<PAGE>
As filed with the Securities and Exchange Commission on February 24, 2000
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM F-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
Optimal Robotics Corp.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
Canada 7373 98-0160833
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
---------------
4700 de la Savane
Suite 101
Montreal, Quebec H4P 1T7
(514) 738-8885
(Address and telephone number of Registrant's principal executive offices)
---------------
CT Corporation System
111 8th Avenue
New York, New York 10011
Telephone (212) 894-8400
(Name, address and telephone number of agent for service)
---------------
Copies to:
<TABLE>
<S> <C> <C>
Guy P. Lander, Esq. Leon P. Garfinkle, Esq. Arthur Jay Schwartz, Esq.
Goodman Phillips & Vineberg Goodman Phillips & Vineberg Marlon F. Starr, Esq.
430 Park Avenue 1501 McGill College Avenue Smith, Gambrell & Russell, LLP
New York, New York 10022 Montreal, Quebec H3A 3N9 1230 Peachtree Street, N.E.
(212) 308-8866 (514) 841-6400 Atlanta, Georgia 30309
(404) 815-3500
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest investment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Proposed
Maximum Proposed Maximum
Amount to be Offering Price Aggregate Amount of
Registered Per Share/(1)/ Offering Price/(1)/ Registration Fee
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common shares offered by
registrant (2) ................ 1,625,000 Shares $31.4375 $51,085,937.50 $13,486.69
- -------------------------------------------------------------------------------------------------------
Common shares offered by the
selling shareholders........... 675,000 Shares $31.4375 $21,220,312.50 $ 5,602.16
- -------------------------------------------------------------------------------------------------------
Total (2)..................... 2,300,000 Shares $31.4375 $72,306,250.00 $19,088.85
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended,
based upon the average of the high and low prices reported on the Nasdaq
National Market on February 16, 2000.
(2) Includes 300,000 shares subject to the underwriters' over-allotment
option.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
DATED FEBRUARY 24, 2000
PRELIMINARY PROSPECTUS
2,000,000 Class "A" Shares
[LOGO OF OPTIMAL ROBOTICS CORPORATION]
Common Shares
------------
We are offering for sale 1,325,000 of our common shares and the shareholders
named in this prospectus are offering an aggregate of 675,000 of our common
shares that trade on the Nasdaq National Market under the symbol "OPMR." On
February 23, 2000, the last reported sale price of our common shares was
$38.875 per share.
Investing in our common shares involves certain risks. See "Risk Factors"
beginning on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price............................... $ $
Underwriting discount............................... $ $
Proceeds to us...................................... $ $
Proceeds to the selling shareholders................ $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 300,000
additional common shares to cover over-allotments.
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about , 2000.
------------
Gerard Klauer Mattison & Co., Inc.
The Robinson-Humphrey Company
Raymond James & Associates, Inc.
Prospectus dated , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 10
Use of Proceeds.......................................................... 11
Capitalization........................................................... 12
Selected Financial and Other Data........................................ 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 15
Business................................................................. 20
Management............................................................... 33
Principal and Selling Shareholders....................................... 38
Description of Share Capital............................................. 40
Certain Canadian and United States Income Tax Considerations............. 42
Shares Eligible for Future Sale.......................................... 45
Underwriting............................................................. 46
Legal Matters............................................................ 47
Experts.................................................................. 47
</TABLE>
You may rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. Neither the delivery of this prospectus nor the sale of common
shares means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or
solicitation of an offer to buy these common shares in any circumstances under
which the offer or solicitation is unlawful.
i
<PAGE>
OUTSIDE FRONT GATE
[The outside front gate will have a dark background.]
[At the top of the page, the words "Is this your idea of customer
service?" will appear in red, below which a yellow sign reading "LANE
CLOSED" will appear. Below this, the words "Then it's time for U-
Scan/(R)/ Express." will appear in white, followed by, from left to
right, the stylized version of the U-Scan Express/(R)/ with the words
"The right answer. Right now." below it, a picture of the U-Scan Express
and our Logo.]
<PAGE>
INSIDE FRONT GATE
[The background is blue. At the top right corner, carrying over onto the
inside front cover, is the stylized version of the U-Scan Express. In
the upper left is a picture of the U-Scan Express system. Below this
picture, to the left is the stylized version of the U-Scan Solo
trademark. Below the U-Scan Solo trademark is our Logo. To the right of
the logo is a picture of the U-Scan Solo. Above the picture of the U-
Scan Solo are concentric circles, with the words "The Leader in North
America" on the outside and containing our stylized Logo.]
<PAGE>
INSIDE FRONT COVER
[The background is blue. Pictures, clockwise from the top left corner,
are of a woman and child using our U-Scan Express, a woman and child
approaching the U-Scan Express with a shopping cart, a stylized version
of the U-Scan Carousel trademark, and a picture of the U-Scan Carousel.]
<PAGE>
PROSPECTUS SUMMARY
The summary highlights information contained elsewhere in this prospectus. It
does not contain all of the information that you should consider before
investing in our common shares. We encourage you to read the entire prospectus
carefully, including the section entitled "Risk Factors" and the financial
statements and the notes to those financial statements. Unless otherwise
stated, all information in this prospectus assumes that the underwriters will
not exercise their over-allotment option.
References contained in this prospectus to "Optimal," "us," "we," and "our"
are to Optimal Robotics Corp.
Our Company
We are the leading provider of self-checkout systems to retailers in the
United States. Our principal product is the U-Scan Express, an automated self-
checkout system which enables shoppers to scan, bag and pay for their purchases
with little or no assistance from store personnel. We estimate that in 1999 U-
Scan Express systems processed over 45 million customer transactions. The U-
Scan Express can be operated quickly and easily by shoppers and makes the
checkout process more convenient for them. The U-Scan Express also reduces the
cost of checkout transactions to retailers and addresses labor shortage
problems by replacing manned checkout counters with our automated self-checkout
stations.
As of December 31, 1999, we had installed 375 U-Scan Express systems,
consisting of 1,498 checkout stations, in 328 stores of leading retailers
across 29 states. Each U-Scan Express system typically includes four checkout
stations and one manned supervisor terminal.
As of January 31, 2000, we had purchase commitments for a minimum of 457 U-
Scan Express systems. See "Business--Company Overview." The following chart
provides information regarding the U-Scan Express systems we have installed
during the last five years:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
U-Scan Express system
installations:
Systems installed during
year................... 2 6 22 57 288
Systems installed at
year-end............... 2 8 30 87 375
U-Scan checkout stations
installed at year-end.... 8 32 120 346 1,498
Customer transactions
(millions) (1)........... 12 45
</TABLE>
- --------
(1) Estimated, based on reports provided by our customers. Prior to 1998, we
did not track this data.
Our Industry
We currently target supermarket and supercenter chains in the United States
with average annual sales per store in excess of $12 million. According to
industry sources, there are over 11,500 of these stores in the United States.
Based on information received from various supermarkets and supercenters, we
believe that approximately half of all transactions at those stores are made by
shoppers who purchase 15 or fewer items and who check out through express
lanes.
We believe that the demand for self-checkout systems will continue to grow,
in part because they help alleviate the significant labor shortages confronting
retailers in certain markets. The U.S. Bureau of Labor Statistics has estimated
that, from 1998 to 2008, the U.S. economy will require over 550,000 additional
cashiers.
1
<PAGE>
Our Customers
Our main customers have been supermarkets and supercenters. Our customers
include The Kroger Company, Meijer, Inc., Ahold NV, The Great Atlantic and
Pacific Tea Co., Inc. (A&P), Wal-Mart Stores, Inc., Harris Teeter, Inc. and
Fleming Companies, Inc. (through its Rainbow Foods division). The following
table outlines the installed base in our customers' stores as of January 31,
2000:
<TABLE>
<CAPTION>
Systems
Customer Description Installed
-------- ----------- ---------
<C> <S> <C>
Kroger Largest supermarket retailer in the United States... 235
Meijer Second largest U.S. supercenter operator............ 94
Operates BI-LO, Stop & Shop, Tops and certain Giant
Ahold stores.............................................. 13
A&P A leading U.S. supermarket retailer................. 24
Wal-Mart World's largest retailer............................ 18
Other .................................................... 21
</TABLE>
These leading retailers figure prominently in the establishment of market
standards, and we believe that our relationships with them and the increasing
presence and use of our systems in their stores contribute to the market's
growing acceptance of U-Scan Express. We also believe that shoppers' increasing
familiarity with our systems at these retailers will facilitate future sales
efforts, particularly with retailers who have not yet installed our systems in
their stores.
We believe that these customers have chosen to install U-Scan Express because
it:
. increases convenience for their shoppers, while accommodating typical
shopping patterns and allowing shoppers to check out as if they were at a
manned checkout counter,
. provides the shopper with more control over the checkout process, similar
to an ATM transaction,
. builds loyalty by making shopping easier and more convenient,
. addresses labor shortages in certain markets by replacing manned checkout
counters with automated self-checkout stations, and
. provides labor cost savings by allowing one employee to supervise four
unmanned stations.
Our Competitive Advantages
We believe that the following competitive advantages have helped us become
the leading provider of self-checkout systems to retailers in the United
States:
. the largest installed base of self-checkout systems in the United States
and well-established relationships with leading retailers,
. an established brand name and corporate identity,
. six years' experience and expertise in designing self-checkout solutions
for retailers,
. a focused business strategy targeting the rapidly developing self-
checkout market,
.a senior management team and experienced sales force familiar with the
needs of retailers, and
. superior customer service through a 24-hour, 365-day on-line helpdesk
supported by a dedicated network of service personnel.
2
<PAGE>
Our Business Strategy
Our primary objectives are to install more U-Scan Express systems in
additional supermarkets and supercenters, to begin installing U-Scan Express
and other self-checkout systems in other kinds of stores, and to initiate sales
and installations of our systems in Europe.
The key elements of our business strategy are to:
. Increase Installations in Existing and New Supermarket and Supercenter
Accounts. We plan to increase our penetration of existing customer
accounts and increase the size of our direct sales force in order to sell
to new customers in North America. We are continuing to develop
opportunities in Europe.
. Extend Retail Applications of Our Products and Services. In addition to
our focus on transactions for supermarkets and supercenters, we have
begun to extend the retail applications of our U-Scan self-checkout
technology into larger order transactions and into other kinds of stores.
We have recently introduced the U-Scan Carousel, a large-order system,
and the U-Scan Solo, a small-order system for use in drug stores,
convenience stores and specialized departments within big-box retailers.
See "Business--Our Business Strategy."
. Capitalize on e-Commerce Opportunities. We are developing strategies that
will enable us to take advantage of our large and growing installed base
of self-checkout systems and the amount of time shoppers spend at our
stations. These strategies, which may include Internet-enabled, on-screen
interactive advertising and order fulfillment, would allow us to
capitalize on the integration of the Internet with our self-checkout
systems as consumers transition from traditional shopping experiences to
Internet-enabled models.
. Assume Assembly of U-Scan Express. Upon the termination of PSC, Inc.'s
exclusive assembly rights on December 31, 2000, we will assume the
assembly of the U-Scan Express in our Plattsburgh, New York facility (in
addition to the final software configuration and the quality assurance
tasks we already perform in Plattsburgh). We believe that assuming the
assembly of our systems will result in a material increase in our gross
and operating margins.
Our Corporate Information
Optimal was formed in 1984 and is incorporated under the federal laws of
Canada. We commenced our current business in 1991. Our principal office is
located at 4700 de la Savane, Montreal, Quebec, H4P 1T7, and our telephone
number is (514) 738-8885. We have one subsidiary, Optimal Robotics, Inc., a
wholly-owned Delaware corporation.
3
<PAGE>
The Offering
<TABLE>
<C> <S>
Common shares offered:
By Optimal....................................... 1,325,000 shares(1)
By the selling shareholders...................... 675,000 shares
-----------------
2,000,000 shares(1)
Common shares to be outstanding after the offering.. 13,345,933 shares(1)(2)
Use of proceeds..................................... To fund product research
and development; to
expand into Europe; to
expand sales and
marketing operations; to
expand our assembly
facility; to increase
support services; and to
provide for general
corporate purposes,
including working
capital, potential
acquisitions and
strategic partnerships.
Nasdaq National Market Symbol....................... OPMR
</TABLE>
- --------
(1) Does not include up to 300,000 common shares issuable upon the exercise of
the underwriters' over-allotment option.
(2) Does not include 2,299,882 common shares issuable upon the exercise of
options (including reload options) and warrants to be outstanding after the
offering. See footnote (3) to "Principal and Selling Shareholders."
4
<PAGE>
Summary Financial Data
The following summary financial data as of December 31, 1999 and for the
years ended December 31, 1999, 1998 and 1997 are derived from our audited
financial statements included elsewhere in this prospectus. Effective December
31, 1998, we adopted the U.S. dollar as the reporting currency for our
financial statements. The financial statements for all periods prior to 1999,
for Canadian GAAP purposes, are presented in U.S. dollars in accordance with a
translation of convenience--See note 2 of the notes to the financial
statements, included elsewhere in this prospectus.
The summary financial data are prepared on the basis of Canadian GAAP, which
is different in some regards from U.S. GAAP. For a description of the material
differences between Canadian GAAP and U.S. GAAP in regard to our financial
statements, see note 16 of the notes to the financial statements, included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1999 1998 1997
------- ------- -------
(U.S. dollars, in
thousands except per
share data)
<S> <C> <C> <C>
Income Statement Data:
Revenues......................................... $29,634 $ 5,618 $ 3,397
Gross margin..................................... 6,177 483 688
Earnings (loss) before income taxes.............. 120 (3,911) (1,381)
Income tax recovery(1)........................... 3,532 -- --
Net earnings (loss).............................. $ 3,652 $(3,911) $(1,381)
Basic net earnings (loss) per common share....... $ 0.38 $ (0.52) $ (0.19)
Fully diluted net earnings (loss) per common
share........................................... $ 0.35 $ (0.52) $ (0.19)
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------
Actual As Adjusted(2)
------- -------------
(unaudited)
(U.S. dollars,
in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments.... $29,136 $78,474
Working capital...................................... 36,032 85,370
Total assets......................................... 44,206 93,544
Shareholders' equity................................. 39,705 89,043
</TABLE>
- --------
(1) We received purchase commitments for a large number of systems in the
fourth quarter of 1999, which cover a substantial portion of our fiscal
2000 budgeted sales target. In addition, there has been a positive trend in
our profitability and sales levels in recent quarters. Based on these
factors, we have determined that it is now more likely than not that we
will earn sufficient taxable income during the allowable carry-forward
period to realize all of our future income tax assets. Therefore, during
the fourth quarter of 1999, we recognized the future benefit of all of our
future income tax assets, which relate principally to previously
unrecognized non-capital losses and undeducted research and development
expenses. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations--1999 Compared with 1998."
(2) Adjusted to give effect to the sale of the 1,325,000 common shares offered
by Optimal hereby (at an assumed public offering price of $38.875 per
share) and the application of the estimated net proceeds therefrom and from
the exercise of options and warrants by the selling shareholders. See "Use
of Proceeds."
In this prospectus, except where otherwise indicated, references to "dollars"
or "$" are to United States dollars, and references to "Cdn.$" are to Canadian
dollars.
Information contained on our website does not form a part of this prospectus.
5
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information in
this prospectus before deciding to purchase our common shares.
We have a history of losses. Prior to the second quarter of 1999, our
operations generated losses. As of December 31, 1999, our accumulated deficit
from inception was $5,625,622. There is no guarantee that we will be
profitable in the future.
We principally depend on one product. We believe that our near-term success
depends principally on the sales volume of one product, the U-Scan Express.
Our future success depends upon the continued acceptance of and demand for
this one product, as well as new products that we may bring to market. If U-
Scan Express experiences significant problems, competition from superior
technology, or customer resistance, we could be harmed significantly. Sales
growth will depend on our generating additional orders from existing U-Scan
Express customers as well as finding new customers for the system. We believe
that our customers will only purchase the U-Scan Express if they conclude that
shoppers will use it and that there are benefits to the store from its
installation. We believe that shoppers will use the U-Scan Express only if it
is convenient, easy to use and reliable.
We rely on a few customers for most of our revenues. We have 15 major
retailers as customers, nearly all of which are supermarket chains, and we
rely on these customers' continued willingness to install the U-Scan Express.
We may not be able to generate new customers for the U-Scan Express.
We may not be able to manage our growth. During the past several years, we
have experienced significant growth in sales. As a result, we have had to hire
and train additional skilled personnel. Should sales continue to increase, we
will have to hire and train even more personnel to customize, install and
support U-Scan Express. There is no assurance that we will be able to hire the
skilled personnel we will need to meet increased demand should it develop.
This is particularly true for installation and support personnel, for whom
there is significant competition. If we are unable to hire such personnel, our
sales may be adversely affected. Despite our recent growth, we are still a
small company, and should demand for our products be unexpectedly strong, we
may be unable to fill our orders.
We rely on third party assembly. We currently depend upon PSC to assemble U-
Scan Express. PSC has the exclusive right to assemble U-Scan Express for us
through December 31, 2000 (after which date PSC will cease assembly and we
will commence assembling our systems). Prior to December 31, 2000, should PSC
fail for any reason to produce enough systems to meet demand, we may be
materially adversely affected. Furthermore, the inability to control the
assembly of our primary product during this period could adversely affect us.
We rely on third party suppliers. The U-Scan Express is assembled from
components that are readily available from numerous suppliers. Although we may
utilize a single supplier for particular components, given the open
architecture of our system, we are not dependent on any single supplier for
any particular component. Nevertheless, should any of our suppliers fail to
deliver components to us in a timely manner, it could disrupt our business.
The U-Scan Express is assembled in a single facility. PSC currently
assembles the U-Scan Express in a single facility in Rochester, New York.
Beginning January 1, 2001, we will assemble our systems in a single facility
in Plattsburgh, New York. A disruption of operations at either facility for
any reason, including labor unrest or natural disaster, may adversely affect
our business and results of operations.
We have limited experience assembling the U-Scan Express. We will assume
assembly of our systems in our Plattsburgh, New York facility on January 1,
2001. Because we have not performed this function before, we may experience
difficulties in assembling our systems or encounter logistical problems.
