Exhibit 7.1
INVESTMENT AGREEMENT
December 5, 1996
TO: INTERNATIONAL VERIFACT INC.
00 Xxxxxxxxx Xxxx
Xxxxxxx, Xxxxxxx
X0X XX0
Attention: L. Xxxxx Xxxxxxx, President and CEO
Dear Sirs:
SUBSCRIPTION FOR SHARES
------------------------
Subject to the terms and conditions set forth herein, Ingenico,
(the "Subscriber") hereby subscribes for 1,439,000 treasury
common shares more or less, with the precise number to be that
number of common shares in International Verifact Inc. ("IVI")
constituting fifteen (15%) percent of the issued and outstanding
share capital of IVI, assuming the exercise of all outstanding
options granted pursuant to the 1994 Employee Stock Option Plan,
as of the Closing Date (the "Purchased Shares").
The purchase price for the Purchased Shares shall be Cdn $ 6.89
being an amount per share equal to the simple average closing
price of the Purchased Shares of IVI on The Toronto Stock
Exchange for each of the 30 trading days prior to the date
hereof, subject to approval of such price by The Toronto Stock
Exchange (the "Subscription Price").
The Subscriber may, in its sole discretion, allocate and assign
this subscription as to not more than one-third of the Purchased
Shares to Xxxx-Xxxxxxx Poutrel (for the purposes of this
Agreement, an "Affiliate"). In such event, all references herein
to Subscriber shall thereafter be deemed to include such
Affiliate.
DELIVERY AND PAYMENT
---------------------
Delivery and payment for all of the Purchased Shares shall be
completed at the offices of Ingenico in Puteaux Hauts de Seine,
France at 2:30 p.m. (Paris time) on December 17, 1996 or at such
other time on that or such other date or dates as may be mutually
agreed upon by IVI and the Subscriber (the "Closing Date").
IVI agrees that certificates representing the Purchased Shares
subscribed for by the Subscriber will be available for delivery
to the Subscriber or its agent on the Closing Date, against
payment by the Subscriber to IVI of the Subscription Price by
wire transfer in Canadian funds.
FUTURE PARTICIPATION RIGHT
--------------------------
IVI grants the Subscriber, without payment of any further
consideration, the irrevocable right and option (the "Future
Participation Right") to purchase from IVI additional common
shares in IVI so as to retain ownership of not less than fifteen
(15%) percent of the issued and outstanding voting, participating
share capital of IVI on a non diluted basis. The terms and
conditions of the Future Participation Right are as follows:
(a) Ingenico shall be entitled to participate pro rata in
any issue (a "Large Offering") of treasury common
shares by IVI which is not pursuant to an employee
stock option plan or upon the exercise of the
Redeemable Warrants at the same time and on the
identical basis to any subscribers therefor or
otherwise on such terms as may then be approved by The
Toronto Stock Exchange;
(b) With respect to the issuance of any treasury common
shares by IVI which do not constitute a Large Offering,
other than the issuance of common shares upon the
exercise of options granted under the 1994 Employee
Stock Option Plan, IVI shall notify Ingenico not later
than 5 days after the last day of March, June,
September and December during each year as to the
number of common shares issued from treasury by IVI
during the immediately preceding three month period.
Subject to compliance with the Securities Act (Ontario)
(the "Act"), Ingenico shall be entitled, during the
thirty trading days following receipt of such notice,
to exercise its Future Participation Right at a price
equal to the simple average closing price of such
shares on The Toronto Stock Exchange during the thirty
days preceding the written notice from IVI to Ingenico.
In the event that such Future Participation Right
cannot be so exercised in accordance with an available
prospectus exemption under the Act, it may be deferred
and extended by Ingenico to subsequent fiscal quarter
ends until such time as a prospectus exemption is
available to Ingenico, provided that the exercise price
at that time of the Future Participation Right shall be
based on the simple average closing price of such
securities on the Toronto Stock Exchange, on the thirty
trading days preceding completion of the Purchase.
(c) Ingenico shall, following the Closing Date, apply to
the Ontario Securities Commission pursuant to Section
74(1) of the Act for an exemption order permitting the
Future Participation Right in so far as it applies to a
distribution under the Act, which is not a Large
Offering, to be exercised forthwith, as applicable, at
the end of each fiscal quarter.
(d) The Future Participation Right is subject to approval
of The Toronto Stock Exchange and NASD. In the event
that either organization requires modifications to the
Future Participation Right, such modifications shall be
made to the extent possible so as to grant to Ingenico
the participation ability described herein, and each of
Ingenico and IVI shall execute all such ancillary
documentation as may be necessary in this regard.
(e) The Future Participation Right shall not be assignable
or transferable by Ingenico other than to an affiliate
of the Subscriber within the meaning of the Canada
Business Corporations Act.
(f) The Future Participation Right shall expire on December
31, 2001.
ANTI-DILUTION
-------------
If and whenever while the Future Participation Right is
outstanding:
(a) the outstanding Common Shares are subdivided or are
consolidated into a greater or lesser number of Common
Shares, respectively.
(b) the Common Shares are reclassified, exchanged for or
converted into other shares, securities or property.
(c) a stock dividend has been declared and paid on the
Common Shares,
(d) there has been an amalgamation, merger, consolidation
or other reorganization affecting IVI, to the extent
such event results in any of the events described in
subsections (a), (b) or (c) above, or
(e) there has been a transfer of all or substantially all
of the undertaking or assets of IVI to another
corporation or entity to the extent such event results
in any of the events described in subsections (a), (b)
or (c) above.
