statements. In the
opinion of the Company, the financial statements include all adjustments
necessary for a fair presentation of the quarterly results.
2. The results of operations for the three month period ended March 31, 1999
are not necessarily indicative of the results to be expected for the full
year.
3. The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earning per Share," and has restated all periods
presented to conform with the new presentation. Basic net loss per common
share is computed using the weighted average number of common shares
outstanding during each period. In determining the denominator for dilutive
loss per common share, no shares resulting from the assumed exercise of
options using the treasury stock method or resulting from the conversion of
the convertible subordinated notes payable to stockholder are added to the
denominator because the inclusion of such shares would be antidilutive due
to the net loss for each of the periods presented. Accordingly, diluted loss
per common share is equal to basic loss per common share and is not
separately disclosed.
4. For the quarters ended March 31, 1998 and 1999, the Company made inventory
purchases from IVI Checkmate Corp. ("IVI Checkmate"), its parent company,
totaling approximately $77,000 and $80,000 respectively. Accrued interest
for the Company's Convertible Subordinated Notes Payable to IVI Checkmate
totaled $158,664 for the quarter ended March 31, 1999.
5. The Company accounts for certain software development costs in accordance
with Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed." It is the Company's policy to capitalize costs relating to the
development of its products once technological feasibility has been achieved
until the products are available for general release to customers, provided
that the recoverability of such costs is reasonably assured through expected
sales revenue less related selling expenses. Upon availability of products
for general release to customers, all related capitalized development costs
are amortized over a suitable period based on the products' estimated
economic life. During the quarter ended March 31, 1999, the Company
capitalized software development costs of approximately $165,000 for
Mainsail software development cost aggregated $299,000 at March 31, 1998. In
the third quarter of 1998, approximately $679,000 of the cost capitalized
for the PINnacle NT product were determined to be not recoverable and
therefore written off.
F-21
<PAGE>
EXHIBIT 99.1
Proxy Card
REVOCABLE PROXY-SOLICITED BY THE BOARD OF DIRECTORS
OF
NATIONAL TRANSACTION NETWORK, INC. FOR
A SPECIAL MEETING OF STOCKHOLDERS.
The undersigned hereby appoints _____________ and ____________ and each of
them, proxies, with full power of substitution, to vote for and in the name of
the undersigned at a Special Meeting of Stockholders (the "Special Meeting") of
National Transaction Network, Inc. (the "Company"), to be held at
________________, ___________________, _________, _________ on __________,
______________ ___, 1999 at _____ a.m., local time, and at any and all
adjournments thereof, as indicated on the reverse. The proxies, in their
discretion, are further authorized to vote on matters which the Board of
Directors does not know a reasonable time before making the proxy solicitation
will be presented at the Special Meeting and are further authorized to vote on
other matters which may properly come before the Special Meeting and any
adjournments thereof.
THIS PROXY CARD WILL BE VOTED AS DIRECTED. IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY CARD WILL BE VOTED IN THE DISCRETION OF THE PROXIES "FOR"
THE PROPOSAL.
If the undersigned elects to withdraw this proxy card at or before the time
of the Special Meeting or any adjournments thereof and notifies an authorized
representative of the Company at or prior to the Special Meeting of the decision
of the undersigned to withdraw this proxy card, then the power of said proxies
shall be deemed terminated and of no further force and effect. If the
undersigned withdraws this proxy card in the manner described above and prior to
the Special Meeting does not submit a duly executed and subsequently dated proxy
card to the Company, the undersigned may vote in person at the Special Meeting.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED
PREPAID ENVELOPE.