We have pending patent infringement claims against us. In each of 1995 and
1996, we received a demand letter from the same claimant alleging that U-Scan
Express infringes upon the claimant's patent. In July 1999, this claimant
filed a civil action in the United States District Court for the District of
Utah against us and PSC, the current assembler of U-Scan Express, alleging
patent infringement. A second party also sent a
6
<PAGE>
demand letter to us alleging a different patent infringement. After
consultation with counsel, we believe that the former claimant should not
prevail in its lawsuit and that the latter claimant should not prevail if a
lawsuit is brought to assert its claim, and that these claims will not have a
material adverse effect on our business or prospects. However, no assurance
can be given that a court will not ultimately determine that the system
infringes upon one or both of such claimants' rights. A determination by a
court that the system infringes upon either of the claimants' rights would
have a material adverse effect on our business and results of operations.
We may not be able to keep pace with changes in technology. The self-
checkout industry is rapidly developing. The technology utilized by the U-Scan
Express is changing rapidly, in part due to the evolving demands of our
customers. To be successful, we will have to anticipate the demands of our
customers and improve our existing products and develop new ones to satisfy
them. If we fail to improve and develop products by the times and at the
prices demanded by our customers, our business and prospects may be adversely
affected. Our competitors may introduce new technology that is better than
ours. If so, we will have to improve our technology in order to remain
competitive. If we are unable to do so, there might be an adverse impact on
us.
We depend upon key personnel. Our future success depends to a great extent
on the continued services of our senior management and other key personnel,
including sales people. Our success will also depend upon our ability to hire
and retain qualified personnel to assemble, install and support our systems,
to improve our existing products and to develop new ones. These people will
include:
.programmers and other software engineers,
.project managers,
.installers, and
.hardware and software support personnel.
The competition for these people may be significant. Should we have difficulty
hiring or retaining qualified personnel, it could adversely affect our
business and prospects.
Competition could reduce revenue from the U-Scan Express. The market for
checkout systems is very competitive. The chief rival for the U-Scan Express
is the traditional manned checkout counter. Although the use of automated
self-checkout systems such as the U-Scan Express is relatively new, we expect
increasing competition for sales of this product. The barriers to entering
this market may be low. Most of our competitors are larger and have greater
financial and other resources. Competitors include NCR Corporation, Symbol
Technologies, Inc. and Productivity Solutions, Inc. Additionally, PSC has
announced its intention to enter this market after December 31, 2000. We may
not be able to compete successfully against these and other companies with
greater financial and other resources.
Our products may contain defects. Our products, including the U-Scan
Express, are complex and, despite extensive testing, may contain undetected
flaws when first installed for a new customer. This is particularly true of
the software in our products, which must be adapted to each customer's
information systems. If serious, any such flaws could prevent or delay market
acceptance of our products and cause us to incur substantial re-engineering
expenses.
Our directors and officers can influence shareholder actions through their
share ownership. After this offering, our officers and directors will have the
right to vote (if they were to exercise all vested options, including "reload"
options, and warrants held by them) an aggregate of 1,852,000 common shares,
which will amount to 12.5% of the then total outstanding shares (after giving
effect to such exercises). See footnotes (3) and (10) to "Principal and
Selling Shareholders." This percentage of outstanding shares may permit these
persons to determine the outcome of any matter submitted to a vote of our
shareholders, including the election of directors, any amalgamation or
consolidation, or the sale of all or substantially all of our assets.
7
<PAGE>
Share prices in technology stocks have been volatile. Recently, there have
been substantial price and volume fluctuations in stock markets, and the
prices of technology company shares have been particularly volatile. The price
of our common shares in the stock market may move in ways that are unrelated
or disproportionate to our operating performance. In addition to our
performance, the following factors may cause the price of our common shares to
fluctuate in the stock market:
.the introduction of new products by us or by competitors,
.business conditions in our markets,
.earnings forecasts by market analysts,
.sales of our common shares in the market,
.low trading volume of our common shares, and
.general economic conditions.
Other factors, both related and unrelated to us, may also cause fluctuations
in our share price.
We are at risk from foreign currency exchange rate fluctuations. A
significant portion of our expenses is paid in Canadian dollars, while
substantially all of our revenues are earned in U.S. dollars. If the Canadian
dollar becomes stronger, the effective cost of our expenses (as reported in
U.S. dollars) will increase. We have never tried to hedge our exchange rate
risk, do not plan to begin to do so and may not be successful should we
attempt to do so in the future.
Future sales of common shares could depress the price of the common
shares. Sales of significant numbers of common shares in the public market
after this offering, or the perception that these sales will occur, may
materially depress the market price of the common shares as well as restrict
our ability to raise capital through future sales of common shares. Of the
13,345,933 common shares that will be outstanding upon the closing of this
offering, 12,563,665 shares, which include the 2,000,000 shares being sold in
this offering, will be eligible for immediate resale in the public market
without restriction. All of our directors and officers have agreed to certain
lock-up arrangements prohibiting the sale of shares owned by them for
specified periods. Lock-up arrangements with the selling shareholders expire
on February 24, 2001 and lock-up arrangements with our other officers and
directors expire 90 days after the date of this prospectus. Following the
expiration of all lock-up periods, an aggregate of 2,355,750 additional shares
(including shares underlying currently unvested options) may be sold by our
affiliates into the public market, subject to certain volume and other
limitations.
Additionally, we have registered on behalf of Gerard Klauer Mattison & Co.,
Inc., the lead underwriter in this offering, 253,420 common shares underlying
presently exercisable stock purchase warrants held by Gerard Klauer. Gerard
Klauer has agreed to delay any sales of these common shares until 90 days
after the date of this prospectus, at which time they may be sold in the
public market.
We have an effective Registration Statement covering up to 2,528,000 common
shares issuable upon the exercise of outstanding options (including reload
options) and warrants held by directors, officers, employees and consultants.
Those common shares, when issued, will be eligible for immediate resale in the
public market.
Our quarterly operating results may vary. Our operating results have varied
from quarter to quarter. In November and December, retailers focus on holiday
season sales and not on installing checkout systems. As a result, sales in
those months are generally less than sales in the rest of the year. We
recognize revenue from the sale of a system when installation is completed and
the customer has accepted it.
We do not anticipate paying dividends in the near future. We intend to
retain all of our earnings, if any, to finance operations and expand our
business and do not anticipate paying any cash dividends in the foreseeable
future.
8
<PAGE>
It may be difficult to enforce judgments against us or our affiliates. We
are incorporated under the federal laws of Canada. Most of our directors and
officers and the experts named herein are residents of Canada and all or a
substantial portion of their assets and substantially all of our assets are
located outside the United States. As a result, it may not be possible for
shareholders to effect service of process within the United States upon such
persons or to enforce against them judgments of U.S. courts under any U.S.
securities laws. There is doubt as to the enforceability in Canada, in
original actions or in actions for the enforcement of judgments of U.S.
courts, of civil liabilities predicated upon the U.S. securities laws.
Organized labor may resist U-Scan Express. The U-Scan Express displaces
cashiers. For this reason, organized labor may seek provisions in collective
bargaining agreements that prevent stores from installing U-Scan Express.
Management has broad discretion to disburse proceeds. While the net proceeds
of this offering will be dedicated generally to the uses set forth under "Use
of Proceeds," specific expenditures within each of these categories will be at
the discretion of management. Additionally, management has broad discretion in
determining how to utilize the approximately $28 million of proceeds that have
been earmarked for general corporate purposes. Pending their use, the offering
proceeds will be invested in short-term, investment grade, interest-bearing
securities. The return on these investments may be less than what we would
earn if the proceeds were put to use immediately.
We may require additional financing. We believe that our present cash and
cash equivalents along with our net proceeds from this offering will be
sufficient to meet our working capital and capital expenditure needs for at
least the next 12 months. If, however, we need to raise additional funds for
reasons that we currently do not anticipate, any securities that we issue in
connection therewith may diminish the percentage ownership or voting rights of
the holders of our common shares. Securities may be issued that have rights or
preferences superior to the common shares that are being sold in this
offering. Should we need to raise additional funds in the future, we may not
be able to do so on any terms, or we may be unwilling to agree to the terms
necessary to do so, and we would be adversely affected as a result of the
failure to raise additional funds.
We may be vulnerable to technological problems. We are a technology-oriented
company and depend to a significant degree upon our ability to communicate on-
line or by telephone with the systems that we have installed. If we are unable
to access these systems due to technological problems beyond our control, it
will have a material adverse effect on our ability to assist our customers.
Additionally, if our customers are unable to reach us by telephone or via the
Internet, we will also be unable to respond to questions or address serious
problems faced by these customers. If our ability to communicate with our
systems or our customers is impaired, our business may be adversely affected.
We are also developing strategies to capitalize on e-commerce opportunities.
The Internet is subject to security and privacy breaches which may impact us
or our customers.
Year 2000 remediation may involve significant time and expense and may
reduce our future sales. All major and most minor third party providers of
goods and services to us completed questionnaires that allowed us to assess
their Year 2000 readiness prior to January 1, 2000. However, there is no
assurance that we properly evaluated each third party's readiness through our
review of the respective response. If a potential customer were to suffer Year
2000 related problems or set aside funds for Year 2000 expenditures while
considering the purchase of a U-Scan Express, it is likely that any such
purchase would be delayed. Additionally, we may face claims based on Year 2000
issues arising from the integration of multiple products within an overall
system at a customer. To date, we have not been alerted to any difficulties on
the part of our customers relating to Year 2000 issues, nor are we aware of
any such delays in purchasing the system or claims resulting from its
integration with a customer's store systems.
9
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus contain forward-looking
information. These statements are found in the sections entitled "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
They include information concerning:
.growth and operating strategy,
.liquidity and capital expenditures,
.use of proceeds of the offering,
.financing plans,
.industry trends, and
.payment of dividends.
You can identify these statements by forward-looking words such as "expect,"
"believe," "goal," "plan," "intend," "estimate," "may," and "will" or similar
words. These forward-looking statements involve known and unknown risks,
uncertainties and other factors, including those described in the "Risk
Factors" section and elsewhere in this prospectus, that could cause our actual
results to differ materially from those anticipated in these forward-looking
statements.
10
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by us from our sale of 1,325,000 common
shares and the proceeds from the exercise of options and warrants by the
selling shareholders, after deducting underwriting discounts and commissions
and offering expenses of approximately $925,000, will be approximately
$49,000,000, assuming a public offering price of $38.875 per share. We intend
to use the net proceeds of the offering as follows:
<TABLE>
<CAPTION>
Use Amount
- --- -----------
<S> <C>
To fund product research and development........................... $ 6,000,000
To expand into Europe.............................................. 6,000,000
To expand sales and marketing operations........................... 4,000,000
To expand our Plattsburgh assembly facility........................ 3,000,000
To increase support services (and the number of support hubs) in
the United States................................................. 2,000,000
To provide for general corporate purposes, including working
capital, potential acquisitions and strategic partnerships(1)(2).. 28,000,000
-----------
Total(1)......................................................... $49,000,000
===========
</TABLE>
- --------
(1) Includes an aggregate of approximately $1,586,800 (assuming the January
31, 2000 conversion rate of US$1.00=Cdn.$1.45 on Canadian dollar-
denominated options and warrants) in proceeds from the exercise of options
and warrants by the selling shareholders to acquire 560,000 of the 675,000
common shares being sold by them in this offering. We will receive none of
the proceeds from the sale by the selling shareholders of their common
shares.
(2) Although we have allocated a portion of the net proceeds for potential
acquisitions, we are not in negotiations regarding, nor do we have any
agreements or understandings with respect to, any acquisitions.
Although we have allocated the net proceeds of this offering among these
various uses, the amounts actually expended for any of the above purposes may
vary if our needs or strategies change after the offering. Pending such use,
we intend to invest the net proceeds in short-term, investment grade,
interest-bearing securities.
11
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of Optimal as of
December 31, 1999 and as adjusted to give effect to the issuance and sale by
Optimal of the 1,325,000 common shares that it is offering hereby, and the
exercise of common share purchase options and warrants by the selling
shareholders for this offering, after deducting underwriting discounts and
commissions and estimated offering expenses payable by Optimal, and the
application of the estimated net proceeds to Optimal of this offering. This
table should be read in conjunction with our consolidated financial statements
and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
--------------------
As
Actual Adjusted(2)
------- -----------
(unaudited)
(U.S. dollars,
in thousands)
<S> <C> <C>
Shareholders' equity:
Share capital: 11,437,241 common shares issued and
outstanding; 13,322,241 shares issued and outstanding
as adjusted(1)......................................... $44,658 $93,996
Other capital........................................... 21 21
Cumulative translation adjustment....................... 652 652
Deficit................................................. (5,626) (5,626)
------- -------
Total capitalization.................................. $39,705 $89,043
======= =======
</TABLE>
- --------
(1) Excludes 2,883,574 common shares issuable upon exercise of outstanding
options (including reload options) and warrants outstanding at December 31,
1999, of which 23,692 common shares have been issued since December 31,
1999 upon the exercise of outstanding options and warrants.
(2) Adjusted to give effect to the sale of the 1,325,000 common shares being
offered by Optimal (at an assumed public offering price of $ 38.875 per
share), the exercise by the selling shareholders of options and warrants to
purchase 560,000 of the 675,000 common shares being sold by them in this
offering, and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
12
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following selected financial data as of December 31, 1999 and 1998 and
for the years ended December 31, 1999, 1998 and 1997 are derived from and are
qualified by reference to our audited financial statements that are included
elsewhere in this prospectus. The following selected financial data as of
December 31, 1997, 1996 and 1995 and for the years ended December 31, 1996 and
1995 are derived from our audited financial statements, as restated for a
change in reporting currency, that are not included herein. Effective December
31, 1998, we adopted the U.S. dollar as the reporting currency for our
financial statements. The financial data for all periods prior to 1999, for
Canadian GAAP purposes, are presented in U.S. dollars in accordance with a
translation of convenience method using the representative exchange rate at
December 31, 1998 of US$1.00=Cdn.$1.5333--see note 2 of the notes to the
financial statements, included elsewhere in this prospectus.
The data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the financial
statements, related notes and the other financial information included
elsewhere in this prospectus.
The selected financial data are prepared on the basis of Canadian GAAP,
which is different in some regards from U.S. GAAP. For a description of the
material differences between Canadian GAAP and U.S. GAAP in regard to our
financial statements, see note 16 of the notes to the financial statements,
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1999 1998 1997 1996 1995
-------- ------- -------- -------- ------
(U.S. dollars, in thousands except per
share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues........................ $ 29,634 $ 5,618 $ 3,397 $ 894 $ 498
Cost of sales................... 23,457 5,135 2,709 837 171
-------- ------- -------- -------- ------
Gross margin.................... 6,177 483 688 57 327
Research and development
expenses, net of tax credits... 220 210 294 506 153
Selling, general, administrative
and other expenses............. 6,022 5,265 2,780 1,047 807
Write-down of inventory......... 604 -- --
Other........................... (789) (1,081) (1,005) (429) (15)
-------- ------- -------- -------- ------
Earnings (loss) before income
taxes.......................... 120 (3,911) (1,381) (1,067) (618)
Income tax recovery(1).......... 3,532 -- -- -- --
-------- ------- -------- -------- ------
Net earnings (loss)............. $ 3,652 $(3,911) $ (1,381) $ (1,067) $ (618)
======== ======= ======== ======== ======
Weighted average number of
common shares outstanding
(thousands).................... 9,699 7,464 7,410 4,918 3,624
Weighted average fully diluted
number of common shares
outstanding (thousands)........ 12,709 -- -- -- --
Basic net earnings (loss) per
common share................... $ 0.38 $ (0.52) $ (0.19) $ (0.22) $(0.17)
======== ======= ======== ======== ======
Fully diluted net earnings
(loss) per common share........ $ 0.35 $ (0.52) $ (0.19) $ (0.22) $(0.17)
======== ======= ======== ======== ======
Other data:
U-Scan Express system
installations:
Systems installed during
year......................... 288 57 22 6 2
Systems installed at year-
end.......................... 375 87 30 8 2
U-Scan checkout stations
installed at year-end.......... 1,498 346 120 32 8
Customer transactions
(millions)(2).................. 45 12
<CAPTION>
December 31,
---------------------------------------------
1999 1998 1997 1996 1995
-------- ------- -------- -------- ------
(U.S. dollars, in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
short-term investments......... $ 29,136 $ 6,063 $ 10,354 $ 12,868 $ 612
Working capital................. 36,032 7,319 10,783 12,855 832
Total assets.................... 44,206 9,329 11,848 13,741 1,260
Shareholders' equity............ 39,705 7,596 11,072 12,453 435
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
U.S. GAAP: -------------------------------------------
1999 1998 1997 1996 1995
------- -------- ------- ------- ------
(U.S. dollars, in thousands except per
share data)
<S> <C> <C> <C> <C> <C>
Revenues......................... $29,634 $ 5,721 $ 3,749 $ 1,006 $ 561
Net loss......................... $(5,575) $(16,403) $(6,806) $(1,362) $ (715)
Basic and fully diluted net loss
per common share................ $ (0.57) $ (2.20) $ (0.92) $ (0.28) $(0.20)
<CAPTION>
December 31,
-------------------------------------------
1999 1998 1997 1996 1995
------- -------- ------- ------- ------
(U.S. dollars, in thousands)
<S> <C> <C> <C> <C> <C>
Total assets..................... $44,191 $ 9,312 $12,679 $15,348 $1,391
</TABLE>
- --------
(1) We received purchase commitments for a large number of systems in the
fourth quarter of 1999, which cover a substantial portion of our fiscal
2000 budgeted sales target. In addition, there has been a positive trend
in our profitability and sales levels in recent quarters. Based on these
factors, we have determined that it is now more likely than not that we
will earn sufficient taxable income during the allowable carry-forward
period to realize all of our future income tax assets. Therefore, during
the fourth quarter of 1999, we recognized the future benefit of all of our
future income tax assets, which relate principally to previously
unrecognized non-capital losses and undeducted research and development
expenses. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations--1999 Compared with
1998."