(any of such events being referred to in this paragraph as a
"Change"), then Ingenico shall be notified by IVI in writing of
such change prior to the record or effective date of such Change
(such notice being an "Adjustment Notice"). The Adjustment
Notice delivered by IVI to Ingenico in respect of each such
Change shall specify the adjustments required to the Future
Participation Right. Ingenico, in exercising this Future
Participation Right, whether in whole or in part, after the
effective date of the Change shall be entitled to receive and
shall accept and IVI shall deliver upon such exercise in
accordance with this agreement, in lieu of the number of Common
Shares deliverable prior to the effective date, the aggregate
number and kinds of shares or other securities or amount of
property which Ingenico would have been entitled, if any, to as a
result of the Change if, on the effective date thereof, it had
been the registered holder of the number of Common Shares it
would have received had it exercised this Future Participation
Right or relevant portion hereof immediately before the effective
date of the Change. The adjustments provided for in this
paragraph shall be cumulative. The necessary adjustment shall be
made in the application of the provisions of this agreement with
respect to the rights and options of Ingenico after any Change to
the end that the provisions hereof shall thereafter
correspondingly apply, as nearly as may reasonably be, in
relation to any Common Shares or other securities or property to
which Ingenico is entitled on the exercise of the Future
Participation Right granted hereunder. In the event that
Ingenico disagrees with an adjustment set forth in any Adjustment
Notice, the adjustment shall be determined conclusively by IVI's
auditors at the shared expense of IVI and Ingenico.
RELATED TRANSACTIONS
--------------------
Ingenico and IVI acknowledge that contemporaneously herewith they
have entered into a Master Alliance Agreement dated as of the
date hereof (the "Master Agreement") to which this Investment
Agreement constitutes Schedule D.
All capitalized terms not otherwise defined herein have the
meanings ascribed thereto in the Master Agreement.
REPRESENTATIONS AND WARRANTIES OF IVI
-------------------------------------
By its acceptance of this subscription, IVI represents and
warrants to Ingenico those representations and warranties set
forth in Schedule "A" appended hereto. By completing the
transactions contemplated hereby, accepting the subscription
funds of Ingenico and completing the issuance of the Purchased
Shares, IVI shall be deemed, as of the Closing Date, to have
represented and warranted that all of such representations and
warranties are true and correct as of and with effect from the
Closing Date. IVI acknowledges that Ingenico is relying on such
representations and warranties, and that such representations and
warranties shall survive the Closing Date until December 31,
1999. IVI shall indemnify and save Ingenico harmless of, from
and against any breach of such representations and warranties,
provided that no claims may be made by Ingenico against IVI
unless the aggregate amount of such claims exceeds $100,000. If
the aggregate claims of Ingenico exceed such threshold amount,
however, the indemnity obligation of IVI shall apply for the full
amount of such claims.
INGENICO'S CONDITIONS
---------------------
The Subscriber's obligation to take up and pay for the Purchased
Shares subscribed for is conditional upon the fulfillment at or
before the Closing Date of each of the following conditions,
unless waived in writing by Ingenico:
(a) regulatory approval of The Toronto Stock Exchange to
the transactions described in this Agreement, and no
disapproval having been issued by NASD;
(b) IVI and Ingenico shall have entered into the Master
Agreement, and all related agreements contemplated
thereby, including without limitation, the Marketing
and Distribution Agreement, the Joint Development and
Procurement Agreement, the Technology License Agreement
and the Latin America Shareholder Agreement;
(c) Management of IVI shall or cause others to take all
steps and proceedings reasonably requested by Ingenico
to give effect to the reconstitution of the board of
directors of IVI such that the board of IVI shall be
comprised of eight members, two of whom shall be
nominees of Ingenico and IVI agrees to use its best
efforts to (i) cause the nominating committee of the
Board of Directors to nominate two members of Ingenico
for election to the Board of Directors at all annual
shareholders' meeting of IVI for so long as the
Subscriber owns not less than fifteen percent (15%) of
the issued and outstanding Common Shares (on a
non-diluted basis; for the purpose of such calculation
there shall be included any rights of the Subscriber
under the Future Participation Right to subscribe for
shares which are unexercised and have not lapsed) ("the
Subscriber Interest"), (ii) nominate for election at
the next annual shareholders' meeting at least one
member of the board of directors of IVI who will be an
independent representative from the payment industry;
and (iii) to cause the nominating committee for the
Board of Directors of IVI to be comprised of three
members, one of whom shall be a representative of
Ingenico, at the first meeting of the Board of
Directors following the Closing Date.
Should the Subscriber Interest decrease to a percentage
of less than 15%, on a non diluted basis but not less
than 5%, on a non diluted basis then Ingenico shall
during such period be entitled to one nominee only on
the Board of IVI. Prior to such reduction to one
nominee, IVI shall give written notice to Ingenico at
such time as IVI becomes aware, based on information
readily available to it, that Ingenico's Subscriber
Interest has decreased to below 15%, on a non diluted
basis. Ingenico shall have a period of 10 days after
receiving such notice to advise IVI in writing as to
whether Ingenico intends to increase its Subscriber
Interest to 15%, on a non diluted basis and Ingenico
shall have a period of 90 days from receipt of the
notice from IVI to do so, failing which Ingenico shall
be entitled contractually to one nominee only on the
Board of IVI, and shall forthwith cause one of its
nominees to immediately submit his resignation.