(Continued, and to be signed and dated, on the reverse side)
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE FOLLOWING PROPOSAL
for against abstain
[_] [_] [_]
Approval and adoption of the Agreement and Plan of Merger (the
"Merger Agreement") among the Company, IVI Checkmate Corp., IVI
Checkmate Inc., a wholly owned subsidiary of IVI Checkmate Corp.,
and NTN Merger Corp., a wholly owned subsidiary of IVI Checkmate
Inc. ("Merger Corp."), pursuant to which, among other things, (a)
Merger Corp. will be merged into the Company (the "Merger") with
the Company being the surviving corporation (the "Surviving
Corporation") and pursuant to which the separate existence of
Merger Corp. will cease, (b) each outstanding share of the
Company's common stock, par value $.15 per share (the "Company
Common Stock"), except Company Common Stock held by the Company
as treasury stock, beneficially owned by IVI Checkmate Inc. or
its affiliates or by persons who perfect their dissenters' rights
under Delaware law, will be converted into the right to receive
$0.30 worth of common stock of IVI Checkmate Corp., (c) each
outstanding share of Company Common Stock beneficially owned by
IVI Checkmate Inc. or its affiliates or held by the Company as
treasury stock will be canceled without consideration, and (d)
each outstanding share of Merger Corp. common stock will be
converted into one share of common stock of the Surviving
Corporation.
Signature Signature Date , 1999
-------------- ------------------ ----
Please sign exactly as your name appears above. Where the shares are held
jointly, each stockholder should sign. If a corporation, please sign by the
president or other authorized officer and include title. If a partnership,
please sign by an authorized person and include title.
Please mark, sign, date and mail this proxy card promptly, using the enclosed
envelope.
-2-
<PAGE>
NATIONAL TRANSACTION NETWORK AND IVI CHECKMATE
ENTER INTO MERGER AGREEMENT
Atlanta, Georgia
Toronto, Canada
Westborough, Massachusetts
July 21, 1999
IVI CHECKMATE CORP. (Nasdaq: CMIV; TSE: IVC/IVI) and NATIONAL TRANSACTION
NETWORK, INC. (OTCBB: NTRN) today announced that they had entered into an
agreement that will result in the acquisition by IVI Checkmate Corp., through
its wholly owned subsidiary IVI Checkmate Inc., of all of the shares of National
Transaction Network, Inc. common stock that it does not presently own. IVI
Checkmate Corp., through IVI Checkmate Inc., currently owns 2,726,440, or
approximately 82.0%, of National Transaction Network's 3,325,468 shares of
common stock outstanding.
The acquisition will be accomplished in the form of a merger between
National Transaction Network and a wholly owned subsidiary of IVI Checkmate Inc.
formed for this purpose and should be completed in the next one to three months,
subject to approval by National Transaction Network's stockholders and depending
on the timing of regulatory reviews and approvals. A special committee
consisting of an independent director of National Transaction Network and
management of IVI Checkmate Corp. agreed on merger consideration of $0.30 worth
of common stock of IVI Checkmate Corp. for each share of National Transaction
Network common stock.
IVI Checkmate Corp. is the third largest electronic transaction solutions
provider in North America and designs, develops and markets innovative payment
and value-added solutions that optimize transaction management at the point-of-
service in the retail, financial, travel and entertainment, healthcare and
transportation industries. IVI Checkmate Corp.'s software, hardware, and
professional services minimize transaction costs, reduce operational complexity,
and improve profitability for its customers in the U.S., Canada and Latin
America.
National Transaction Network, Inc. designs, develops, integrates, markets
and maintains electronic payment systems for use in retail applications.
National Transaction Network software performs many of the tasks involved in
electronic payment transactions, including the collection of payment-related
data at the point of sale, secure transmission of the data, authorization and
collection of the completed transaction and final reporting of the transaction.
National Transaction Network and IVI Checkmate Corp. offer a single-source,
end-to-end electronic payment solution to retailers at both store and corporate
level.
For more information, contact:
IVI Checkmate Corp., John J. Neubert, Chief Financial Officer, (770) 594-6000
National Transaction Network, Inc., L. Barry Thomson, Chief Executive Officer,
(416) 245-6700
<PAGE>
This press release contains forward-looking statements subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995.
Management of both companies caution that these statements represent projections
and estimates of future performance and involve certain risks and uncertainties.
The actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors including, without
limitation, the dependence on limited suppliers and manufacturers of component
parts of products; rapid and significant technological developments that could
delay the introduction of improvements in existing products or of new products;
the dependence on proprietary technologies (which may be independently developed
by competitors); the dependence on a small number of large retail customers; the
potential fluctuation in financial results as a result of the inability to make
sales to large customers as well as the volume and timing of bookings received
during a quarter and variations in sales mix; competition from existing
companies as well as new market entrants; and, the dependence on key personnel.
-2-