(2) Estimated, based on reports provided by our customers. Prior to 1998, we
did not track this data.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We are the leading provider of self-checkout systems to retailers in the
United States. Our principal product is the U-Scan Express, an automated self-
checkout system which enables shoppers to scan, bag and pay for their
purchases with little or no assistance from store personnel. As of December
31, 1999, we had installed 375
U-Scan Express systems, consisting of 1,498 checkout stations, in 328 stores
of leading retailers across 29 states. We estimate that in 1999 U-Scan Express
systems processed over 45 million customer transactions. The U-Scan Express
can be operated quickly and easily by shoppers and makes the checkout process
more convenient for them. The U-Scan Express also reduces the cost of checkout
transactions to retailers and addresses labor shortage problems by replacing
manned checkout counters with our automated self-checkout stations. We believe
that the market for the U-Scan Express extends beyond supermarkets and
supercenters and we now sell to general merchandise stores and other big-box
retailers. The U-Scan Express is currently assembled by PSC under contract.
IBM and PSC also market the U-Scan Express.
Agreement with PSC
In 1995, we entered into a strategic relationship agreement whereby we
granted to Spectra-Physics Scanning Systems, Inc. an exclusive worldwide
license to distribute, sell, assemble and install U-Scan Express systems. PSC
acquired Spectra-Physics in 1996 and assumed this agreement. The agreement
obligated PSC to service and maintain the hardware in the systems after
installation. Our role was to develop the product, provide and service the
software for it and assist in selling it. We shared the gross margin relating
to sales of systems with PSC. As our resources expanded, we negotiated to
reduce PSC's role. Beginning April 1, 1998, we assumed primary responsibility
for the sale and all responsibilities for distributing, installing and
servicing our U-Scan Express systems and became entitled to all the revenue
from their sale. We currently pay PSC to act as the exclusive assembler of the
systems. In October 1999, we notified PSC that we will not renew its exclusive
assembly rights beyond December 31, 2000, the date specified in our agreement.
Starting in January 2001, PSC will cease assembling and we will assume
assembly of the U-Scan Express in our Plattsburgh, New York facility. Through
December 2000, the purchase price that we pay to PSC for each system is equal
to the cost of the system plus a margin that fluctuates with its ultimate
sales price. PSC continues to market the U-Scan Express, but we are now the
primary seller of our systems. Furthermore, we control PSC's purchasing
process for raw materials and influence its direct labor costs as they relate
to U-Scan Express.
Trends in our costs
We continue to focus on taking advantage of economies of scale and reducing
the costs of installing and servicing our product. In late 1998, we created a
department having a primary responsibility of sourcing new suppliers and
obtaining the best possible prices for our raw materials. As a result of this
cost-cutting initiative, during 1999 we experienced a reduction in some of our
raw material costs. In 1999, the decrease in the overall cost per system was a
direct result of the increase in the number of U-Scan Express systems sold and
the benefits of this cost cutting initiative. Furthermore, we believe that as
the number of firm commitments we have to purchase the U-Scan Express
increases, we will be able to leverage our increased component requirements
into lower prices from suppliers. We continue to make significant investments
in our infrastructure to support the rapid growth of our business.
15
<PAGE>
Quarterly Results
The following table sets forth certain summarized unaudited quarterly
financial and other data for the periods presented. The financial data has
been derived from unaudited financial statements that, in the opinion of
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such quarterly data. The
financial data for all periods prior to 1999, for Canadian GAAP purposes, are
presented in U.S. dollars in accordance with a translation of convenience
method using the representative exchange rate at December 31, 1998 of
US$1.00=Cdn.$1.5333--see note 2 of the notes to the financial statements,
included elsewhere in this prospectus. The operating results for any quarter
are not necessarily indicative of the results to be expected for any future
period.
The summary financial data are prepared on the basis of Canadian GAAP, which
is different in some regards from U.S. GAAP. For a description of the material
differences between Canadian GAAP and U.S. GAAP in regard to our financial
statements, see note 16 of the notes to the financial statements, included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
For the quarter ended
------------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
1999 1999 1999 1999 1998 1998 1998 1998
-------- --------- -------- --------- -------- --------- -------- ---------
(U.S. dollars, in thousands except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 6,835 $10,686 $7,023 $ 5,090 $ 1,674 $ 2,722 $ 696 $ 525
Cost of sales........... 5,449 8,128 5,536 4,344 1,715 2,464 582 373
------- ------- ------ ------- ------- ------- ------- -------
Gross margin............ 1,386 2,558 1,487 746 (41) 258 114 152
Earnings (loss) before
income taxes........... (1,153) 1,420 428 (575) (1,142) (1,021) (949) (799)
Income tax recovery..... 3,532 -- -- -- -- -- -- --
------- ------- ------ ------- ------- ------- ------- -------
Net earnings (loss)..... $ 2,379 $ 1,420 $ 428 $ (575) $(1,142) $(1,021) $ (949) $ (799)
Basic net earnings
(loss) per common
share.................. $ 0.21 $ 0.13 $ 0.05 $ (0.08) $ (0.15) $ (0.14) $ (0.13) $ (0.11)
Fully diluted net
earnings (loss) per
common share........... $ 0.18 $ 0.12 $ 0.05 $ (0.08) $ (0.15) $ (0.14) $ (0.13) $ (0.11)
Other data:
U-Scan Express systems
installed during
quarter................ 64 105 68 51 17 24 9 7
</TABLE>
The following table sets forth, for the periods indicated, income statement
data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
For the quarter ended
-----------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
1999 1999 1999 1999 1998 1998 1998 1998
-------- --------- -------- --------- -------- --------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 79.7 76.1 78.8 85.3 102.4 90.5 83.6 71.0
----- ----- ----- ----- ----- ----- ------ ------
Gross margin............ 20.3 23.9 21.2 14.7 (2.4) 9.5 16.4 29.0
Earnings (loss) before
income taxes........... (16.9) 13.3 6.1 (11.3) (68.2) (37.5) (136.4) (152.2)
Income tax recovery..... 51.7 -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ------ ------
Net earnings (loss)..... 34.8% 13.3% 6.1% (11.3)% (68.2)% (37.5)% (136.4)% (152.2)%
</TABLE>
16
<PAGE>
Results of Operations
The following discussion and analysis of our results of operations and
liquidity and capital resources should be read in conjunction with the
financial information and our financial statements and their related notes,
included elsewhere in this prospectus.
1999 Compared with 1998
Total revenues increased by $24,016,233, or 427%, from 1998 to 1999. Sales
of U-Scan Express grew from 57 systems in 1998 to 288 systems in 1999,
producing $23,146,629 of additional systems revenues, an increase of 449%. The
growth in sales was due to a significant increase in orders from existing
customers. Service contract revenue recognized for hardware and software
maintenance increased by $854,707, or 600%, because of the increased number of
customers that entered into service contracts with us after purchasing U-Scan
Express.
Total cost of sales increased by $18,322,336, or 357%, from 1998 to 1999.
Overall gross margin increased as a percentage of sales from 9% in 1998 to 21%
in 1999, primarily representing the increase in gross margin on system sales.
This increase resulted primarily from taking advantage of economies of scale
and reducing the costs of installing and servicing our products.
Gross research and development expenses increased by $635,572, or 196%, from
1998 to 1999. As a percentage of total revenues, gross research and
development expenses decreased from 6% in 1998 to 3% in 1999. This percentage
decrease resulted from the substantial increase in the number of systems sold
in 1999 as compared to 1998. Research and development expenses during the year
included the cost of the development of two new product lines.
We may, for Canadian federal income tax purposes, defer and deduct in future
years certain scientific research and experimental development expenditures
incurred to date. As of December 31, 1999, the amount of such deferred
deductions is Cdn.$2,420,000 (approximately $1,669,000) for Canadian federal
income tax purposes and Cdn.$4,010,000 (approximately $2,766,000) for Quebec
provincial income tax purposes. These deductions may be carried forward
indefinitely. In addition, we have non-refundable investment tax credits of
approximately Cdn.$729,000 (approximately $503,000), which can be carried
forward to reduce Canadian federal income taxes payable and which expire in
various years through 2009.
Selling, general, administrative and other expenses (including operating
lease expenses) increased by $618,099, or 12%, in 1999 compared to 1998. As a
percentage of total revenues, these expenses decreased from 90% in 1998 to 19%
in 1999. This percentage decrease resulted from the substantial increase in
the number of systems sold in 1999 compared to 1998. During the last quarter
of 1999, we continued to expand sales and marketing efforts and hire
additional personnel, as our backlog continued to increase. In addition, we
incurred increased costs in engineering follow-through during the early phases
of commercial production for U-Scan Solo and U-Scan Carousel. We also incurred
increased costs adapting the capabilities of our existing U-Scan system to new
customers' needs and for the start-up of the Plattsburgh facility.
A write-down of inventory of $604,364 in the fourth quarter of 1999 was
required due to upgrades in some hardware components, to recognize the
declining replacement costs for many components as a result of stronger
purchasing power with our suppliers, and due to parts obsolescence.
Our 1999 net earnings of $3,651,768 reflect an income tax recovery of
$3,531,583, which represents the future benefit of non-capital loss
carryforwards and undeducted scientific research and experimental development
expenditures which may be used to reduce taxable income, for Canadian federal
and Quebec provincial income tax purposes, in future years. We may utilize
these loss carryforwards and undeducted expenditures only to the extent that
we generate taxable income for Canadian federal and Quebec provincial income
tax purposes, in the future.
During 1999, we retroactively adopted the revised recommendations of the
Canadian Institute of Chartered Accountants regarding accounting for income
taxes, which are consistent with U.S. GAAP. During the fourth quarter of the
year, we received purchase commitments for a large number of systems which
cover a substantial
17
<PAGE>
portion of our fiscal 2000 budgeted sales target. In addition, there has been
a positive trend in our profitability and sales levels in recent quarters.
Based on these factors, we have determined that it is now more likely than not
that we will earn sufficient taxable income during the allowable carry-forward
period to fully realize all of our future income tax assets. Therefore, as a
result of this determination, we were required to record, during the fourth
quarter of the year, an income tax recovery with respect to these future
income tax assets.
Our ability to ultimately realize these future income tax assets will be
dependent upon our realizing certain sales levels within the allowable carry-
forward period, thus creating sufficient taxable income to realize the benefit
of these assets. We believe that our revenues for fiscal 2000 and 2001 will
grow annually based on our current order backlog and expected additional
purchase commitments from new and existing customers. Our ability to realize
these assets is also dependent on effective control over our selling, general
and administrative expenses. In addition, we expect our gross and operating
margins to materially increase as a result of our assumption of the assembly
responsibility for our systems commencing in January 2001, when PSC ceases to
assemble our systems. Based on our earnings estimates for fiscal 2000,
$3,012,997 of these future income tax assets have been classified as a current
asset.
1998 Compared with 1997
Total revenues increased by $2,221,296, or 65%, from 1997 to 1998. Sales of
U-Scan Express grew from 22 systems in 1997 to 57 systems in 1998, producing
$3,483,994 of additional systems revenue, an increase of 209%. The growth in
sales was due to our greater marketing efforts and the change in our
relationship with PSC. Under the arrangement with PSC before April 1, 1998, we
recorded as revenue only our portion of the gross margin on system sales.
Beginning April 1, 1998, we recorded the entire sales proceeds for the system
sales (as well as the corresponding cost of sales). See "Overview." The
average selling price for U-Scan Express decreased from 1997 to 1998. From
time to time, we retrofit already-installed systems by changing their casings.
In 1998, we completed 12 retrofits, compared to five in 1997. The price of
retrofits remained constant from year to year. Between May and December 1997,
we had hardware sales of $1,472,559 related to our Optimal 6300 POS ("POS")
system. Prior to January 1, 1998, we discontinued these hardware sales. In
1998, development and customization revenues, which predominantly related to
the POS business, declined by $16,713, or 8%, because the demand of our POS
customer for development of that product was less. In 1999, we entered into a
contract with that customer for a greater sum than we received in 1998.
Service contract revenue recognized for hardware and software maintenance
increased by $119,123, or 508%, from 1997 to 1998, because of the increased
number of customers that entered into contracts with us after purchasing U-
Scan Express systems and because we began receiving hardware maintenance
payments in accordance with the new agreement with PSC.
Total cost of sales increased by $2,426,288, or 90%, from 1997 to 1998.
Gross margin decreased as a percentage of sales from 20% in 1997 to 9% in
1998. This decrease resulted primarily from the change in our relationship
with PSC. The costs that we assumed from PSC more than offset the additional
revenue that we realized due to the change. As a result, gross margin on sales
of systems decreased from 29% in 1997 to 7% in 1998. In 1997, we realized a
gross margin of $25,202, or 2%, on revenues of $1,472,559 related to sales of
hardware, which were discontinued prior to 1998. In 1998, a negative gross
margin of 26% was realized on hardware and software maintenance revenue
because hardware maintenance costs, which are recognized as incurred, exceeded
hardware maintenance revenues, which are fixed by contract and recognized
evenly over the term thereof. The gross margin on development and
customization revenues decreased from 68% in 1997 to 58% in 1998. This amount
represents only a $13,100 increase in the cost of sales. In 1998, we realized
a gross margin of $26,019, or 22%, on the sale of third-party software
licenses in a single, non-recurring transaction.
Gross research and development expenses in 1998 remained relatively constant
as compared to 1997. As a percentage of sales, they fell from 12% in 1997 to
6% in 1998. This change reflects our growing focus in 1998 on selling and
installing U-Scan Express systems and expanding our general and administrative
resources.
Selling, general and administrative expenses (including operating lease
expense) increased by $2,403,056, or 90%, from 1997 to 1998. As a percentage
of sales, selling, general and administrative expenses increased from 75% in
1997 to 86% in 1998. Both increases resulted in part from our expanding our
sales and marketing efforts and hiring additional personnel, including
engineers and technicians, as our backlog increased and we anticipated future
sales. Expenses for adapting software for potential new customers, quality
control and redesigning software and hardware also increased from 1997 to
1998.
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Liquidity and Capital Resources
As of December 31, 1999, we had cash, cash equivalents and short-term
investments of $29,135,690 and working capital of $36,032,273.
Operating activities used $2,918,423 of cash and cash equivalents in 1999 as
compared to $4,379,534 in 1998. In 1999, we issued 3,000,000 common shares
pursuant to a public offering and 961,963 common shares pursuant to the
exercise of options and warrants, which resulted in net cash proceeds of
$24,206,566 and $2,467,094, respectively.
In 1999, we had capital expenditures of $1,012,586, which principally
related to computer equipment and testing units and leasehold improvements
related to the expansion of our head office premises. In 1998, we had capital
expenditures of $234,207, which were principally related to testing units and
computer equipment.
We also maintain an operating line of credit in the amount of Cdn.$500,000
with a Canadian chartered bank, in connection with which we have pledged a
U.S. treasury bill. We do not have any amounts outstanding under this line of
credit. We believe that our cash, cash equivalents and short-term investments,
combined with the net proceeds of this offering and our operating line will be
adequate to meet our needs for at least the next 12 months.
Year 2000 Issues
To date, none of our customers has informed us of any Year 2000 problems
with their systems and hardware, although some uncertainty remains in the
software industry and other industries concerning the scope and magnitude of
problems associated with the century change. Furthermore, we received no
indications that any material third party providers were not ready for the
Year 2000, and we believe that any such unpreparedness discovered after
January 2000 will not have a material effect on our business, results of
operations or financial condition.
We took steps during 1999 to ensure that our operations would not be
adversely affected by Year 2000 software problems. We determined that the
consequences of the Year 2000 for our products and the software contained in
our internal systems would not have a material effect on our business, results
of operations or financial condition. Upgrades required to make current
internal systems Year 2000 ready were installed and tested by June 30, 1999,
at a cost that was not material to us. All internal systems installed
thereafter were tested and verified for Year 2000 readiness at the time of
installation at no additional cost. No alteration to the software contained in
our products was necessary. Nevertheless, customers generally integrate our
products into a store's information systems, which the customer might not have
been able to adequately evaluate for Year 2000 readiness. If in the future we
are required to defend our products or services in court proceedings, or to
negotiate resolutions of claims based on Year 2000 issues, the costs of
defending and resolving Year 2000 related disputes, regardless of the merits
of such disputes, and any liability we may have for Year 2000 related damages,
including consequential damages, could materially adversely affect our
business, financial condition and operating results.
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BUSINESS
Company Overview
We are the leading provider of self-checkout systems to retailers in the
United States. Our principal product is the U-Scan Express, an automated self-
checkout system which enables shoppers to scan, bag and pay for their
purchases with little or no assistance from store personnel. We estimate that
in 1999 U-Scan Express systems processed over 45 million customer
transactions. The U-Scan Express can be operated quickly and easily by
shoppers and makes the checkout process more convenient for them. The U-Scan
Express also reduces the cost of checkout transactions to retailers and
addresses labor shortage problems by replacing manned checkout counters with
our automated self-checkout stations.
As of December 31, 1999, we had installed 375 U-Scan Express systems,
consisting of 1,498 checkout stations, in 328 stores of leading retailers
across 29 states. Each U-Scan Express system typically includes four checkout
stations and one manned supervisor terminal.
As of January 31, 2000, we had purchase commitments for a minimum of 457 U-
Scan Express systems. Purchase commitments represent general purchase orders,
blanket purchase commitments or purchase contracts from customers for a
designated number of U-Scan Express systems over a specified period of time.
The following chart provides information regarding the U-Scan Express systems
we have installed during the last five years:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
U-Scan Express system installations:
Systems installed during year................... 2 6 22 57 288
Systems installed at year-end................... 2 8 30 87 375
U-Scan checkout stations installed at year-end.... 8 32 120 346 1,498
Customer transactions (millions)(1)............... 12 45
</TABLE>
- --------
(1) Estimated, based on reports provided by our customers. Prior to 1998, we
did not track this data.
Our Industry
We currently target supermarket and supercenter chains in the United States
with average annual sales per store in excess of $12 million. According to
industry sources, there are over 11,500 of these stores in the United States.
Based on information received from various supermarkets and supercenters, we
believe that approximately half of all transactions at those stores are made
by shoppers who purchase 15 or fewer items and who check out through express
lanes. U-Scan Express, which can be quickly and easily operated, addresses
these shoppers' needs by providing them with more control over the checkout
process.