Should the Subscriber Interest decrease below 5%, on a
non diluted basis, Ingenico shall no longer have the
contractual ability to elect a director of IVI, and
shall forthwith cause any remaining nominees to
immediately submit their resignation; and
(d) IVI shall have caused its counsel to deliver to
Ingenico and its counsel an opinion with respect to IVI
and the completion of the transactions contemplated
hereby in the form of Schedule "B".
The obligations of IVI described in Subsection (c) above shall
not merge on the Closing Date and shall survive as specified
therein.
For so long as the Subscriber is entitled to one or more nominees
on the Board of Directors of IVI pursuant to paragraph (c) (i)
above, the Subscriber shall not, at any shareholders' meeting of
IVI, vote against the slate of directors put forward by the
nominating committee unless and until the nominee directors
proposed by the Subscriber to the board of IVI shall have
resigned from such board of directors. Should the Subscriber
desire at any time to vote its Common Shares for directors other
than those nominated by the nominating committee, it shall have
first caused its nominee directors to resign following which it
may vote with respect to the election of directors of IVI as
Ingenico in its sole discretion shall determine.
IVI COVENANTS
-------------
Provided that Ingenico has at least one nominee on the Board of
Directors of IVI from and after the Closing Date, and in
consideration of the subscription herein, IVI covenants and
agrees with Ingenico to promptly advise Ingenico in writing at
the same time as the Board of Directors is notified that IVI is
entering into any negotiations concerning a potential "take-over
bid", as defined in Part XX of the Securities Act (Ontario).
In addition, in the event that IVI either desires to sell all or
substantially all of its assets outside the ordinary course of
its business, or receives a bona fide offer to sell all or
substantially all of its assets outside of the ordinary course of
its business, IVI hereby grants to Ingenico a right of first
refusal to acquire such assets by notifying Ingenico in writing
of such event together with a description of the proposed terms
and conditions. Within thirty (30) days following written
notification from IVI to Ingenico of the proposed terms and
conditions of any such transaction, Ingenico may notify IVI in
writing that it desires to acquire such assets at the price and
on the terms and conditions described in such notice, in which
event such transactions shall close with Ingenico as purchaser
but otherwise on identical terms and conditions within a further
period of thirty (30) days.
NO RESTRICTION ON FURTHER INGENICO PURCHASES.
---------------------------------------------
Nothing contained herein or in the Master Agreement or any of the
schedules thereto shall restrict, prohibit or limit in anyway the
ability of Ingenico or its Affiliates to acquire from time to
time additional shares in IVI in its sole discretion, subject to
regulatory compliance.
INGENICO REPRESENTATION
-----------------------
Ingenico represents and warrants to IVI that it and its
Affiliates including Xxxx-Xxxxxxx Poutrel and his associates and
his affiliates own, directly or indirectly, not more than 18,800
common shares in IVI as of the date hereof. Ingenico shall
provide a bring-down certificate with respect to this
representation as at and on the Closing Date.
GOVERNING LAW, EXECUTION AND ASSIGNMENT
---------------------------------------
This agreement shall be governed by and construed in accordance
with the laws of the Province of Ontario. It may be executed in
one or more counterparts, each of which shall be deemed an
original and all of which, taken together, shall constitute one
and the same instrument. This agreement may also be executed by
any party by facsimile and shall be valid, binding and effective
in respect of such party if so executed as if originally signed.
None of the rights or obligations hereunder shall be assignable
or transferable by any party without the prior written consent of
the other parties, except as expressly provided herein.
ENTIRE AGREEMENT
----------------
This Agreement, together with the Master Agreement and the other
agreements attached or referred to therein, constitutes the
entire agreement between the parties hereto with respect to the
matters referred to herein and supersedes all prior agreements
and understandings, written or oral, pertaining to the subject
matter hereof.
FURTHER ASSURANCES
------------------
The parties shall also, with reasonable diligence, do all such
things and provide all such reasonable assurances that may be
required to consummate the transactions contemplated hereto, and
each party shall provide such further documents or instruments
required by any of the other parties as may be reasonably
necessary or desirable to effect the purpose of this Agreement
and carry out its provisions, whether before or after the Closing
Date.
INGENlCO
Per:/s/ Xxxx-Xxxxxxx Poutrel
--------------------------
Xxxx-Xxxxxxx Poutrel,
President du Conseil
This Investment Agreement is confirmed and accepted as of the 5th
day of December, 1996.
INTERNATIONAL VERIFACT INC.
Per:/s/ L. Xxxxx Xxxxxxx
----------------------
L. Xxxxx Xxxxxxx
President & CEO
December 2, 1996
SCHEDULE "A"
------------
REPRESENTATIONS AND WARRANTIES
For purpose hereof, the "Transaction Documents" include this
Agreement, the Master Agreement, the Joint Development and
Procurement Agreement, the Technology License Agreement, the
Marketing and Distribution Agreement, and the Latin America
Shareholder Agreement.
(a) INCORPORATION. IVI has been continued and organized and is
validly subsisting and in good standing under the laws of
Canada and it has the corporate power to own or lease its
property and to carry on its business as now being conducted
by it. IVI has all necessary corporate power and authority
to own its respective properties and is licensed, registered
or qualified to carry on business in all jurisdictions where
a failure to be so licensed, registered or qualified would
have a material adverse effect on the business, operations
or financial condition of IVI taken as a whole.