The potential market for self-checkout solutions includes applications
beyond supermarkets and supercenters. General merchandise stores and other
big-box retailers have begun to install self-checkout systems. Other types of
stores that we have identified where self-checkout systems could be used
include drug stores, warehouse stores, office superstores, toy stores and home
improvement centers. We recently introduced one new product for use in small
retail establishments and small departments in larger stores and a second new
product for use in high volume retail outlets. See "--Our Business Strategy."
Additionally, we believe that a large market for self-checkout systems exists
in Europe.
We believe that the demand for self-checkout systems will continue to grow,
in part because they help alleviate the significant labor shortage confronting
retailers in certain markets. The U.S. Bureau of Labor Statistics has
estimated that, from 1998 to 2008, the U.S. economy will require over
550,000 additional cashiers. In addition to providing stores with a dependable
and economical alternative to maintaining cashiers in express checkout lanes,
we believe that self-checkout systems allow large retailers to offer shoppers
the speed of a small convenience store while maintaining the greater selection
and lower prices of a supermarket.
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We also believe that the acceptance of self-checkout systems will increase
over time much like the increase in acceptance of automated teller machines
(ATMs) and pay-at-the-pump credit/debit card machines. Banking industry
sources estimate that the number of ATMs in the United States grew from 18,500
in 1980 to over 200,000 in 1999, and that the number of ATMs in use worldwide
was over 700,000 at the end of 1999. According to the National Association of
Convenience Stores' 1999 State of the Industry report, the percentage of
convenience stores with pay-at-the-pump technology increased from less than 5%
in 1990 to 50% in 1998. In the same way that many people have become more
accustomed to using ATMs to conduct their banking and to paying at the pump
when fueling their cars, rather than interacting with a bank teller or store
attendant, we believe that consumers seeking convenience and "control" when
shopping will choose to use a self-checkout system instead of paying at a
traditional manned checkout counter.
Our Customers
Our main customers have been supermarkets and supercenters, including the
following retailers:
. Kroger. Kroger is the largest supermarket retailer in the United States,
and owns and operates approximately 2,200 supermarkets and 794
convenience stores. Kroger is our largest customer and recently ordered
an additional 200 U-Scan Express systems, of which 43 have been
installed. We presently have a total of 235 systems installed in Kroger's
stores.
. Meijer. Meijer is the second largest U.S. supercenter operator with
approximately 130 stores. Its typical store size is over 175,000 square
feet. We presently have 94 U-Scan Express systems installed in Meijer's
stores. In January 2000, Meijer agreed to purchase up to 150 (with a
minimum of 100) additional systems through June 2001, of which 10 have
been installed.
. Ahold. Ahold operates over 3,600 stores of various types in the United
States, Europe, Asia and Latin America under various banners, including
over 1,000 BI-LO, Stop & Shop, Tops, Giant and other stores in the United
States. In December 1999, Ahold agreed to purchase 100 U-Scan Express
systems for installation in its U.S. stores, of which five have been
installed.
. A&P. A&P operates over 700 food stores in North America. In October 1999,
A&P informed us that it intends to purchase and install 100 U-Scan
Express systems, of which 24 have been installed.
. Wal-Mart. Wal-Mart is the world's largest retailer with over 2,850
general merchandise discount stores and supercenters in the United States
alone. We presently have 18 U-Scan Express systems installed in Wal-Mart
supercenters and general merchandise discount stores. Wal-Mart is
continuing to work with us as they evaluate the use of U-Scan Express in
their stores.
These leading retailers figure prominently in the establishment of market
standards, and we believe that our relationships with them and the increasing
presence and use of our systems in their stores contribute to the market's
growing acceptance of U-Scan Express. We also believe that shoppers'
increasing familiarity with our systems at these retailers will facilitate
future sales efforts, particularly with retailers who have not yet installed
our systems in their stores.
We believe that these customers have chosen to install U-Scan Express
because it:
. increases convenience for their shoppers, while accommodating typical
shopping patterns and allowing shoppers to check out as if they were at a
manned checkout counter,
. provides the shopper with more control over the checkout process, similar
to an ATM transaction,
. builds loyalty by making shopping easier and more convenient,
. addresses labor shortages in certain markets by replacing manned checkout
counters with automated self-checkout stations, and
. provides labor cost savings by allowing one employee to supervise four
unmanned stations.
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Our Competitive Advantages
We believe that the following competitive advantages have helped us become
the leading provider of self-checkout systems to retailers in the United
States:
. the largest installed base of self-checkout systems in the United States
and well-established relationships with leading retailers,
. an established brand name and corporate identity,
. six years' experience and expertise in designing self-checkout solutions
for retailers,
. a focused business strategy targeting the rapidly developing self-
checkout market,
.a senior management team and experienced sales force familiar with the
needs of retailers, and
. superior customer service through a 24-hour, 365-day on-line helpdesk
supported by a dedicated network of service personnel.
Our Business Strategy
Our primary objectives are to install more U-Scan Express systems in
additional supermarkets and supercenters, to begin installing U-Scan Express
and other self-checkout systems in other kinds of stores, and to initiate
sales and installations of our systems in Europe.
Key elements of our business strategy are to:
Increase Installations in Existing and New Supermarket and Supercenter
Accounts. We plan to increase our penetration of existing customer accounts
and increase the size of our direct sales force in order to sell to new
customers in North America. We are continuing to develop opportunities in
Europe.
Extend Retail Applications of Our Products and Services. In addition to our
focus on transactions for supermarkets and supercenters, we have recently
introduced two new products, U-Scan Carousel and U-Scan Solo, that have been
designed to extend the retail applications of our U-Scan self-checkout
technology. Much like the U-Scan Express, each of these new applications
enables customers to scan, bag and pay for their purchases with limited or no
assistance from store personnel.
U-Scan Carousel
To meet the demands of existing and new customers, U-Scan Carousel has been
configured as a six-bag self-checkout system which can accommodate large order
purchases. The U-Scan Carousel utilizes U-Scan technology that has been
specifically adapted to handle large orders in the following high volume
retail outlets:
. warehouse stores,
. general merchandise stores,
. home improvement centers, and
. other big-box retailers.
This larger configuration enables these retailers to address the labor
shortage found in many markets while providing a more convenient shopping
experience.
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U-Scan Solo
U-Scan Solo is a one-bag self-checkout station in which our U-Scan
technology has been adapted to meet the needs of small footprint retail
establishments such as drug stores, convenience stores and general merchandise
stores, as well as for satellite areas, such as floral and video departments,
in supermarkets and supercenters.
The U-Scan Carousel and the U-Scan Solo are the direct results of our
research and development efforts. We remain committed to developing other new
products like U-Scan Carousel and U-Scan Solo on a timely and cost-effective
basis and continuing to improve our current products.
Capitalize on e-Commerce Opportunities. We are exploring various e-commerce
opportunities as a means of generating additional revenue from U-Scan
stations. Among these are the following:
. We estimate that with over 45 million customer transactions through U-
Scan Express systems in 1999, U-Scan touchscreens received over two
million hours of "eyeball" time. U-Scan touchscreens can act as portals
for interactive marketing and advertising solutions. Because we are on-
line to all of our systems, we can deliver targeted interactive
advertising and promotions to the customer on U-Scan touchscreens as well
as relational advertising for other products or services.
. Our self-checkout solutions can be integrated with and used to help
enhance a retailer's e-commerce strategy. A U-Scan system can act as an
e-commerce accelerator because it automates the order fulfillment
process. As shoppers transition to "clicks and mortar" shopping
experiences, we believe our systems will enable shoppers to physically
complete their on-line transactions faster and easier.
Assume Assembly of U-Scan Express. Upon the termination of PSC's exclusive
assembly rights on December 31, 2000, we will assume the assembly of the U-
Scan Express in our Plattsburgh, New York facility (in addition to the final
software configuration and the quality assurance tasks we already perform in
Plattsburgh). We believe that assuming the assembly of our systems will result
in a material increase in our gross and operating margins.
Products and Systems
U-Scan Express System
A U-Scan Express system, in a typical configuration for a supermarket or
supercenter application, consists of four self-checkout stations and one
manned supervisor terminal. Each checkout station consists of the following
components linked by a PC platform:
. a bar code scanner with a scale,
. a bagging station equipped with a scale,
. a touchscreen monitor,
. an overhead video camera,
. a credit/debit terminal (with available support for signature capture
devices),
. bill and coin acceptors and dispensers, and
. a receipt printer.
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[Picture of U-Scan Express(R) checkout station Showing Bag & Weight Platform,
Bill & Coin Acceptors, Receipt Printer, Bill & Coins Dispensers Credit Debit
Card Keypad, Overhead Video Camera, Touchscreen Monitor and Bar Code Scanner &
Scale
The supervisor terminal consists of:
. a monitor that allows the supervisor to observe the activity at each
checkout station,
. a hand-held scanner, either wired or wireless, that enables the
supervisor to assist shoppers with large items,
. an easy-to-use touchscreen that makes it simple for the supervisor to
interact with the system, and
. a receipt printer for credit/debit transactions.
In a typical configuration, the U-Scan Express occupies the same floor space
as would three manned checkout lanes. As a result, shoppers are provided with
one additional checkout station. Because one supervisor can oversee four self-
checkout stations, we believe that the store's costs per checkout lane are
lowered. We believe that labor cost savings associated with a U-Scan Express in
a typical supermarket yield a positive return on investment.
[Schematic Diagram Showing Typical Configuration and Floor Space Occupied]
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<PAGE>
Operation
The U-Scan Express system is equipped with a convenient, intuitive
touchscreen interface and provides automated voice instructions that guide the
shopper through the entire checkout process, from scanning the first item to
removing the receipt after payment.
To commence the checkout process, a shopper presses an icon on the
touchscreen of a U-Scan station. An automated voice greets the shopper and
instructs him or her to begin scanning items using the station's easy-to-use,
multi-directional scanner. As each item is scanned by the shopper, the
touchscreen acknowledges the scanned item and displays its price.
Simultaneously, the shopper is instructed by the automated voice to place the
scanned item in the shopping bag located on the station's scale. In this
manner, not only are purchased items bagged, but the station also
simultaneously weighs each item and makes sure that its weight is correct for
the item scanned.
The U-Scan Express easily handles bar-coded items and has been designed to
accommodate non-bar-coded items and items requiring compliance with specific
procedures. The U-Scan Express has the capacity to learn the weight of bar-
coded items that it has not previously encountered. For non-bar-coded items
such as produce or other items sold by weight, the shopper places the item on
a separate scale that is part of the scanner and presses a specific icon on
the touchscreen that alerts the system supervisor. Each U-Scan station is
equipped with an overhead video camera that transmits an image of the item
placed on the scale to the color video monitor located at the supervisor
terminal. This enables the supervisor to identify the item for the system,
which, in turn, computes the correct price for the item. At the request of
some customers, the system is configured to allow shoppers to identify the
non-bar-coded items being purchased, thereby eliminating the need for
supervisor attention. Additionally, alcohol and tobacco product purchases
automatically prompt the system supervisor to verify the purchaser's age. The
system supervisor terminal is equipped with a hand-held scanner that is used
to read bar codes on heavy, oversized items. Both wired and wireless models
are available.
The U-Scan Express is able to handle variations on the normal bar-coded
purchase. For example, it can process transactions involving products that are
sold on a "per unit" basis. The system can identify multiple-unit items such
as six-packs of canned beverages and partial purchases of multiple-unit items
(such as five cans of a six-pack). The system also has the capability to
adjust its tolerance level for deviations in an item's weight, such as where
the inclusion of a prize in a cereal box would increase the weight of that box
beyond the preset or previously "learned" tolerance level.
Once a shopper has scanned all the items he or she wishes to purchase, the
shopper notifies the system by pressing the appropriate icon on the
touchscreen. The U-Scan Express then prompts the shopper to select the form of
payment. The U-Scan Express can accept any form of payment, either at the
self-checkout station or at the supervisor's terminal, that is accepted by
cashiers, including cash, checks, credit cards, debit cards, coupons, food
stamps and gift certificates. The U-Scan station can make change and dispense
additional cash should the shopper choose to withdraw additional money using a
credit or debit card. U-Scan Express also identifies and can handle "mix and
match" payments, such as a combination of cash and coupons. Those shoppers who
choose to pay with checks, food stamps or gift certificates are directed to
the system supervisor to complete their transactions.
Once the shopper has made payment and received change from the U-Scan
station's bill and coin dispenser, a receipt is printed at the U-Scan station.
At all times, a system supervisor is located nearby to provide prompt
assistance should it be required by the shopper.
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Security
The close proximity of the system supervisor to the U-Scan stations helps to
deter theft. Moreover, the U-Scan Express provides an additional level of
protection with a built-in, three-tier security system designed to guard
against loss due to theft or human error. The security system at each U-Scan
station consists of:
. a bagging station equipped with a scale that detects any unscanned or
substituted items,
. an overhead video camera that discourages non-scanning or substitution,
and
. an integrated payment mechanism that substantially reduces the
opportunity for cashier fraud or error.
The U-Scan Express weighs each item scanned. If the weight detected for the
scanned item is different from the item's weight contained in the system's
database, the shopper will be asked to try again and the cashier will be
alerted. Should a shopper fail to scan an item that is placed on the weighing
platform, the system will prompt the shopper to remove the item and scan it.
Should a shopper mistakenly scan an item more than once before placing it on
the weighing platform, the U-Scan station will only charge the shopper once
for such item. The U-Scan Express can also be customized to support a
retailer's electronic anti-theft system.
Customization and Flexible Technology
The U-Scan Express can be customized to meet the individual requirements of
a particular store by changing features such as the user graphics on the
touchscreen and automated voice prompts. It can be programmed to include
frequent shopper and other loyalty and marketing programs and is available
with a multilingual touchscreen. To ensure compliance with governmental
regulations, the U-Scan Express can be programmed to comply with local weights
and measures and federal and local laws regarding proof-of-age verification
for purchases of alcohol and tobacco products.
The U-Scan Express operates on an industry-standard, PC-based platform with
the Windows NT operating system, and uses readily available, off-the-shelf
components. Its open architecture enables it to be integrated with most
existing information systems. It can be upgraded to take advantage of new
features and can generate custom management reports. The U-Scan Express
obtains most of the information it needs to operate from the store's
information systems, just as cashier-operated terminals do. A local area
network links the four checkout stations to the supervisor terminal.
We have developed software that allows the U-Scan Express system to form
part of and communicate with a store's information systems in the same way
conventional cashier-operated terminals do. In doing so, the system uses the
store's network and communications protocol, enabling it to interact easily
and completely with the information systems. Our technology allows information
to be communicated between the U-Scan Express system and a store's information
systems on a real-time basis, including such information as:
. product movement data,
. inventory management data,
. cash balance information, and
. transaction summaries.
The U-Scan Express system's software is customized for the first
installation at each chain so it can communicate with that chain's information
systems and is modified as necessary to address the needs of each retailer.
Optimal 6300 POS System
The Optimal 6300 POS system is an open-architecture, PC-based point-of-sale
cash register system utilizing Windows NT/95 or Novel SFTIII mirrored servers.
We offer only the system software for the Optimal 6300 POS.
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<PAGE>
The customer is responsible for purchasing the system hardware. The Optimal
6300 POS system communicates with a store's information systems and has been
designed for use as a conventional cash register checkout system in high-
volume retailers such as supermarkets, department stores and warehouse stores.
We were engaged by Price Chopper Supermarkets of Schenectady, New York, to
develop and install the Optimal 6300 POS system. We receive a monthly fee for
the continuing development of the system. The Optimal 6300 POS system is
presently installed in all 96 Price Chopper supermarkets. The system is also
installed at Atlantic Food Mart in Reading, Massachusetts.
Sales and Marketing
We primarily market U-Scan Express directly to customers through our own
sales personnel. We also market the system through IBM under a non-exclusive
cooperative marketing agreement under which IBM receives a commission on sales
of systems to customers that it has registered with us. In addition, PSC has
non-exclusive marketing rights under our agreement with it. Consistent with
our strategy of increasing distribution of the U-Scan Express, we will
continue to actively review and evaluate other marketing relationships.
We have five employees dedicated to sales and marketing. We plan to hire
additional sales and marketing employees to expand our direct sales force and
to support IBM and PSC. Should PSC choose to promote or market a competing
product it would no longer have any rights to market our system.
To date, we have focused our marketing efforts almost exclusively on
supermarket and supercenter chains in the United States. We intend to begin
marketing our products in Europe in the near term. With the introduction of U-
Scan Carousel and U-Scan Solo, we are marketing our products to drug stores,
convenience stores and general merchandise stores, and for use in satellite
areas, such as floral and video departments, in supermarkets and supercenters.
Sales to a retail chain typically follow a three-step process, in which the
customer takes delivery of a single U-Scan Express station and a supervisor
terminal in a testing facility, then places a full system in a store for
evaluation, and finally decides whether to commit to a volume order.
Before installing a U-Scan Express system in the first store of a chain, we
customize the system, which typically takes two months. This process may
include modifying user graphics, voice instructions, functions for specific
pricing, couponing methods and software to meet the store's specifications.
This process also includes integrating the U-Scan Express with the store's
information systems so that data compiled at each U-Scan station is
automatically transmitted to the store's information systems in the same way
data would be compiled and transmitted by a manned cashier station.
Once we have completed the customization and integration process, the U-Scan
Express system is installed. Typically, the store will monitor the performance
of the system for a period of one to two months and request certain software
modifications. Upon the completion of a successful first installation, the U-
Scan Express system generally requires only minor customization to accommodate
additional installations within the chain.
Research and Development
Our research and development efforts are focused on improving our existing
products and developing new products. To date, most of the software relating
to our products has been developed internally by our employees.
We will use a portion of the proceeds of this offering to increase research
and development efforts in the following areas:
. Developing new products and extending our existing products into
additional retail applications.
. Adapting U-Scan self-checkout solutions for use in Europe and other
international markets.
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. Displaying targeted and relational interactive advertising on a U-Scan
station's touchscreen when it is not in use and printing advertising on
receipts.
. Expanding the use of radio frequency technology so that the U-Scan
Express supervisor can perform more of his or her functions using a
wireless hand-held device, which would allow the supervisor to move
freely from station to station to assist shoppers. Radio frequency
technology would also simplify installation because it would eliminate
the need to install wiring to connect the U-Scan Express to the store's
information systems.
. Improving the receipt-of-payment function by making the U-Scan Express
system more efficient and easier to use. For example, incorporating
technology that enables the system to verify customers' signatures and
confirm bank balances will allow the system to accept checks without the
intervention of a supervisor.
Product Assembly
Upon the termination of PSC's exclusive assembly rights on December 31,
2000, we will assemble all of our systems at our Plattsburgh, New York
facility. We currently perform final software configuration and quality
assurance at the Plattsburgh facility, where all systems assembled by PSC are
checked before delivery to a customer. See "--Facilities."
PSC will continue to act as the exclusive contract assembler of U-Scan
Express through December 2000. PSC currently assembles U-Scan Express to our
designs and specifications in ISO 9001 certified conditions in its Rochester,
New York plant. We believe that PSC will be able to meet the expected demand
for U-Scan Express systems through December 2000.
Suppliers
The U-Scan Express is assembled from components that are readily available
from numerous suppliers. Given the open architecture of our system, we are not
dependent on any single supplier for any particular component. The U-Scan
Express casing is specially manufactured for us by two suppliers.
Service and Field Support
It is essential to retailers that providers offer timely and efficient
software and hardware service and support. We provide both software and
hardware service and support for the U-Scan Express for a fee.
Software support is provided to all customers via our helpdesk on a 24 hours
a day, 365 days a year basis. Our helpdesk and support personnel are trained
to diagnose software and hardware problems that may arise in the field.
Software problems are typically solved on-line, as the U-Scan Express can be
accessed on-line from our premises.
U-Scan Express customers can choose between a number of options for hardware
support. Customers may elect to have their own facility engineering group
perform hardware maintenance on the system, in which case we train such
personnel. Customers may also purchase hardware support service from us or an
authorized subcontractor.
We maintain certified technicians at our headquarters, at our central hubs
near Cincinnati, Ohio and in Lansing, Michigan, and at various other strategic
locations. We are generally able to remotely diagnose and solve software-
related problems from our head office in Montreal. If there is a problem
caused by a hardware malfunction or another matter requiring personnel to be
on-site, we dispatch technicians to assist the customer.
To assist with such problems, we have contracted with and certified four
independent service companies that provide hardware support for our system.
Furthermore, we maintain regional facilities for parts storage in Nashville,
Memphis and Knoxville, Tennessee; Indianapolis, Indiana; Denver, Colorado;
Atlanta, Georgia; Boise, Idaho; Des Moines, Iowa; Charlotte, North Carolina;
Houston, Texas; Roanoke, Virginia; Grand Rapids, Michigan; Plattsburgh, New
York; and Springfield, Missouri.
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Installation Personnel
It is important that we are able to perform large-scale installations of our
systems quickly and reliably with minimal impact on store operations. For a
typical installation, a project manager or one of our other experienced
employees visits the store before the delivery of the system to coordinate all
aspects of the installation. Site requirements are generally limited. Our goal
is to ensure that our systems can be installed and fully operational within
six hours.
Government Regulation
We and certain of the components that are used in our products are subject
to regulation by various agencies in the United States and in other countries
in which our products are sold. Laser safety is regulated in the United States
by the Food and Drug Administration's Center for Devices and Radiological
Health and in Canada by the Radiation Protection Bureau of Health Canada. In
addition, the U.S. Occupational Safety and Health Administration and various
states and U.S. cities have promulgated regulations concerning working
condition safety standards in connection with the use of lasers in the
workplace. Radio emissions are the subject of governmental regulation in all
countries in which we expect to sell our products. We (and/or PSC) also
voluntarily submit our products for certification for product safety in the
United States and in Canada by the nationally recognized testing laboratories,
the Underwriters Laboratories, Inc. and the Canadian Standards Association,
respectively.
Competition
We compete against manufacturers of traditional cashier-operated terminals
as well as developers of portable hand-held devices and other partially
automated self-scanning devices, including NCR, Symbol Technologies and
Productivity Solutions. Several of our competitors are substantially larger
and have greater financial, technical, and marketing resources. We believe,
however, that the U-Scan Express performs more functions than any other self-
checkout system for retail use currently available on the market. PSC has also
announced its intention to enter the self-checkout market after December 31,
2000.
We believe that the principal criteria for competition within the self-
checkout system market are the following:
. technological capability,
. product features,
. price,
. product support,
. ease of use,
. name recognition,
. distribution channel capability, and
. financial strength of the provider.
29
<PAGE>
Intellectual Property
We have registered the following trademarks in the United States:
. Optimal Robotics Corporation(R),
. U-Scan(R),
. a stylized version of Optimal Robotics Corporation(R),
. U-Scan Express(R), and
. a stylized version of U-Scan Express(R).
Additionally, we have filed trademark applications for the following marks:
. Optimal Robotics,
. a second stylized version of Optimal Robotics Corporation, which is used
for different purposes than the registered mark noted above,
. Scan Pay Go,
. U-Scan Solo,
. U-Scan Carousel, and
. It's That Simple.
We have six patents in the United States for various components of our
system. We have two German patents, one United Kingdom patent and one European
patent.
As a general policy, we file domestic and foreign patent applications to
protect our technological position and new product development. We intend to
continue to apply wherever necessary to protect our patents in all countries
in which we operate. Although we believe that our patents provide some
competitive advantage and market protection, we rely for our success primarily
upon our proprietary know-how, innovative skills, technical competence and
marketing abilities. Furthermore, there is no assurance that these patents
will not be challenged, invalidated or circumvented in the future. We plan to
apply for additional patents on our products, but our applications may not be
granted and any new products developed by us may not be patentable.
We regard our software as proprietary and attempt to protect it with
copyrights, trade secret measures and nondisclosure agreements. Despite these
restrictions, it may be possible for competitors or users to copy aspects of
our products or to obtain information which we regard as trade secrets.
Existing copyright laws afford only limited practical protection for computer
software. The laws of foreign countries generally do not protect our
proprietary rights in our products to the same extent as the laws of the
United States and Canada. In addition, we may experience more difficulty in
enforcing our proprietary rights in certain foreign jurisdictions.
Employees
As of January 31, 2000, we employed 187 full-time employees, of whom three
were executive officers, 39 were actively engaged in software customization
and programming, as well as research and development, and the remainder were
engaged in sales, marketing, project management, installation and technical
support, finance and administrative functions.
Our employees are not represented by any collective bargaining unit and we
have never experienced a work stoppage. We believe that our employee relations
are good.
Facilities
Our headquarters are located in approximately 32,000 square feet of leased
space at 4700 de la Savane, Montreal, Quebec, under a lease that expires on
October 1, 2001, subject to our right to renew the lease for an additional
five-year period. We also operate technical support hubs in approximately
5,000 square feet of leased space in the Cincinnati, Ohio metropolitan area,
approximately 2,700 square feet of leased space in Lansing, Michigan and
approximately 10,500 square feet of leased space in Plattsburgh, New York. We
currently perform final software configuration and quality assurance at, and
ship our systems from our Plattsburgh facility. We intend to lease
approximately 30,000 additional square feet at our Plattsburgh facility this
year in preparation for the termination of PSC's exclusive assembly rights in
December 2000. As of January 1, 2001, we will assemble our systems at the
Plattsburgh facility.
30
<PAGE>
We also maintain parts storage facilities in 14 states. We intend to use a
portion of the net proceeds of this offering to expand or to open additional
hub facilities in the United States to support current and future
installations.
The following is a summary of our facilities:
<TABLE>
<CAPTION>
Facility Location
--------------------------------------------------------------------------
<S> <C> <C>
Headquarters 4700 de la Savane, Montreal, Quebec
--------------------------------------------------------------------------
Technical Support Hubs Cincinnati, Ohio; Lansing, Michigan;
Plattsburgh, New York (used for final software
configuration, quality assurance and, beginning
2001, system assembly)
--------------------------------------------------------------------------
Regional Facilities/ Denver, Colorado Atlanta, Georgia
Parts Storage Hubs Boise, Idaho Indianapolis, Indiana
Charlotte, North Carolina Des Moines, Iowa
Nashville, Memphis Grand Rapids, Michigan
and Knoxville, Tennessee Springfield, Missouri
Roanoke, Virginia Houston, Texas
</TABLE>
Legal Proceedings
In each of 1995 and 1996, we received a demand letter from the same claimant
alleging that U-Scan Express infringes upon the claimant's patent. In July
1999, this claimant filed a civil action in the United States District Court
for the District of Utah against us and PSC, the current assembler of U-Scan
Express, alleging patent infringement. A second party also sent a demand
letter to us alleging a different patent infringement. Although after
consultation with counsel, we believe that the former claimant should not
prevail in its lawsuit and that the latter claimant should not prevail if a
lawsuit is brought to assert its claim, and that these claims will not have a
material adverse effect on our business or prospects, no assurance can be
given that a court will not find that the system infringes upon one or both of
such claimants' rights.
Kroger has also been sued by the same claimant in the State of Utah based
upon the same issues underlying the suit filed against us in July. At our
expense, our counsel is also defending Kroger in such action. Furthermore, we
are contractually bound to indemnify Kroger for any damages that it may incur
in connection with such suit.
Enforceability of Civil Liabilities
It may not be possible for shareholders to effect service of process within
the United States upon our directors and officers and the experts named
herein, who are residents of Canada, or upon all or a substantial portion of
their assets and substantially all of our assets, which are located in Canada.
It may also not be possible to enforce against them judgments of U.S. courts
under any U.S. securities laws. There is doubt as to the enforceability in
Canada of civil liabilities predicated upon the U.S. securities laws. See
"Risk Factors."
Where You Can Find Additional Information
We file reports and other information with the Securities and Exchange
Commission. We have filed a registration statement on Form F-3 with the
Commission to register the common shares offered hereby. This prospectus,
which constitutes part of such registration statement, does not contain all of
the information contained in the registration statement and such exhibits and
schedules. You may review the registration statement without charge at the
Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC,
which Internet site is located at http://www.sec.gov.
31
<PAGE>
Our statements in this prospectus about contracts, agreements and other
documents are not necessarily complete, and you are encouraged to review the
schedules and exhibits to the registration statement for a more complete
description of the matter involved. Each such statement is qualified in its
entirety by reference to the schedule or exhibit.
We are required to furnish to our shareholders annual reports containing
audited financial statements certified by our chartered accountants in Canada
and quarterly reports containing unaudited financial data for the first three
quarters of each fiscal year following the end of the respective fiscal
quarter.
The SEC allows us to "incorporate by reference" certain information that we
file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is an important part of this prospectus, and information which we incorporate
by reference to our future SEC filings will automatically update and supersede
this information. We incorporate by reference our Annual Report on Form 10-K
for the year ended December 31, 1999, filed with the SEC on February 24, 2000
and any future filings we will make with the SEC under Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 and the description of the
common shares being offered hereby contained in our Form 8-A filed with the
SEC on July 14, 1996. We may also incorporate in this prospectus any Form 6-K
which we file with the Securities and Exchange Commission by identifying in
such Form that it is being incorporated by reference into this prospectus.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address or telephone number:
Optimal Robotics Corp.
4700 de la Savane
Suite 101
Montreal, Quebec H4P 1T7
Attention: O. Bradley McKenna
(514) 738-8885
We are a foreign private issuer under the rules and regulations of the
Commission.
32
<PAGE>
MANAGEMENT
The names, ages and positions of our directors and officers at February 23,
2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Co-Chairman, Chief Executive Officer and
Neil S. Wechsler........... 33 Director
Holden L. Ostrin........... 40 Co-Chairman and Director
President, Chief Operating Officer and
Henry M. Karp.............. 45 Director
Secretary, Treasurer and Chief Financial
Gary S. Wechsler, C.A. .... 42 Officer
Vice President, Administration and Human
O. Bradley McKenna, C.A. .. 49 Resources
Ike Tamigian............... 40 Vice President, Software Development
Vice President, Operations and Product
Elliot Brenhouse........... 46 Management
Leon P. Garfinkle.......... 39 Director
James S. Gertler........... 33 Director
</TABLE>
Neil S. Wechsler has been a director since June 1995, the Chief Executive
Officer since October 1994 and was Chairman of Optimal from June 1996 through
June 1999, at which time Mr. Wechsler and Mr. Holden L. Ostrin each became Co-
Chairman. From May 1994 to October 1994, Mr. Wechsler was the Vice
President/Marketing and Operations of Optimal. Mr. Wechsler earned a Bachelor
of Arts degree from McGill University in 1988 and a Bachelor of Civil Law
degree and a Bachelor of Common Law degree from McGill University in 1992.
Holden L. Ostrin has been a director of Optimal since June 1996. Mr. Ostrin
was Vice Chairman from June 1996 through June 1999, at which time Mr. Ostrin
and Mr. N. Wechsler each became Co-Chairman. From May 1995 to May 1996, Mr.
Ostrin was an independent business consultant. Prior to April 1995, Mr. Ostrin
was Vice President and Director of CIBC Wood Gundy Securities Inc., a Canadian
investment dealer. Mr. Ostrin earned a Bachelor of Arts degree in 1982 from
Boston University and a Juris Doctor degree from Boston University School of
Law in 1985.
Henry M. Karp has been a director and the Chief Operating Officer of Optimal
since June 1996. Since June 1999, Mr. Karp has been Optimal's President. From
June 1996 through June 1999, Mr. Karp was the Executive Vice President of
Optimal, and from December 1994 to May 1996, Mr. Karp was Vice President,
Business Development of Optimal. Mr. Karp earned a Bachelor of Arts degree in
Economics from McGill University in 1976 and a Masters of Business
Administration degree from McGill University in 1978.
Gary S. Wechsler, C.A. has been the Secretary, Treasurer and Chief Financial
Officer of Optimal since May 1994. For over five years until May 1999, Mr.
Wechsler was a partner of Victor & Gold, a Montreal-based accounting firm. Mr.
Wechsler continues to act as a consulting partner for Victor & Gold. Mr.
Wechsler earned a Bachelor of Commerce degree from McGill University in 1980.
Mr. Wechsler obtained his Chartered Accountant designation in 1983. Neil S.
Wechsler and Gary S. Wechsler are brothers.
O. Bradley McKenna, C.A. has been the Vice President, Administration and
Human Resources of Optimal since June 1999. From March 1994 until June 1999,
Mr. McKenna was the Controller of Optimal. Mr. McKenna earned a Bachelor of
Commerce degree from Loyola College in 1973 and a Masters of Business
Administration degree from McGill University in 1975. Mr. McKenna obtained his
Chartered Accountant designation in 1978.
Ike Tamigian has been the Vice President, Software Development of Optimal
since June 1998. From June 1995 to June 1998, Mr. Tamigian was Director of
Software Development of Optimal. Prior to June 1995, Mr. Tamigian was the
Senior Design Engineer/Microprocessors and Microcontroller-Based Systems at
Centrodyne Inc. for more than four years. Mr. Tamigian earned a Bachelor of
Electrical Engineering degree from McGill University in 1987.
Elliot Brenhouse has been a Vice President of Optimal since June 1998. Prior
to June 1998, Mr. Brenhouse held various managerial positions with the
aerospace division of AlliedSignal Canada Inc. for more than five years. Mr.
Brenhouse earned a Bachelor of Electrical Engineering degree from McGill
University in 1976.
33
<PAGE>
Leon P. Garfinkle has been a director of Optimal since June 1996. For over
the past five years, Mr. Garfinkle has been a practicing lawyer and is a
partner with the law firm of Goodman Phillips & Vineberg, in Montreal, Quebec.
Mr. Garfinkle earned a Bachelor of Commerce degree from McGill University in
1982, a Bachelor of Laws degree from the University of Toronto in 1985 and a
Bachelor of Laws degree from the University of Montreal in 1986.
James S. Gertler has been a director of Optimal since November 1997. Since
January 1996, Mr. Gertler has been Vice President of Corporate Development of
Applied Graphics Technologies, Inc. Since May 1993, he has also been the Vice
President of Corporate Development for Daily News, L.P. and U.S. News & World
Report, L.P. Mr. Gertler earned a Bachelor of Science degree in Economics from
the Wharton School of the University of Pennsylvania in 1988 and a Masters of
Business Administration degree from Harvard University in 1992.
The Board of Directors of Optimal has set the number of directors at five,
divided into three classes, the first class consisting of one director and the
second and third classes consisting of two directors each. At the annual and
special meeting of our shareholders held on June 26, 1997, Mr. N. Wechsler, as
sole member of the first class of directors, was elected to hold office until
the close of the 2000 annual meeting of shareholders; at the 1998 annual
meeting of shareholders, Messrs. Karp and Garfinkle, as members of the second
class of directors, were elected to hold office until the close of the 2001
annual meeting of shareholders; and at the 1999 annual meeting of
shareholders, Messrs. Ostrin and Gertler, as members of the third class of
directors, were elected to hold office until the close of the 2002 annual
meeting of shareholders.
Pursuant to their employment agreements, each of Messrs. N. Wechsler, Karp
and Ostrin must be nominated by Optimal for election as a director. See "--
Executive Employment Agreements."
Executive officers of Optimal are appointed annually by the Board of
Directors and serve until their successors are duly appointed and qualified.
Audit Committee
The Audit Committee of the Board of Directors performs services related to
the completion of the audit of our financial statements. The Audit Committee
has responsibility for, among other things, (i) reviewing the scope and
results of the audit with the independent auditors, (ii) reviewing with
management and the independent auditors our financial statements, (iii)
considering the adequacy of our internal accounting, bookkeeping and control
procedures, and (iv) reviewing any non-audit services and special engagements
to be performed by the independent auditors and considering the effects of
such performance on the auditors' independence. The members of the Audit
Committee are Messrs. Ostrin, Garfinkle and Gertler.
Compensation
The compensation paid to the Chief Executive Officer and the two other most
highly compensated executive officers (collectively, the "Named Executive
Officers"), for each of the three most recently completed fiscal years is set
forth in the following table. Other than these three individuals, no executive
officer received salary and bonus in excess of $100,000 during 1999.