(b) AUTHORIZED AND ISSUED CAPITAL. The authorized share capital
of IVI consists of (i) an unlimited number of Common Shares
of which 7,197,440 (and no more) have been duly issued and
are outstanding as fully paid and non-assessable prior to
giving effect to the transactions contemplated by this
Agreement; and (ii) options pursuant to IVI's employee Stock
Option Plan entitling the optionees to acquire 602,700
Common Shares; and (iii) warrants entitling the holders
thereof to acquire 1,698,743 Common Shares, with the result
that there would be a total of 9,498,883 Common Shares
outstanding on a fully diluted basis.
(c) VALIDITY OF SUBSCRIPTION SHARES AND OPTIONED SHARES. The
allotment and issue of the Purchased Shares to Ingenico at
the Closing Date shall have been duly authorized by all
necessary corporate action of IVI and upon payment in full
of the Subscription Price in accordance with this Agreement,
such Purchased Shares will be validly issued as fully paid
and non-assessable and the issue of such Purchased Shares
will not contravene the articles or by-laws of IVI nor
conflict with any agreement to which IVI is a party or by
which it is bound. At all times, IVI shall have authorized
and reserved for issuance a sufficient number of Common
Shares to provide for Ingenico's rights respecting the
Future Participation Right under this Agreement.
(d) OPTIONS. No person, firm or corporation has any agreement or
option or any right or privilege (whether by law,
pre-emptive or contractual) capable of becoming an agreement
or option for the purchase, subscription, allotment or
issuance of any of the unissued shares in the capital of IVI
or of any other securities of IVI, other than as described
in subsection (b) and (c) above.
(e) FINANCIAL STATEMENTS AND CORPORATE RECORDS.
(1) The books and records of IVI, including the September
30, 1996 financial statements, a copy of which are
attached as Schedule "C", fairly and correctly set out
and disclose in all material respects, in accordance
with generally accepted accounting principles, the
financial position of IVI as at the date thereof and
all material financial transactions of IVI relating to
its business have been accurately recorded in such
books and records.
(2) IVI's financial statements as at September 30, 1996,
have been prepared in accordance with generally
accepted accounting principles applied on a basis
consistent with those of previous years and present
fairly (i) the assets, liabilities (whether accrued,
absolute, contingent or otherwise) and the financial
condition of IVI as at September 30, 1996; and (ii) the
sales, earnings and results of the operations of IVI
during the period covered by the financial statements.
(f) CONDUCT OF BUSINESS.
(1) Since September 30, 1996 there has been no change in
the business, operations, affairs or condition of IVI,
financial or otherwise, except changes occurring in the
ordinary course of business, which changes have not
materially adversely affected and will not materially
adversely affect the organization, business,
properties, prospects and financial condition of IVI.
(2) IVI is conducting its business in material compliance
with all applicable laws, rules and regulations of each
jurisdiction in which the business is carried on, is
not in material breach of any such laws, rules or
regulations and is duly licensed, registered or
qualified in each jurisdiction in which it owns or
leases property or carries on its business as now
conducted and its property and assets to be owned,
leased and operated, and all such licenses,
registrations and qualifications are valid and
subsisting and in good standing and none of the same
contains any burdensome term, provision, condition or
limitation which has or may have a materially adverse
effect on the operation of the business.
(3) with the exception of the Master Agreement and
transactions contemplated therein, IVI's business has
been carried on in the ordinary and normal course since
September 30, 1996.
(g) NO CONFLICTS. Neither the execution and delivery of this
Agreement and the other Transaction Documents nor compliance
with the terms and conditions of any of them (i) will result
in a violation of the articles or the by-laws of IVI or any
resolutions passed by the board of directors or shareholders
of IVI, or any applicable law, rule, regulation, order,
judgment, injunction, award or decree, or (ii) will result
in a breach of, or constitute a default under, any loan
agreement, indenture, trust deed or any other agreement or
instrument to which IVI is a party or by which it or they
are bound, existing at the date of this Agreement, or (iii)
requires any approval or consent of any government authority
or agency having jurisdiction except for The Toronto Stock
Exchange and NASD.
(h) AUTHORIZATION. IVI has all necessary corporate power and
authority to execute and deliver this Agreement and the
other Transaction Documents to perform its obligations
hereunder and thereunder and to do all acts and things to
execute and deliver all other documents, instruments and
certificates as are required hereunder or thereunder to be
done, observed or performed by them in accordance with their
terms and the execution and delivery of this Agreement and
the other Transactions Documents and the transactions
contemplated hereby and thereby have been duly authorized by
proper corporate proceedings of IVI.
(i) DUE EXECUTION AND ENFORCEABILITY. Each of this Agreement
and the other Transaction Documents has been, or on the
Closing Date will be, duly executed and delivered by IVI and
is a valid and binding obligation of IVI enforceable against
it in accordance with its terms.
(j) INSIDER LOANS. IVI has no material undisclosed loans or
indebtedness outstanding which have been made to directors,
former directors, officers, shareholders and/or employees of
IVI or to any person or corporation not dealing at arm's
length.
(k) EMPLOYMENT CONTRACTS. IVI (i) has not made any agreements
with any labor union or employee association nor made
commitments to or conducted negotiations with any labor
union or employee association with respect to any future
agreements and is not aware of any current attempts to
organize or establish any labor union or employee
association; and (ii) is not a party to any written
employment, service or pension agreement with any employee
which is not terminable on the giving of reasonable notice
without the making of any payment or other compensation by
IVI, except as set forth in Schedule "D" hereto.
(l) OUTSTANDING INDEBTEDNESS. Except as disclosed in the
financial statements of IVI as of September 30, 1996, IVI
(i) does not have outstanding any bonds, debentures,
mortgages, notes or other indebtedness maturing more than
one year after the date of their creation or issuance; (ii)
is not under any agreement to create or issue any bonds,
debentures, mortgages, notes or other indebtedness maturing
more than one year after the date of their creation or
issuance; and (iii) is not a party to or bound by any
material agreement of guarantee, indemnification, assumption
or endorsement or any other like commitment of the
obligations, liabilities (contingent or otherwise) or
indebtedness of any other person, firm or corporation.
(m) INSURANCE. IVI has its property insured against loss or
damage by all commercially reasonable hazards or risks on a
replacement cost basis and IVI is not in material default
with respect to any of the provisions contained in any
insurance policy and has not failed to give any material
notice or present any material claim under any such
insurance policy in due and timely fashion.
(n) CONTRACTS IN GOOD STANDING. IVI is not in material default
or material breach of any contracts, agreements, written or
oral, indentures, leases or other instruments to which it is
a party and there exists no state of facts which after
notice or lapse of time or both would constitute such a
material default or material breach, and all such contracts,
agreements, indentures, leases or other instruments are now
in good standing and IVI is entitled to all benefits
thereunder.
(o) LITIGATION. There are no actions, suits or proceedings
pending or, to the knowledge of IVI, threatened against or
affecting IVI or any of its undertakings, property and
assets, whether instituted by or against IVI at law, in
equity or before any arbitrator or before or by any
governmental department, body, commission, board, bureau,
agency or instrumentality having jurisdiction in the
premises in respect of which there is a reasonable
possibility of a determination materially adverse to IVI and
which could, if determined adversely, materially and
adversely affect the ability of IVI to perform its
obligations under this Agreement and IVI is not to its
knowledge, after due enquiry, in default with respect to any
law, regulation, order, writ, judgment, injunction or award
of any government, commission, board, agency, court,
arbitrator or instrumentality having jurisdiction in the
premises, which would have such a material and adverse
effect.
(p) TAX RETURNS. IVI has duly and in a timely manner filed all
tax returns required to be filed by it and has paid all
taxes which are due and payable, and has paid all
assessments and reassessments, and all other taxes,
governmental charges, penalties, interest and fines due and
payable by it on or before the date hereof, adequate
provision has been made for taxes payable for the current
period for which tax returns are not yet required to be
filed; there are no agreements, waivers or other
arrangements providing for an extension of time with respect
to the filing of any tax return by, or payment of any tax,
governmental charge or deficiency against, IVI; there are no
actions, suits, proceedings, investigations or claims now
threatened or pending against IVI in respect of taxes,
governmental charges or assessments, or any matters under
discussion with any governmental authority relating to
taxes, governmental charges or assessments asserted by any
such authority; IVI has withheld from each payment made to
any of its officers, directors, and employees the amount of
all taxes, including but not limited to income tax, and
other deductions required to be withheld therefrom and has
paid the same to the proper tax or other receiving officers
within the time required under any applicable tax
legislation.
(q) INTELLECTUAL PROPERTY. All trademarks, trade names, patents
and copyrights, both domestic and foreign, used in or
acquired for the proper carrying on of IVI's business are
validly and beneficially owned by IVI and, to the best of
the knowledge of IVI, the conduct of the business of IVI
does not infringe upon the trademarks, trade names, patents
or copyrights, domestic or foreign, of any other person.
(r) SUBSIDIARIES AND INVESTMENTS. Excepting International
Verifact Inc. ("U.S."), National Transaction Network, Inc.
and International Verifact Inc., IVI has no subsidiary (as
such term is defined in the Canada Business Corporations
Act) or any other loan to, investment in or other interest
in any person, other than Internet Payment Processing Inc.
December 2, 1996
SCHEDULE "B"
FORM OF OPINION
[LETTERHEAD OF XXXXXXX XXXXXX]
December ., 1996
Ingenico Societe Anonyme
0, xxxx xx Xxxx Xxxxxx
00000 Xxxxxxx Xxxxx
Xxxxxx
- and -
Xxxxx, Xxxxx
Suite 5800, Scotia Plaza
00 Xxxx Xxxxxx Xxxx
Xxxxxxx, Xxxxxxx
X0X 0X0
Dear Sirs:
RE: INTERNATIONAL VERIFACT INC.
-------------------------------
We have acted as counsel for International Verifact Inc. ("IVI")
in connection with (1) the issue today by IVI of . Common Shares
(the "Common Shares"); and (2) the entering into by IVI with
Ingenico S.A. of a Master Alliance Agreement dated December .,
1996, and certain related matters.
Capitalized terms used but not defined in this opinion have the
respective meanings attributed to such terms in the Investment or
the Master Alliance Agreement.
As counsel to IVI, we have participated in the preparation of,
and have reviewed executed copies of, the following documents
(the "Transaction Documents"):
(a) the Investment Agreement among IVI and Ingenico dated
December ., 1996 (the "Investment Agreement");
(b) the Master Alliance Agreement between IVI and Ingenico dated
December ., 1996;
(c) the Marketing and Distribution Agreement between Ingenico
and IVI dated December ., 1996;
(d) the Technology License Agreement between Ingenico and IVI
dated December ., 1996;
(e) the Joint Development and Procurement Agreement between
Ingenico and IVI dated December ., 1996;
(f) the Latin America Shareholder Agreement entered into between
Ingenico, IVI and Latin Newco dated December .,1996.