<TABLE>
<CAPTION>
Annual Long Term
Compensation ($) Compensation
------------------ -----------------
Shares Underlying
Name and Position Year Salary(1) Bonus(1) Options
----------------- ---- --------- -------- -----------------
<S> <C> <C> <C> <C>
Neil S. Wechsler..................... 1999 123,166 30,791 284,000(2)
Co-Chairman and 1998 123,348 30,837 --
Chief Executive Officer 1997 132,149 -- 494,000(3)
Holden L. Ostrin..................... 1999 123,166 30,791 284,000(2)
Co-Chairman 1998 123,348 30,837 --
1997 132,149 -- 494,000(3)
Henry M. Karp........................ 1999 123,166 30,791 284,000(2)
President and 1998 123,348 30,837 --
Chief Operating Officer 1997 132,149 -- 494,000(3)
</TABLE>
- --------
(1) The Company pays salaries and bonuses in Canadian dollars. The respective
average exchange rates for 1997, 1998 and 1999 were used to convert these
salaries into dollars: US$1.00=Cdn.$1.3848 (1997); US$1.00=Cdn.$1.4836
(1998) and US$1.00=Cdn.$1.4858 (1999).
(2) Includes 94,000 common shares issuable pursuant to the automatic
replacement ("reload") feature of an option granted in 1997 and exercised
in 1999. See footnote (3) below, and footnote (3) under "Principal and
Selling Shareholders."
(3) Does not include an additional 188,000 common shares issuable pursuant to
the reload feature of an option to purchase 94,000 common shares. See
footnote (3) under "Principal and Selling Shareholders."
34
<PAGE>
Option Grants in 1999
The following table provides information regarding options granted to the
Named Executive Officers during 1999:
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price
Individual Grants Appreciation ($) (2)
------------------------------------------------- ---------------------
Percent of Total
Shares Options Granted Exercise
Underlying to Employees in Price Expiration
Name Options 1999 ($) Date 5% 10%
- ---- ---------- ---------------- -------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Neil S. Wechsler........ 100,000 9.7 12.875 1/5/04 355,713 786,032
94,000(1) 9.1 16.125 5/5/02 200,117 415,480
90,000 8.8 31.250 12/3/04 777,042 1,717,059
Holden L. Ostrin........ 100,000 9.7 12.875 1/5/04 355,713 786,032
94,000(1) 9.1 16.125 5/5/02 200,117 415,480
90,000 8.8 31.250 12/3/04 777,042 1,717,059
Henry M. Karp........... 100,000 9.7 12.875 1/5/04 355,713 786,032
94,000(1) 9.1 16.125 5/5/02 200,117 415,480
90,000 8.8 31.250 12/3/04 777,042 1,717,059
</TABLE>
- --------
(1) This option was issued upon the exercise of an option granted in 1997,
pursuant to the reload feature of such option. See footnote (3) under
"Principal and Selling Shareholders."
(2) The dollar amounts under these columns represent the potential realizable
value of each option granted assuming that the market price of the common
shares appreciates in value from the date of grant at the 5% and 10%
annual rates prescribed by the SEC and therefore are not intended to
forecast possible future appreciation, if any, of the price of the common
shares.
Aggregated Option and Warrant Exercises in 1999 and Year-end Option and
Warrant Values
The following table provides information regarding option exercises by the
Named Executive Officers in 1999 and the amount and value of the Named
Executive Officers' exercised and unexercised options and warrants as of
December 31, 1999. Between January 1, 1999 and December 31, 1999, each of the
Named Executive Officers exercised options and sold 194,000 shares at an
average price per share of $27.16.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised in-the-Money Options
Option Exercises Options and Warrants and Warrants ($)
------------------------- ----------------------------- -------------------------
Common
Shares Value
Name Acquired (1) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Neil S. Wechsler........ 344,000 5,978,839 394,000(2) 190,000 12,260,750 2,977,500
Holden L. Ostrin........ 194,000 4,833,750 494,000(2) 190,000 15,640,922 2,977,500
Henry M. Karp........... 194,000 4,833,750 494,000(2)(3) 190,000 15,778,853 2,977,500
</TABLE>
- --------
(1) With the exception of 150,000 of the shares acquired by Mr. Wechsler, all
of these shares were sold during 1999.
(2) Does not include an additional 94,000 common shares issuable pursuant to
the reload feature of an option granted in 1997. See footnote (3) under
"Principal and Selling Shareholders."
(3) Includes warrants to purchase 40,000 common shares owned by a personal
holding company of Mr. Karp.
Executive Employment Agreements
The Company has entered into employment agreements with each of the Named
Executive Officers. The agreements, the terms of which are identical, were
entered into as of May 5, 1997 and amended as of January 5, 1999. They were
designed to assure the Company of the continued employment of each officer in
his respective executive positions with the Company.
35
<PAGE>
Under the terms of these agreements, each officer receives a minimum annual
salary and an annual bonus in an amount not less than 25% of the salary then
in effect. Additional bonuses may also be paid in whatever amounts and at
whatever times as determined by the Board of Directors of the Company.
Each of these agreements provided for an option grant. The option grant was
designed to provide incentive in a manner similar to and commensurate with the
incentive arrangements for senior executives of other high technology
companies of comparable size and scope. The option grants took into account
that no options had been granted in 1996 and none were going to be granted in
1998. Each officer was granted an option to acquire 400,000 common shares at
an exercise price of $3.00 per share (collectively the "Executive Options").
The last sale price of the common shares prior to May 4, 1997 was $2.75 per
share. The Executive Options are presently exercisable in full and were
exercised in 1999 as to 100,000 of the underlying shares by each of the Named
Executive Officers.
The agreements provide that the Company will pay or reimburse the officer
for the premiums for a life and disability term insurance policy with a
minimum coverage of $1,000,000. The agreements also provide for the
forgiveness of indebtedness of the officer if he leaves the employment of the
Company for any reason. See "--Indebtedness of Directors and Employees."
In the event of the sale of all or substantially all of the assets of the
Company or the acquisition by any person of outstanding shares of the Company
representing more than 50% of the votes attached to all outstanding voting
shares of the Company at any time during the term of the agreement or within
12 months thereafter (unless the officer has had his employment terminated for
cause), the officer will be entitled to a bonus in an amount not less than the
aggregate of his then-current salary and bonus, and the term insurance, for
which the Company has been reimbursing premiums will be converted to a whole
life insurance policy and the Company will pay the entire cost of the premium
for that whole life insurance policy. In addition, in each such circumstance,
the exercise price of all options, warrants and rights to purchase common
shares which are held by the officer shall, subject to regulatory approval, be
reduced to Cdn.$1.00 in the aggregate. Upon any exercise following the
reduction of such exercise price, the Company will record, for U.S. GAAP
reconciliation purposes, and an acquiror reporting in accordance with U.S.
GAAP may be required to present as compensation expense, an amount which
includes the aggregate dollar value of such reduction. Furthermore, upon any
exercise of options, warrants or rights held by the officer, the Company will
record, for U.S. GAAP reconciliation purposes, and an acquiror reporting in
accordance with U.S. GAAP may be required to present as compensation expense,
the amount by which the then-prevailing market price exceeds the exercise
price (except with regard to the Executive Options and the options to acquire
94,000 common shares granted to each officer on May 5, 1997, in respect of
which a portion of the compensation expense has already been recorded by the
Company for U.S. GAAP reconciliation purposes).
If the officer's services are terminated other than for cause or death or
disability, or in the event that the officer terminates his employment with
the Company for good reason (as defined in the agreements) within six months
of a change of control (as defined in the agreements), (i) the Company will
pay to the officer an amount equal to five times the sum of (a) the highest
salary paid to him during the term and (b) the highest aggregate bonuses paid
to him during any year during the term, and (ii) the exercise price of all
options, warrants and rights held by the officer to purchase common shares
shall be reduced to Cdn.$1.00 in the aggregate and all of such options shall
become immediately exercisable and will expire within 90 days of the
termination of the covered officer's employment with the Company.
The agreements each contain a covenant on the part of the officer not to
compete with the Company for a period of 24 months following the date upon
which he ceases to be an employee of the Company.
Compensation of Directors
In January 1999, options to purchase 10,000 common shares at an exercise
price of $12.875 per share were granted to each of Messrs. Garfinkle and
Gertler, being the two non-executive directors of the Company. These options
became exercisable as to 50% of the underlying shares on January 25, 2000 and
will become exercisable as to the remaining 50% of the underlying shares on
January 25, 2001. These options expire on January 25, 2004.
36
<PAGE>
During the first quarter of 1998, it was determined to discontinue the
payment of fees to the Company's non-executive directors.
Indebtedness of Directors and Employees
The aggregate indebtedness to the Company of all employees, officers and
directors and former employees, officers and directors is $169,235. Of such
indebtedness, $152,414 relates to an unsecured home-loan agreement with Holden
L. Ostrin, the Co-Chairman of the Company. This loan, in the original
principal amount of $175,862, is non-interest bearing and is repayable in
annual installments of $11,724 through and including July 1, 2012. The
foregoing indebtedness is denominated in Canadian dollars, and has been
converted at a rate of US$1.00=Cdn.$1.45.
Options to Purchase Securities
On February 7, 1997, the Board of Directors of the Company adopted a share
option plan known as the 1997 Stock Option Plan (as amended, the "1997 Plan").
Pursuant to the provisions of the 1997 Plan, the Company may grant options
to purchase common shares to full-time employees or directors of the Company.
Options may be granted for a term of up to 10 years and the term during which
such options may be exercised will be determined by the Board of Directors at
the time of each grant of options. The conditions of vesting and exercise of
the options and the option price will be established by the Board of Directors
when such options are granted and the option price shall not involve a
discount greater than that permitted by law and by the regulations, rules and
policies of the securities regulatory authorities to which the Company may
then be subject.
Options granted under the 1997 Plan cannot be assigned or transferred,
except by will or by the laws of descent and distribution of the domicile of
the deceased optionee. Upon an optionee's employment with the Company being
terminated for cause or upon an optionee being removed from office as a
director or becoming disqualified from being a director by law, any option or
the unexercised portion thereof shall terminate forthwith. If an optionee's
employment with the Company is terminated otherwise than by reason of death or
termination for cause, or if any optionee ceases to be a director other than
by reason of death, removal or disqualification by law, any option or the
unexercised portion thereof may be exercised by the optionee for that number
of shares only which he was entitled to acquire under the option at the time
of such termination or cessation, provided that such option shall only be
exercisable within 90 days after such termination or cessation or prior to the
expiration of the term of the option, whichever occurs earlier. If an optionee
dies while employed by the Company or while serving as a director, any option
or the unexercised portion thereof may be exercised by the person to whom the
option is transferred by will or the laws of descent and distribution for that
number of shares only which the optionee was entitled to acquire under the
option at the time of death, provided that such option shall only be
exercisable within 180 days following the date of death or prior to the
expiration of the term of the option, whichever occurs earlier.
An aggregate of 3,000,000 common shares may be issued pursuant to the 1997
Plan. As of February 23, 2000, an aggregate of 651,271 common shares have been
issued pursuant to the 1997 Plan and options to acquire an additional
2,348,000 common shares (including reload options) under the 1997 Plan are
issued and outstanding. In addition, an option to acquire 60,000 common shares
granted to Henry M. Karp, our President and Chief Operating Officer, on May 4,
1995, and an option to acquire 20,000 common shares granted to a consultant in
1997, are outstanding.
37
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of January 31, 2000, and as adjusted to
reflect the sales of shares offered by this prospectus, certain information
regarding the ownership of the common shares by (i) each person known to us to
be a beneficial owner of more than 5% of the common shares of Optimal, (ii)
the four selling shareholders, (iii) each director and Named Executive Officer
of Optimal and (iv) all directors and officers of Optimal as a group.
<TABLE>
<CAPTION>
Common Shares Owned Common Shares Owned
Prior to this Offering After this Offering
--------------------------------- ---------------------------------
Common Shares Being
Number and Nature of Sold in this Number and Nature of
Name of Beneficial Owner Beneficial Ownership Percent(1) Offering Beneficial Ownership Percent(1)
- ------------------------ -------------------- ---------- ------------------- -------------------- ----------
<S> <C> <C> <C> <C> <C>
Neil S. Wechsler........ 713,000(2)(3) 6.0% 200,000(2) 513,000(2)(3) 3.7%
Holden L. Ostrin........ 694,000(3)(4) 5.7% 200,000(4) 494,000(3)(4) 3.6%
Henry M. Karp........... 698,000(3)(5) 5.8% 200,000(5) 498,000(3)(5) 3.6%
Gary S. Wechsler, C.A.
....................... 305,500(3)(6) 2.6% 75,000(6) 230,500(3)(6) 1.7%
St. Denis J. Villere &
Company(7)............. 690,800 6.0% 690,800 5.2%
Leon P. Garfinkle....... 50,000(3)(8) * 50,000(3)(8) *
James S. Gertler........ 30,000(9) * 30,000(9) *
All directors and
officers as a group (9
people)................ 2,527,000(3)(10) 18.8% 1,852,000(3)(10) 12.5%
</TABLE>
- --------
* less than one percent (1%)
(1) Assumes no issuance of common shares reserved for issuance under
outstanding options and warrants, except for those held by the director
or officer.
(2) Excludes unvested options to purchase 140,000 common shares. Mr. Wechsler
holds vested options to purchase 538,000 common shares and will obtain
the 200,000 shares to be sold by him by exercising options.
(3) On May 5, 1997, an option to purchase 94,000 common shares granted to
each of Messrs. N. Wechsler, Ostrin and Karp, an option to purchase
20,000 common shares granted to Mr. G. Wechsler and an option to purchase
5,000 common shares granted to Mr. Garfinkle, were each granted upon
terms which provide that upon its exercise, the option shall be
automatically replaced with an option for an equal number of shares, at
an exercise price equal to the then current market value of the common
shares. This replacement mechanism can operate twice during the term of
the option. The common shares currently underlying these replacement
options have been included in the number of common shares beneficially
owned by these optionees.
(4) Excludes unvested options to purchase 140,000 common shares. Mr. Ostrin
holds vested warrants to purchase 100,000 common shares and vested
options to purchase 538,000 common shares. Mr. Ostrin will obtain the
200,000 shares to be sold by him by exercising options.
(5) Excludes unvested options to purchase 140,000 common shares. Mr. Karp
holds vested options to purchase 598,000 common shares and, through a
personal holding company, vested warrants to purchase 40,000 common
shares. Mr. Karp will obtain 140,000 of the 200,000 shares to be sold by
him by exercising options to acquire 100,000 shares and by exercising the
warrants.
38
<PAGE>
(6) Excludes unvested options to purchase 42,500 common shares. Mr. Wechsler
holds vested options and options vesting within 60 days to purchase
92,500 common shares and will obtain 20,000 of the 75,000 shares to be
sold by him by exercising options.
(7) The address of this beneficial owner is 210 Baronne Street, New Orleans,
Louisiana 70112. The information in this table is based exclusively on
the most recent Schedule 13G/A filed by such beneficial owner with the
Commission. We make no representation as to the accuracy or completeness
of the information reported.
(8) Includes vested options to purchase 50,000 common shares. Excludes
unvested options to purchase 5,000 common shares.
(9) Includes vested options to purchase 30,000 common shares. Excludes
unvested options to purchase 5,000 common shares.
(10) Includes vested options and warrants, and options vesting within 60 days,
to purchase an aggregate of 2,004,000 common shares (1,444,000 common
shares after this offering). Excludes unvested options to purchase
503,750 common shares.
39
<PAGE>
DESCRIPTION OF SHARE CAPITAL
Our authorized capital stock consists of an unlimited number of Class "A"
shares without par value (being referred to throughout this prospectus as the
"common shares"), an unlimited number of Class "B" shares without par value
(the "Class B Preferred Stock") and an unlimited number of Class "C" shares
without par value (the "Class C Preferred Stock"), of which 11,460,933 common
shares were issued and outstanding as of February 23, 2000.
The following is a description of the material rights of our authorized
capital stock. This description does not purport to be complete and is
qualified in its entirety by reference to our Articles of Incorporation, a
copy of which has been previously filed with the Commission.
Common shares
Dividend Rights
Holders of common shares shall be entitled to receive, as and when declared
by Optimal's Board of Directors, but subject to the prior rights of the Class
C Preferred Stock and any other class of shares ranking prior to the common
shares, dividends in such amounts to be determined by Optimal's Board of
Directors in its sole discretion.
Voting Rights
Holders of common shares are entitled to cast one vote for each common share
held of record on all matters acted upon at any shareholders' meeting (except
meetings at which only the holders of another specified class or series of
shares are entitled to vote pursuant to the Canada Business Corporations Act
(the "CBCA")).
Liquidation Rights
The holders of common shares are entitled to receive the remaining property
of Optimal in the event of its liquidation, dissolution or winding up or other
distribution of its assets for the purpose of winding up its affairs, subject
to the prior rights of any other class of shares ranking prior to the common
shares in such circumstances.
Class B Preferred Stock
Dividend Rights
The holders of the Class B Preferred Stock are not entitled to receive any
dividends thereon.
Voting Rights
Holders of the Class B Preferred Stock are entitled to cast one vote for
each such share held of record on all matters acted upon at any shareholders'
meeting (except meetings at which only the holders of another specified class
or series of shares are entitled to vote pursuant to the CBCA).
Redemption
The Class B Preferred Stock at any time outstanding is redeemable at our
option, in whole or in part, at any time or from time to time, upon payment to
the holders of the shares to be redeemed of a sum equal to the amount paid-up
thereon.
Liquidation Rights
The Class B Preferred Stock shall rank, with respect to the return of the
amount paid-up thereon, in priority to the common shares, Class C Preferred
Stock and all shares ranking junior to the Class B Preferred Stock in the
event of the liquidation, dissolution or winding up of Optimal or other
distribution of Optimal's assets for the purpose of winding up its affairs.
40
<PAGE>
Class C Preferred Stock
The Class C Preferred Stock may be issued from time to time in one or more
series, the terms of each series including the number of shares, designation,
rights, privileges, restrictions and conditions to be determined at the time
of creation of each such series by Optimal's Board of Directors without
shareholder approval, provided that all Class C Preferred Stock will rank,
with respect to dividends and return of capital in the event of liquidation,
dissolution or winding up of Optimal or other distribution of assets of
Optimal for the purpose of winding up its affairs, pari passu among themselves
and in priority to all common shares or shares of any class ranking junior to
the Class C Preferred Stock.
Transfer Agent and Registrar
The co-transfer agents and co-registrars for the common shares are Montreal
Trust Company of Canada and The Bank of Nova Scotia Trust Company of New York.
Indemnification
Our By-laws provide the following:
Subject to the provisions of the CBCA, every director and officer of Optimal
(including those who have acted at Optimal's request as an officer or director
of a body corporate of which Optimal is or was a shareholder or creditor) and
his heirs and legal representatives shall from time to time be indemnified and
saved harmless by Optimal from and against all costs, charges and expenses
reasonably incurred by him in respect of any civil, criminal or administrative
action or proceeding to which he is made a party by reason of being or having
been a director or officer of Optimal or such body corporate (including
without limitation all losses, liabilities, costs, charges and expenses
incurred by him in respect of any act or proceeding for the recovery of claims
of employees or former employees of Optimal or such body corporate or in
respect of any claim based upon the failure of Optimal to deduct, withhold,
remit or pay any amount for taxes, assessments and other charges of any nature
whatsoever as required by law), if
(a) he acted honestly and in good faith with a view to the best interests
of Optimal; and
(b) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, he had reasonable grounds for
believing that his conduct was lawful.
The By-laws also contain a provision eliminating the liability of directors
or officers for losses, damages or other misfortunes of Optimal arising out of
the execution of the duties of his office or in relation thereto, unless
occasioned by his own wilful neglect or default (subject to compliance with
the mandatory obligations and duties imposed by the CBCA and the regulations
thereunder and the liability imposed for any breach thereof).
Optimal shall also indemnify such person in such other circumstances as the
CBCA may require.
41
<PAGE>
CERTAIN CANADIAN AND UNITED STATES INCOME TAX CONSIDERATIONS
Canadian Federal Income Tax Considerations
The following is a general summary prepared by Goodman Phillips & Vineberg,
Montreal, Quebec, of the material Canadian federal income tax considerations
under the Income Tax Act (Canada) (the "Canadian Tax Act") to holders of
common shares who are not resident nor deemed to be resident in Canada, who
deal at arm's length with Optimal, who are not affiliated with Optimal within
the meaning of the Canadian Tax Act, who hold the common shares as capital
property and who do not use or hold, and are not deemed to use or hold, the
common shares in connection with a trade or business carried on, or deemed to
be carried on in Canada at any time ("Non-Resident Holders"). In general,
common shares will be considered to be capital property of a holder unless the
holder holds the common shares as part of an adventure or concern in the
nature of trade. This summary does not apply to any Non-Resident Holder who
formerly resided in Canada and owned common shares upon ceasing to reside in
Canada. Nor does this summary discuss special rules which may apply to a Non-
Resident Holder that is an insurer, a "financial institution" or a "specified
financial institution" within the meaning of the Canadian Tax Act, and
accordingly, such persons should consult their own tax advisors.
This summary is based upon the current provisions of the Canadian Tax Act,
the regulations thereunder, proposed amendments thereto publicly announced by
the Department of Finance, Canada prior to the date hereof, the provisions of
the Canada-U.S. Income Tax Convention (1980) (the "Convention") and the
current administrative practices of the Canada Customs and Revenue Agency (the
"CCRA"). It has been assumed that the proposed amendments to the Canadian Tax
Act and the regulations thereunder will be enacted and that there will be no
other relevant amendments thereto. However, no assurance can be given in this
respect. This summary does not otherwise take into account or anticipate any
changes in law, whether by legislative, governmental or judicial action or
changes in administrative practice of the CCRA.
This summary is of a general nature only and is not intended to be, and
should not be construed to be, legal or tax advice to any prospective investor
and no representation with respect to the tax consequence to any particular
investor is made. The summary does not address any aspect of any provincial or
local tax laws or the tax laws of jurisdictions outside Canada or the tax
considerations applicable to persons other than Non-Resident Holders.
Accordingly, prospective investors should consult with their own tax advisors
for advice with respect to the income tax consequences of an investment in
common shares arising under any provincial or local tax laws or the tax laws
of jurisdictions outside Canada. This summary assumes the common shares are
listed and will continue to be listed on a prescribed stock exchange (which is
currently contemplated to include the National Association of Securities
Dealers Automated Quotation System (commonly known as "Nasdaq")).
For purposes of the Canadian Tax Act, all amounts must be expressed in
Canadian dollars, including dividends, adjusted cost base and proceeds of
disposition; amounts denominated in U.S. dollars must be converted into
Canadian dollars based on the currency exchange rate generally prevailing at
the time such amounts arise.
Dividends
Amounts in respect of common shares paid or credited or deemed to be paid or
credited as, on account or in lieu of payment of, or in satisfaction of,
dividends to a Non-Resident Holder will generally be subject to Canadian non-
resident withholding tax. Such withholding tax is levied at a basic rate of
25%, which may be reduced pursuant to the terms of an applicable tax treaty
between Canada and the country of residence of the Non-Resident Holder.
Currently, under the Convention, the rate of Canadian non-resident withholding
tax is 15% on the gross amount of dividends beneficially owned by a Non-
Resident Holder who is a resident of the United States for the purpose of the
Convention and whose common shares in respect of which the dividends are paid
are not effectively connected to a "permanent establishment" or "fixed base"
in Canada. However, under the Convention, where such a beneficial owner is a
company which owns at least 10% of the voting stock of Optimal, the rate of
such withholding is reduced to 5%. In the case of certain tax exempt entities
which are residents of the United States for purposes of the Convention, the
withholding tax on dividends may be eliminated in those circumstances
prescribed by the Convention.
42
<PAGE>
A purchase of common shares by Optimal (other than a purchase of common
shares by Optimal on the open market in the manner in which shares are
normally purchased by a member of the public) will give rise to a deemed
dividend under the Canadian Tax Act equal to the difference between the amount
paid by Optimal on the purchase and the paid-up capital of such shares
determined in accordance with the Canadian Tax Act. The paid-up capital of
such shares may be less than the Non-Resident Holder's cost of such shares.
Any such dividend deemed to have been received by a Non-Resident Holder will
be subject to non-resident withholding tax as described above. The amount of
any such deemed dividend will reduce the proceeds of disposition of the common
shares to the Non-Resident Holder for purposes of computing the amount of the
Non-Resident Holder's capital gain or loss under the Canadian Tax Act.
However, as described below, a loss on the disposition of the common shares
may not be available to be used to offset capital gains arising from the
disposition of other property.
Disposition of Shares
A Non-Resident Holder will not be subject to tax under the Canadian Tax Act
in respect of any capital gain on a disposition or deemed disposition of
common shares (including the death of the Non-Resident Holder) unless at the
time of such disposition such shares constitute taxable Canadian property of
the Non-Resident Holder for purposes of the Canadian Tax Act and such Non-
Resident Holder is not entitled to relief under an applicable tax treaty.
Provided the common shares are listed on a prescribed stock exchange at the
time of disposition, such shares will generally not constitute taxable
Canadian property of a Non-Resident Holder at the time of a disposition of
such shares unless the Non-Resident Holder uses or holds or is deemed to use
or hold such shares in or in the course of carrying on business in Canada or,
at any time during the five-year period immediately preceding the disposition
of such shares, not less than 25% of the issued shares of any class or series
of the capital of Optimal belonged to the Non-Resident Holder, to persons with
whom the Non-Resident Holder did not deal at arm's length, or to the Non-
Resident Holder and persons with whom the Non-Resident Holder did not deal at
arm's length (taking into account any interest in or option in respect of such
shares). In any event, under the Convention, gains derived by a Non-Resident
Holder who is a resident of the United States (within the meaning of the
Convention) from the disposition of common shares will generally not be
taxable in Canada unless the value of the common shares is derived principally
from real property situated in Canada. If the common shares held by a Non-
Resident Holder do not constitute taxable Canadian property or if a capital
gain in respect of the common shares would because of a tax treaty be exempt
from tax under the Canadian Tax Act, any capital loss arising upon the
disposition of the common shares will not be available to be used to offset a
capital gain realized in respect of another property, which may be subject to
tax under the Canadian Tax Act. To the extent the common shares disposed of
constitute taxable Canadian property, the Non-Resident Holder will be required
to file a Canadian tax return, even if the gain arising from such a
disposition is exempt from tax because of a tax treaty.
U.S. Federal Income Tax Considerations
The following is a general summary prepared by Goodman Phillips & Vineberg,
New York of the material U.S. federal income tax considerations applicable to
an investment in common shares by U.S. Holders. This summary is based on the
U.S. Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations promulgated thereunder, and judicial and administrative
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change (possibly on a retroactive basis) and to differing
interpretations. The summary does not address all aspects of U.S. federal
income taxation that may be relevant to a particular U.S. investor based on
such investor's particular circumstances. In particular, the following summary
does not address the tax treatment of U.S. investors who are broker-dealers or
who own, directly, indirectly or constructively, 10% or more of Optimal's
outstanding voting stock, and certain U.S. investors (including without
limitation, insurance companies, tax-exempt organizations, financial
institutions, qualified retirement plans, real estate investment trusts,
regulated investment companies and persons subject to the alternative minimum
tax) who may be subject to special rules not discussed below. For purposes of
this discussion, "U.S. Holder" means an individual citizen or resident of the
United States, a corporation organized under the laws of the United States or
any political
43
<PAGE>
subdivision thereof, an estate the income of which is includable in gross
income for U.S. federal income tax purposes regardless of its source, a trust
if a court within the United States is able to exercise supervision over the
administration of the trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust, or any other U.S. person as
defined under the Code or that is otherwise subject to U.S. federal income tax
on a net income basis in respect of the common shares.
This summary is of a general nature only and is not intended to be, and
should not be construed to be, legal or tax advice to any prospective investor
and no representation with respect to the U.S. federal income tax consequences
to any particular investor is made. The summary does not address any aspect of
any state or local tax laws or the tax laws of jurisdictions outside the
United States or the tax considerations applicable to non-U.S. Holders.
Accordingly, prospective investors should consult with their own tax advisers
for advice with respect to the income tax consequences to them having regard
to their own particular circumstances, including any consequences of an
investment in common shares arising under any state or local tax laws or the
tax laws of jurisdictions outside the United States.
For U.S. federal income tax purposes, a U.S. Holder of common shares
generally will realize, to the extent of Optimal's current and accumulated
earnings and profits, ordinary income on the receipt of cash dividends on the
common shares equal to the dollar value of such dividends on the date of
receipt (based on the exchange rate on such date) without reduction for any
Canadian withholding tax. To the extent, if any, that distributions made by
Optimal to a U.S. Holder exceed the current and accumulated earnings and
profits of Optimal, such distribution will be treated as a tax-free return of
capital to the extent of such U.S. Holder's adjusted basis for such shares,
and to the extent in excess of adjusted basis, as capital gain. Dividends paid
on the common shares will not be eligible for the dividends received deduction
available in certain cases to U.S. corporations. Generally, in the case of
foreign currency received as a dividend that is not converted by the recipient
into dollars on the date of receipt, a U.S. Holder will have a tax basis in
the foreign currency equal to its dollar value on the date of receipt. Any
gain or loss recognized upon a subsequent sale or other disposition of the
foreign currency, including an exchange for dollars, will be ordinary income
or loss.
Subject to certain requirements and limitations imposed by the Code, a U.S.
Holder may elect to claim the Canadian tax withheld or paid with respect to
dividends on the common shares either as a deduction or as a foreign tax
credit against the U.S. federal income tax liability of such U.S. Holder. In
general, a U.S. Holder may utilize foreign tax credits only to the extent its
tax liability results from including in taxable income its foreign source
income, which would include any dividends paid by Optimal but generally would
not include any gain realized upon a disposition of common shares. The
requirements and limitations imposed by the Code with respect to the foreign
tax credit are complex and beyond the scope of this summary, and consequently,
prospective purchasers of common shares should consult with their own advisers
to determine whether and to what extent they would be entitled to such credit.
For U.S. federal income tax purposes, upon a sale or exchange of common
shares, a U.S. Holder will recognize gain or loss equal to the difference
between the amount realized on such sale or exchange (or its U.S. dollar
equivalent, determined by reference to the spot rate of exchange on the date
of disposition, if the amount realized is denominated in a foreign currency)
and the tax basis of such common shares. Subject to the passive foreign
investment company rules discussed below, if the common shares are held as a
capital asset, any such gain or loss will be capital gain or loss, and will be
long-term capital gain or loss if the U.S. Holder has held such common shares
for more than one year. Moreover, any such gain or loss will generally be
treated as U.S. source income.
If, for any taxable year of Optimal, 75% or more of Optimal's gross income
consists of certain types of "passive" income or the average value during a
taxable year of "passive assets" (generally assets that produce or are held to
produce passive income) is 50% or more of the average value of all Optimal's
assets, Optimal would be treated as a "passive foreign investment company"
("PFIC") for such year and succeeding years with respect to such U.S. Holders
who were shareholders of Optimal during any taxable year in which Optimal was
a PFIC. If Optimal is treated as a PFIC, U.S. Holders who do not make a
special election to be taxed currently on their pro rata share of Optimal's
income and gains, whether or not distributed, will be subject to increased tax
liability upon the receipt of certain dividends or upon the sale or other
disposition of their common shares.
44
<PAGE>
Moreover, any gain upon the disposition by U.S. Holders of their common shares
will be characterized as ordinary income and taxed at ordinary income rates.
Although Optimal does not anticipate being classified as a PFIC for U.S.
federal income tax purposes, no assurance can be given as to its current or
future PFIC status. Accordingly, U.S. Holders are urged to consult with their
own tax advisers concerning the impact, if any, of the PFIC rules on their
investment in Optimal's common shares.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, Optimal will have outstanding 13,345,933
common shares, assuming no exercise of the underwriters' over-allotment option
or any other options or warrants. Of these shares, only 224,268 are restricted
securities and all the rest (including the 2,000,000 common shares being sold
in this offering) will be freely tradeable by persons other than "affiliates"
of Optimal without restriction or further registration under the Act. Of these
freely tradeable common shares, 408,000 will be subject to "lock-up"
arrangements. Lock-up arrangements with respect to the selling shareholders
expire on February 24, 2001 and lock-up arrangements with respect to our other
directors and officers expire 90 days after the date of this prospectus. In
addition, Gerard Klauer holds warrants with respect to 253,420 common shares.
Gerard Klauer has agreed to delay the sale of any shares underlying these
warrants until 90 days after the effective date of the registration statement
of which this prospectus forms a part. See "Risk Factors--Future sales of
common shares could depress the price of the common shares" and
"Underwriting." Upon completion of this offering, we will also have 2,299,882
common shares available for issuance upon the exercise of outstanding options
and warrants, not including the 300,000 common shares subject to the
underwriters' over-allotment option.
The "restricted securities" as defined in Rule 144 under the Act, in the
absence of an effective registration statement, may only be sold pursuant to
an exemption from registration, including Rule 144 or Regulation S. In
general, under Rule 144 as currently in effect, a stockholder, including an
affiliate of Optimal, who has beneficially owned restricted securities for at
least one year from the later of the date such securities were acquired from
either Optimal or an affiliate of Optimal, as applicable, is entitled to sell,
within any three-month period, a number of common shares that does not exceed
the greater of one percent of the then outstanding common shares
(approximately 133,000 after the offering) or the average weekly trading
volume of the common shares during the four calendar weeks preceding the date
on which notice of such sale was filed under Rule 144, provided that certain
procedural and information requirements are also met. In addition, if a period
of at least two years has elapsed between the later of the date that the
restricted securities were acquired from Optimal or an affiliate of Optimal, a
stockholder who is not an affiliate of Optimal and has not been an affiliate
of Optimal for at least three months prior to the sale of the securities is
entitled to sell the securities immediately without compliance with the
foregoing requirements under Rule 144.
We have filed a registration statement on Form S-8 with respect to our 1997
Stock Option Plan and other plans. Common shares issued upon the exercise of
stock options contemplated by the Form S-8 are eligible for resale in the
public market without restriction, except that sales by affiliates of Optimal
will be subject to the Rule 144 limitations described above and the
aforementioned lock-up agreements.
No prediction can be made as to the effect, if any, that market sales of
common shares, or the availability of the common shares for sale, will have on
the market price of the common shares prevailing from time to time.
Nevertheless, sales of significant numbers of common shares in the public
market, or the perception that such sales could occur, could adversely affect
the market price of the common shares and impair our future ability to raise
capital through an offering of our equity securities. See "Risk Factors--
Future sales of common shares could depress the price of the common shares."
45
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Gerard Klauer Mattison & Co., Inc., The Robinson-Humphrey Company, LLC
and Raymond James & Associates, Inc. are acting as representatives, have
severally, but not jointly, agreed to purchase from us and the selling
shareholders the following respective numbers of common shares:
<TABLE>
<CAPTION>
Number
Of
Name Shares
- ---- ------
<S> <C>
Gerard Klauer Mattison & Co., Inc........................................
The Robinson-Humphrey Company, LLC.......................................
Raymond James & Associates, Inc..........................................
</TABLE>
<TABLE>
<S> <C>
---------
Total............................................................... 2,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to some conditions precedent, and that the underwriters will be
obligated to purchase all of the common shares offered in this prospectus
(other than those shares covered by the over-allotment option described below)
if any are taken. The underwriting agreement provides that in the event of a
default by an underwriter, in some circumstances the purchase commitments of
non-defaulting underwriters may be increased.
The underwriters propose to offer the common shares to the public initially
at the public offering price set forth on the cover page of this prospectus
and to some dealers at a price that represents a concession not in excess of
$ per share. The underwriters may allow and some dealers may reallow a
concession not in excess of $ per share to some other dealers. After the
initial offering of the common shares, the offering price and concession and
discount to dealers may be changed by the representatives of the underwriters.