We have also made such investigations and examined originals or
copies, certified or otherwise identified to our satisfaction, of
such certificates of public officials and of such other
certificates, documents and records as we have considered
necessary or relevant for the purposes of the opinions
hereinafter expressed, including:
(a) the articles and by-laws of IVI and Latin Newco;
(b) resolutions of the board of directors of IVI authorizing,
among other things, the execution and delivery of the
respective Transaction Documents to which each of them is a
party;
(c) a certificate of status dated December ., 1996 issued in
respect of IVI pursuant to the Canada Business Corporations
Act;
(d) a letter from The Toronto Stock Exchange dated December .,
1996 approving the issuance of the Common Shares to
Ingenico;
(e) a report in Form-20 under the SECURITIES ACT (Ontario) to be
filed with the Ontario Securities Commission;
(f) certificates of an authorized officer of IVI as to certain
factual matters, a copy of which are annexed hereto as
Schedule "A".
For the purposes of this opinion, we have assumed, with respect
to all documents examined by us, the genuineness of all
signatures, the authenticity of all documents submitted to us as
originals and the conformity to authentic original documents of
all documents submitted to us as certified, conformed, telecopies
or photocopied copies. We have also assumed that the certificates
of status referred to above continue to be accurate as of the
date hereof. We have relied exclusively upon the certificates
referred to above with respect to the accuracy of the factual
matters contained therein; while we have not performed any
independent verification of such factual matters, other than as
set out in this opinion and the schedules hereto, nothing has
come to our attention during our participation with respect to
the Transaction Documents which leads us to believe such
documents are incorrect.
We have further assumed that the Transaction Documents have been
duly and validly authorized, executed and delivered by all
parties thereto other than IVI.
Based and relying on the foregoing, and subject to the
qualifications expressed herein, we are of the opinion that:
1. IVI is incorporated and existing under the CANADA
BUSINESS CORPORATIONS ACT:
2. IVI has the corporate power and capacity to carry on
its business, to own its properties and assets and to enter into
and to perform its obligations under the Transaction Documents to
which it is a party.
3. All necessary corporate action has been taken by IVI to
authorize the execution, delivery and performance by it of the
Investment Agreement and the Investment Agreement has been duly
executed and delivered by IVI and constitutes a legal, valid and
binding obligation of IVI enforceable against it in accordance
with its terms by Ingenico.
4. Excepting the Ontario Securities Commission, the
Toronto Stock Exchange and the National Association of Securities
Dealers, no authorization, consent or approval of, or filing with
or notice to any governmental body is required in connection with
the execution, delivery or performance of the Investment
Agreement by IVI.
5. The authorized capital of IVI consists of an unlimited
number of common shares of which . common shares are issued and
outstanding, prior to giving effect to the transactions
contemplated by the Investment Agreement. Such shares have been
duly issued and are outstanding as fully paid and non-assessable.
6. All requisite acts and proceedings have been done and
taken by the directors and shareholders of IVI to authorize the
allotment, issue and delivery of the Common Shares.
7. . Common Shares have been duly and validly allotted and
issued today to Ingenico as fully paid and non-assessable shares
in the capital of IVI.
The foregoing opinions are subject to the following
qualifications:
(a) we are qualified to render opinions as to the laws of
the Province of Ontario, including relevant federal
laws of Canada, and accordingly we express no opinions
as to the laws of any other jurisdiction;
(b) the enforceability of the Investment Agreement is
subject to bankruptcy, insolvency and other laws of
general application affecting the enforcement of
creditors' rights generally; and
(c) the enforceability of the Investment Agreement is
subject to general equitable principles, including the
fact that the availability of equitable remedies such
as specific performance or injunctive relief is in the
discretion of a court.
Yours very truly,
XXXXXXX XXXXXX
SCHEDULE C
INTERNATIONAL VERIFACT INC.
THIRD QUARTER REPORT
September 30, 1996
To Our Shareholders,
Results for International Verifact in the third quarter
reflected continued improvement in the operations of the Company
since the beginning of 1996.
Results for the three months ended September 30, 1996 were
lower than in the corresponding record quarter a year ago, but
both revenue and earnings have shown a quarter-by-quarter
improvement in 1996. In particular, revenue from our U.S.
operations has come to represent a growing proportion of our
overall business, which is in keeping with IVI's long term plan
to emphasize growth in the United States and overseas. The
proportion of revenue coming from outside Canada has grown this
year from 26% in the first quarter to 34% in the second quarter
to 45% in the latest quarter.
In the same regard, we are confident IVI has significantly
enhanced its ability to further penetrate the U.S. market with
the recent acquisition of 84% of National Transaction Network,
Inc. (NTN) of Hudson, Massachusetts. NTN designs and markets its
own electronic payments software for in-store multi-lane retail
applications, and was the primary reseller of IVI products in the
U.S. some years ago.
It is important for IVI to be able to offer a total software
payment solution that is tailored to the needs of U.S. customers.
The NTN acquisition provides your Company with its own software
capability to support its products in the U.S. much more
inexpensively than if such a capability was developed inhouse.
The NTN association also provides us with an additional customer
base, notably among multi-lane retailers, as well as a broader
understanding of the software needs of the U.S. marketplace.
NTN has annual revenue of approximately US $5 million.
Since acquisition, NTN has reported revenue of $233,000 which was
included in IVI's third quarter results.
While NTN is not yet profitable, a renewed business
relationship with your Company and a new management team
installed by IVI will enable the U.S. company to expand its
products, services and markets.
On top of the recent successes in the marketing of our
CheckReader products to major specialty retailers in the U.S.,
NTN promises to be an important addition to IVI's presence south
of the border.
In Canada, IVI was pleased to announce during the third
quarter that Royal Bank, a major and valued customer, had once
again begun to take delivery of your Company's debit/credit
terminals. It was this delay in shipments that caused a slump in
IVI's revenue through the first half of the year.
And finally, we have high hopes for Internet Payment
Processing Inc. (IPP) of which IVI is one of the founding
shareholders. IPP's 'The P@x.xxx Network' will allow consumers
to go shopping on the Internet and make INTERAC-compliant and
secure payments using debit and credit cards. IPP is presently
in the process of beta testing and will establish a pilot project
in the Toronto area by the end of this year.
L. Xxxxx Xxxxxxx
President and Chief Executive Officer
INTERNATIONAL VERIFACT
INC.
CONSOLIDATED
BALANCE SHEETS
as at September 30, 1996
and 1995
(unaudited in thousands of
Canadian dollars)
SEPTEMBER 30 SEPTEMBER 30
1996 1995
------------- ------------
ASSETS
CURRENT ASSETS
Cash and short term $4,657 $4,733
investments
Accounts receivable 9,962 12,013
Inventory 8,718 6,888
Other 415 330
------- ------
23,752 23,964
Capital assets 2,950 2,075
Other assets 4,773 2,742
Goodwill 1,137 9,593
-------- --------
32,612 38,374
======== ========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and 8,906 10,379
accrued liabilities
Deferred revenue 428 74
Current portion of capital 69 37
lease obligations ------- ------
9,403 10,490
Long term capital lease 47
obligations
Minority interest 125
------- -------
9,528 10,537
SHAREHOLDERS' EQUITY 23,084 27,837
-------- -------
$32,612 $38,374
======== =======
INTERNATIONAL VERIFACT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine months ended
September 30, 1996 and 1995
(unaudited in thousands of Canadian
dollars except per share amounts)
For the three For the nine months
months ended September 30
ended September 30
1996 1995 1996 1995
------ ----- ------ -----
REVENUE $12,178 $15,520 $31,964 $45,056
COSTS OF SALES 8,157 10,018 21,655 30,214
------ ------ ------- -------
GROSS MARGIN 4,021 5,502 10,309 14,842
------ ------ ------- -------
EXPENSES
Selling, 2,666 2,511 7,970 7,078
administration
and general
Research and 799 1,207 2,322 3,104
development
Amortization of 271 201 751 597
capital assets
Amortization of 144 172 433 516
deferred
development
costs
Amortization of - 384 1,151
goodwill ----- ----- ----- ------
3,880 4,475 11,476 12,446
----- ----- ------ ------
EARNINGS (LOSS) 141 1,027 (1,167) 2,396
FROM OPERATIONS
Writeoff of - - (9,285) -
goodwill
Interest income 38 30 143 104
------ ----- ----- -----
INCOME (LOSS) 179 1,057 (10,309) 2,500
BEFORE MINORITY
INTEREST
Minority 11 - 11 -
interest ------ ------ ------- ------
NET EARNINGS $190 $1,057 $(10,298) $2,500
(LOSS) FOR THE ====== ====== ======== ======
PERIOD
PER SHARE
INFORMATION $0.02 $0.16 $(0.17) $0.37
Earnings ==== ====== ======= =====
(loss) from
operations
Net earnings $0.04 $0.16 $(1.48) $0.38
(loss) ===== ====== ====== =====
Weighted average
common 6,953 6,560
shares ===== ======
outstanding
(thousands)
INTERNATIONAL VERIFACT INC.
CONSOLIDATED
STATEMENTS OF
CHANGES IN FINANCIAL POSITION
for the nine months ended
September 30, 1996 and 1995
(unaudited in thousands of
Canadian dollars)
For the nine months
ended September 30
1996 1995
------- ------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net earnings (loss) $(10,298) $2,500
Amortization 1,184 2,264
Minority interest (11) -
Writeoff of goodwill 9,285 -
------- -------
160 4,764
Change in non cash working (1,546) (2,704)
capital ------- -------
(1,386) 2,060
------- -------
CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES
Issuance of common shares 3,490 436
Change in capital lease (30) (42)
obligations ------- ------
3,460 394
------- ------
CASH USED IN
INVESTING ACTIVITIES
Purchase of capital assets (971) (640)
Capitalization of developments (1,623) (1,108)
costs
Acquisition of NTN (817) -
Change in other assets (224) -
------- -------
(3,635) (1,748)
------- -------
Net change in cash (1,561) 706
CASH AND SHORT TERM INVESTMENTS
BEGINNING OF THE PERIOD 6,218 4,027
------- ------
END OF THE PERIOD $4,657 $4,733
====== ======
INVESTMENT AGREEMENT
Schedule D Employment Contracts
The following employees have signed
employment contracts with either
International Verifact, Inc. or one of its
subsidiaries:
International Verifact Inc.
---------------------------
Xxxxxx Xxxxxxx Chairman
L. Xxxxx Xxxxxxx President and Chief Executive
Officer
Xxxxx Xxxxx* Vice President, Sales
Xxxxxxxx Xxxxxx Vice President, Operations
Xxxxx Xxxxxx Vice President, Engineering
Xxxxxx Xxxx Vice President, Product and Market
Research
Xxxxx X. Xxxxx Vice President, Finance and
Administration
International Verifact Inc. ("U.S.")
------------------------------------
Xxxxxxx XxXxxxx Vice President and General Manager
Xxxxx X. Xxxxx Vice President, Finance and
Administration
Xxxx X. Xxxxxxx* Vice President, Products
Development and Operations
National Transaction Network, Inc.
----------------------------------
Xxxxxxx Xxxxxx Executive Vice President and
General Manager
Xxxxxx Xxxxxx Vice President, Finance and
Administration
*Employment contract pending
AMENDMENT TO INVESTMENT AGREEMENT
December 17, 1996
International Verifact Inc.
00 Xxxxxxxxx Xxxx
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: L. Xxxxx Xxxxxxx, President & C.E.O.
------------------------------------------------
Dear Sirs:
Further to our letter agreement of December 5, 1996
(the "Investment Agreement"), we wish to amend certain parts of
that letter to reflect changes required by The Toronto Stock
Exchange (the "TSE") as contemplated in paragraph (d) on page 2
of the Investment Agreement. Specifically, we wish to amend the
part of the letter dealing with the Future Participation Right to
reflect the change to the pricing formula required by the TSE and
to clarify that the Future Participation Right is proportionate
to Ingenico's shareholdings at the time of exercise of the Future
Participation Right. Accordingly, the section of the Investment
Agreement headed "Future Participation Right" should be amended
to read as follows:
FUTURE PARTICIPATION RIGHT
--------------------------
IVI grants the Subscriber, without payment of any
further consideration, the irrevocable right and option (the
"Future Participation Right") to purchase from IVI additional
common shares in IVI so as to retain ownership of not less than
fifteen (15%) percent of the issued and outstanding voting,
participating share capital of IVI on a non diluted basis, or, if
ownership falls below fifteen (15%) percent of the issued and
outstanding voting, participating share capital of IVI on a non-
diluted basis, then to retain ownership of that percentage held
immediately prior to any exercise of the Future Participation
Right. The terms and conditions of the Future Participation
Right are as follows:
(a) Ingenico shall be entitled to
participate pro rata (being that proportion,
to a maximum of fifteen (15%) percent, which
its common shares constitute of the issued
and outstanding common shares immediately
prior to the Large Offering) in any issue (a
"Large Offering") of treasury common shares
by IVI which is not pursuant to an employee
stock option plan or upon the exercise of the
Redeemable Warrants at the same time and on
the identical basis to any subscribers
therefor or otherwise on such terms as may
then be approved by The Toronto Stock
Exchange;
(b) With respect to the issuance of any
treasury common shares by IVI which do not
constitute a Larger Offering, other than the
issuance of common shares upon the exercise
of options granted under the 1994 Employee
Stock Option Plan, IVI shall notify Ingenico
not later than 5 days after the last day of
March, June, September and December during
each year as to the number of common shares
issued from treasury by IVI during the
immediately preceding three month period.
Subject to compliance with the Securities Act
(Ontario) (the "Act"), Ingenico shall be
entitled, during the thirty trading days
following receipt of such notice, to exercise
its Future Participation Right for the lesser
of fifteen (15%) percent of such number of
common shares or that proportion which its
common shares constitute of the issued and
outstanding common shares immediately prior
to the exercise of the Future Participation
Right at a price equal to the weighted
average trading price of such shares on The
Toronto Stock Exchange during the thirty
trading days preceding the written notice
from IVI to Ingenico. In the event that such
Future Participation Right cannot be so
exercised in accordance with an available
prospectus exemption under the Act, it may be
deferred and extended by Ingenico to
subsequent fiscal quarter ends until such
time as a prospectus exemption is available
to Ingenico, provided that the exercise price
at that time of the Future Participation
Right shall be based on the weighted average
trading price of such securities on the
Toronto Stock Exchange, on the thirty trading
days preceding completion of the Purchase.
(c) Ingenico shall, following the Closing
Date, apply to the Ontario Securities
Commission pursuant to Section 74(1) of the
Act for an exemption order permitting the
Future Participation Right in so far as it
applies to a distribution under the Act,
which is not a Larger Offering, to be
exercised forthwith, as applicable, at the
end of each fiscal quarter.
(d) The Future Participation Right is
subject to approval of The Toronto Stock
Exchange and NASD. In the event that either
organization requires modifications to the
Future Participation Right, such
modifications shall be made to the extent
possible so as to grant to Ingenico the
participation ability described herein, and
each of Ingenico and IVI shall execute all
such ancillary documentation as may be
necessary in this regard.
(e) The Future Participation Right shall not
be assignable or transferable by Ingenico
other than to an affiliate of the Subscriber
within the meaning of the Canada Business
Corporations Act.
(f) The Future Participation Right shall
expire on December 31, 2001.
All other provisions contained in the Investment
Agreement remain otherwise unamended and in full force and
effect.
INGENICO
Per:/s/ Xxxx-Xxxxxxx Poutrel
---------------------------
Xxxx-Xxxxxxx Poutrel,
President du Conseil
This Amendment to the Investment Agreement is confirmed
and accepted as of the 17th day of December, 1996.
INTERNATIONAL
VERIFACT INC.
Per: /s/ L. Xxxxx Xxxxxxx
----------------------
L. Xxxxx Xxxxxxx
President & CEO