We have granted to the underwriters an option exercisable by the
representatives of the underwriters, expiring at the close of business on the
30th day after the date of this prospectus, to purchase up to
300,000 additional common shares at the offering price, less underwriting
discounts and commissions, all as set forth on the cover page of this
prospectus. This option may be exercised only to cover over-allotments in the
sale of the common shares. To the extent that the option is exercised, each
underwriter will become obligated, subject to some conditions, to purchase a
number of additional common shares proportionate to each underwriter's initial
amount reflected in the foregoing table.
The following table summarizes the compensation to be paid to the
underwriters by us.
<TABLE>
<CAPTION>
Without With
Over-Allotment Over-Allotment
-------------- --------------
<S> <C> <C>
Underwriting discounts and commissions paid by
us............................................. $ $
Underwriting discounts and commissions paid by
the selling shareholders....................... $ $
</TABLE>
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $925,000, all of which will
be paid by Optimal.
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<PAGE>
Optimal and its directors and officers other than the selling shareholders
have agreed that they will not offer, sell, contract to sell, announce their
intention to sell, pledge or otherwise dispose of, directly or indirectly, any
common shares or securities convertible into or exchangeable or exercisable
for any common shares, without the prior written consent of Gerard Klauer for
the 90-day period commencing with the date of this prospectus. The selling
shareholders have agreed that they will refrain from any such activities until
February 24, 2001.
The representatives of the underwriters on behalf of the underwriters may
engage in over-allotment, stabilizing transactions, syndicate covering
transactions, penalty bids and "passive" market making in accordance with
Regulation M under the Securities Exchange Act of 1934. Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the common
shares in the open market after the distribution has been completed in order
to cover syndicate short positions. Penalty bids permit the representatives of
the underwriters to reclaim a selling concession from a syndicate member when
the common shares originally sold by these syndicate members are purchased in
a syndicate covering transaction to cover syndicate short positions. In
"passive" market making, market makers in the securities offered hereby who
are underwriters or prospective underwriters may, subject to some limitations,
make bids for or purchases of such securities until the time, if any, at which
a stabilizing bid is made. These stabilizing transactions, syndicate covering
transactions, penalty bids, and other permissible purchases of common shares
by or on behalf of the underwriters may cause the price of the common shares
to be higher than it would otherwise be in the absence of these transaction.
These transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
We have agreed to indemnify the underwriters against some liabilities,
including civil liabilities under the Securities Act.
The common shares are listed on the Nasdaq National Market under the symbol
"OPMR".
Gerard Klauer acted as lead underwriter to Optimal in connection with its
initial U.S. public offering in 1996 and received a customary fee in
connection therewith, as well as warrants to purchase up to 240,600 common
shares. The shares underlying these warrants and other warrants issued by
Optimal to third parties since transferred to Gerard Klauer are registered on
a registration statement filed by Optimal in January 2000, which registration
statement has not yet become effective. Gerard Klauer has agreed to waive its
rights to sell any common shares pursuant to such registration statement or
otherwise for the 90-day period commencing with the effectiveness of the
registration statement of which this prospectus forms a part. The Robinson-
Humphrey Company and Gerard Klauer acted as lead underwriters in Optimal's
1999 public offering and received a customary fee in connection therewith.
LEGAL MATTERS
Certain legal matters in connection with the common shares have been passed
upon for us by Goodman Phillips & Vineberg, Montreal, Quebec. Leon P.
Garfinkle, a partner in Goodman Phillips & Vineberg, is a director of Optimal.
Certain matters in connection with the common shares have been passed upon for
the underwriters by Smith, Gambrell & Russell, LLP, Atlanta, Georgia.
EXPERTS
The financial statements included in this prospectus as of December 31, 1999
and 1998 and for each of the years ended December 31, 1999, 1998 and 1997 have
been audited by PricewaterhouseCoopers LLP, Chartered Accountants in Canada,
and are included in reliance upon such reports given upon the authority of
PricewaterhouseCoopers LLP as experts in auditing and accounting.
47
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP........................................ F-1
Consolidated Balance Sheets................................................. F-2
Consolidated Statements of Operations....................................... F-3
Consolidated Statements of Deficit.......................................... F-4
Consolidated Statements of Cash Flows....................................... F-5
Notes to Consolidated Financial Statements.................................. F-6
</TABLE>
<PAGE>
AUDITORS' REPORT
To the Directors of
Optimal Robotics Corp.
We have audited the consolidated balance sheets of Optimal Robotics Corp. as
at December 31, 1999 and 1998 and the consolidated statements of operations,
deficit and cash flows for each of the years in the three-year period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. 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 present fairly, in
all material respects, the financial position of the Company as at December
31, 1999 and 1998 and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 1999 in
accordance with Canadian generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Montreal, Quebec, Canada
February 4, 2000
F-1
<PAGE>
OPTIMAL ROBOTICS CORP.
CONSOLIDATED BALANCE SHEETS
As at December 31, 1999 and 1998
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
$ $
---------- ----------
ASSETS
------
Current assets
<S> <C> <C>
Cash.................................................. 3,934,243 --
U.S. Treasury bill, at cost........................... 564,841 538,490
Short-term investments (note 15)...................... 24,636,606 5,524,819
Accounts receivable, net of allowance for doubtful
accounts of nil (note 4)............................. 4,641,566 1,219,716
Inventory (note 5).................................... 3,363,943 1,401,049
Tax credits receivable................................ 252,520 114,494
Future income taxes (note 13)......................... 3,012,997 --
Prepaid expenses...................................... 127,017 2,935
---------- ----------
40,533,733 8,801,503
Loans receivable (note 6)............................. 155,643 161,807
Deferred share issue costs............................ 56,985 --
Future income taxes (note 13)......................... 2,112,028 --
Capital assets (note 7)............................... 1,347,903 365,869
---------- ----------
44,206,292 9,329,179
========== ==========
LIABILITIES
-----------
Current liabilities
Accounts payable and accrued liabilities (note 8)..... 3,659,189 1,233,014
Deferred revenue...................................... 592,271 124,784
Current portion of contract advance (note 9).......... 250,000 125,000
---------- ----------
4,501,460 1,482,798
Contract advance (note 9)............................. -- 250,000
---------- ----------
4,501,460 1,732,798
---------- ----------
Commitments and contingency (note 12)
Shareholders' Equity
Share capital (note 10)............................... 44,657,833 16,850,531
Other capital......................................... 20,559 23,240
Cumulative translation adjustment..................... 652,062 --
Deficit............................................... (5,625,622) (9,277,390)
---------- ----------
39,704,832 7,596,381
---------- ----------
44,206,292 9,329,179
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
OPTIMAL ROBOTICS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
$ $ $
---------- ---------- ----------
(note 2) (note 2)
<S> <C> <C> <C>
Revenues
Systems................................. 28,301,590 5,154,961 1,670,967
Hardware................................ -- -- 1,472,559
Development and customization........... 335,387 202,204 218,917
Hardware and software maintenance....... 997,269 142,562 23,439
Other................................... -- 118,286 10,835
---------- ---------- ----------
29,634,246 5,618,013 3,396,717
---------- ---------- ----------
Cost of sales
Systems................................. 22,343,753 4,778,815 1,190,450
Hardware................................ -- -- 1,447,357
Development and customization........... 116,861 84,082 70,982
Hardware and software maintenance....... 996,799 179,913 --
Other................................... -- 92,267 --
---------- ---------- ----------
23,457,413 5,135,077 2,708,789
---------- ---------- ----------
Gross margin.............................. 6,176,833 482,936 687,928
---------- ---------- ----------
Gross research and development expenses... 960,440 324,868 393,501
Research and development tax credits (note
12)...................................... (740,484) (114,494) (99,600)
Selling, general and administrative
expenses................................. 5,444,831 4,847,804 2,542,336
Operating lease expense................... 232,471 211,399 113,811
Write-down of inventory................... 604,364 -- --
Amortization of capital assets............ 344,718 205,684 123,818
Investment income......................... (893,694) (449,244) (584,285)
Foreign exchange loss (gain).............. 104,002 (632,317) (420,516)
---------- ---------- ----------
6,056,648 4,393,700 2,069,065
---------- ---------- ----------
Earnings (loss) before income taxes....... 120,185 (3,910,764) (1,381,137)
Income tax recovery (note 13)............. 3,531,583 -- --
---------- ---------- ----------
Net earnings (loss) for the year.......... 3,651,768 (3,910,764) (1,381,137)
========== ========== ==========
Weighted average number of common shares
outstanding.............................. 9,699,385 7,463,984 7,409,522
========== ========== ==========
Net earnings (loss) per common share
Basic................................... 0.38 (0.52) (0.19)
========== ========== ==========
Fully diluted........................... 0.35 (0.52) (0.19)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
OPTIMAL ROBOTICS CORP.
CONSOLIDATED STATEMENTS OF DEFICIT
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
$ $ $
---------- ---------- ----------
(note 2) (note 2)
<S> <C> <C> <C>
Deficit--Beginning of year.................. (9,277,390) (5,366,626) (3,985,489)
Net earnings (loss) for the year............ 3,651,768 (3,910,764) (1,381,137)
---------- ---------- ----------
Deficit--End of year........................ (5,625,622) (9,277,390) (5,366,626)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
OPTIMAL ROBOTICS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- -----------
$ $ $
----------- ---------- -----------
(note 2) (note 2)
<S> <C> <C> <C>
Cash provided by (used for)
Operating activities
Net earnings (loss) for the year........ 3,651,768 (3,910,764) (1,381,137)
Items not affecting cash
Write-down of inventory................ 604,364 -- --
Amortization of capital assets......... 344,718 205,684 123,818
Unrealized foreign exchange loss (gain)
on contract advance................... (14,016) 53,414 --
Non-refundable tax credits............. (490,438) -- --
Future income taxes.................... (3,531,583) -- --
Change in non-cash operating working
capital items
Increase in accounts receivable........ (3,271,239) (380,271) (506,860)
Decrease (increase) in inventory....... (2,441,539) (1,376,724) 112,279
Decrease (increase) in tax credits
receivable............................ (128,289) (14,894) 90,952
Decrease (increase) in prepaid
expenses.............................. (120,936) 16,265 (10,984)
Decrease in unrealized foreign exchange
gain on forward contract.............. -- -- 171,592
Increase (decrease) in accounts payable
and accrued liabilities............... 2,029,510 902,972 (493,927)
Increase (decrease) in deferred
revenue............................... 449,257 124,784 (17,609)
----------- ---------- -----------
(2,918,423) (4,379,534) (1,911,876)
----------- ---------- -----------
Financing activities
Issuance of common shares............... 29,467,094 435,596 --
Share issue costs....................... (2,793,434) -- --
Deferred share issue costs.............. (55,616) -- --
Repayment of loans under Employee Stock
Purchase Arrangement................... 141,348 -- --
Decrease in contract advance............ (125,000) (125,000) --
----------- ---------- -----------
26,634,392 310,596 --
----------- ---------- -----------
Investing activities
Purchase of capital assets.............. (1,012,586) (234,207) (437,732)
Decrease (increase) in short-term
investments............................ (18,460,828) 4,558,988 (10,083,807)
Issuance of loan receivable............. -- -- (166,308)
Repayment of loans receivable........... 15,088 12,854 1,766
----------- ---------- -----------
(19,458,326) 4,337,635 (10,686,081)
----------- ---------- -----------
Increase (decrease) in cash and cash
equivalents during the year............. 4,257,643 268,697 (12,597,957)
Effect of exchange rate changes on cash
and cash equivalents.................... (297,049) -- --
Cash and cash equivalents--Beginning of
year.................................... 538,490 269,793 12,867,750
----------- ---------- -----------
Cash and cash equivalents--End of year... 4,499,084 538,490 269,793
=========== ========== ===========
Cash and cash equivalents is comprised
of:
Cash.................................... 3,934,243 -- 269,793
U.S. Treasury bill...................... 564,841 538,490 --
----------- ---------- -----------
4,499,084 538,490 269,793
=========== ========== ===========
Supplementary information
Cash paid during the year for interest.. 38,786 1,182 1,163
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
1Nature of operations
The Company is engaged in the development, marketing, installation and
servicing of automated transaction software and systems designed for use in
the retail sector. The Company's principal product focus is its U-Scan(R)
Express system, a self-service checkout system for the retail industry. The
Company also develops, markets and services its 6300 POS for the supermarket
industry.
The U-Scan(R) Express system allows shoppers to scan, bag and pay for their
purchases with limited or no assistance from store personnel. The 6300 POS is
an open architecture, PC-based point-of-sale system designed to replace
proprietary cash registers at high volume retailers.
The U-Scan(R) Express system is currently assembled under contract by a
third party which is a full-line manufacturer of bar code reading equipment.
The U-Scan(R) Express system is marketed by the Company and sold both directly
by the Company and indirectly by two third parties under contract.
2Summary of significant accounting policies
Basis of presentation
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada. These principles conform, in all
material respects, with accounting principles generally accepted in the United
States, except as described in note 16. The principal accounting policies of
the Company, which have been consistently applied, are summarized as follows:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Principles of consolidation
These consolidated financial statements include the accounts of the Company
and its wholly owned U.S. subsidiary, Optimal Robotics, Inc., which was
incorporated on October 7, 1999. The subsidiary had no active operations
during 1999.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and balances with banks
and all highly liquid debt instruments with original maturities of three
months or less.
Short-term investments
Short-term investments are carried at the lower of cost and market value.
Revenue recognition
Sales of systems are recognized upon completion of installation and customer
acceptance. Post-installation maintenance and service revenue (hardware and
software) is recognized over the term of the related agreements. Hardware
sales are recognized upon shipment of the product. Development fees related to
the Company's 6300 POS system are recognized as the services are rendered.
F-6
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
Deferred share issue costs
Deferred share issue costs relate to the proposed public offering of common
shares pursuant to a registration statement which the Company expects to file
with the Securities and Exchange Commission in fiscal 2000. These costs will
be recorded as a reduction of the gross proceeds of the offering during the
period in which the common shares are issued.
Capital assets
Capital assets are recorded at cost. Amortization is provided for over the
estimated useful lives of the capital assets on a straight-line basis as
follows:
<TABLE>
<S> <C>
Test units and computer equipment............................ 33%
Equipment.................................................... 10%
Leasehold improvements....................................... over lease term
Patents...................................................... 5%
</TABLE>
Foreign currency translation
Reporting currency
The functional currency of the Company is the Canadian dollar. Accordingly,
the Company's consolidated financial statements for the year ended December
31, 1999 have been translated into the reporting currency as follows: assets
and liabilities have been translated at the exchange rate in effect at the end
of the year and revenues and expenses have been translated at the average
exchange rate for the year. All gains or losses from translation of the
consolidated financial statements into the reporting currency have been
included in the cumulative translation adjustment in shareholders' equity.
Changes in the cumulative translation adjustment during the year result solely
from the application of this translation method.
The financial statements of the Company were presented in Canadian dollars
up to December 31, 1997. Effective December 31, 1998, the U.S. dollar was
adopted as the reporting currency. Comparative financial information for 1998
and 1997 has been presented in U.S. dollars in accordance with a translation
of convenience method using the representative exchange rate at December 31,
1998 of US$1.00 = Cdn$1.5333. The translated amount for non-monetary items as
at December 31, 1998 became the historical basis for those items in subsequent
years.
Foreign subsidiary
The Company's wholly owned subsidiary is considered to be integrated. As a
result, the subsidiary's accounts are translated into Canadian dollars using
the temporal method. Under this method, monetary assets and liabilities are
translated at the exchange rates in effect at the balance sheet date. Non-
monetary assets and liabilities are translated at historical rates. Revenue
and expenses are translated at the average rate for the period. Gains and
losses resulting from translation are reflected in the statement of
operations.
Foreign currency transactions
Transactions denominated in foreign currencies are translated into the
functional currency using the temporal method.
F-7
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
Tax credits
The Company is entitled to scientific research and experimental development
("SRED") tax credits granted by the Canadian federal government ("Federal")
and the government of the Province of Quebec ("Provincial"). Federal SRED tax
credits are earned on qualified Canadian SRED expenditures at a rate of 20%
which can only be used to offset Federal income taxes otherwise payable.
Provincial SRED tax credits are earned on qualified SRED salaries in the
Province of Quebec at a rate of 20%. These tax credits are refundable.
SRED tax credits are accounted for as a reduction of the related
expenditures. The refundable portion of SRED tax credits is recorded in the
year in which they are earned. The non-refundable portion of SRED tax credits
is recorded at such time as the Company has reasonable assurance that the
credits will be realized.
Income taxes
The Company provides for income taxes using the liability method of tax
allocation. Under this method, future income tax assets and liabilities are
determined based on deductible or taxable temporary differences between
financial statement values and tax values of assets and liabilities using
enacted income tax rates expected to be in effect for the year in which the
differences are expected to reverse.
The Company establishes a valuation allowance against future income tax
assets if, based on available information, it is more likely than not that
some or all of the future income tax assets will not be realized.
Research and development expenses
Research costs, which include all costs incurred to establish technological
feasibility, are charged to operations in the year in which they are incurred.
Technological feasibility has been defined as the completion of the product
design for the computer software.
Once technological feasibility has been established, development costs are
evaluated for deferral and subsequent amortization. As at December 31, 1999,
the Company has not deferred any development costs.
Inventory
Replacement parts inventory is stated at the lower of landed cost and
replacement cost. U-Scan(R) Express systems inventory is stated at the lower
of cost and net realizable value. Cost is determined on the basis of actual
costs.
Stock-based compensation plan
The Company maintains a stock-based compensation plan, which is described in
note 11. Under accounting principles generally accepted in Canada, no
compensation expense is recognized for this plan when stock options or shares
are issued to employees. Any consideration received from plan participants
upon exercise of stock options is credited to capital stock.
F-8
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
Earnings per share
Basic earnings (loss) per share is determined using the weighted average
number of common shares outstanding during the period.
Fully diluted earnings (loss) per share is determined using the weighted
average number of common shares and dilutive common share equivalents, such as
stock options and warrants, outstanding during the period. Earnings for the
period are increased by the estimated additional earnings, net of applicable
income taxes, on the proceeds from the exercise of dilutive common share
equivalents.
3Change in accounting policy
During 1999, the Company retroactively adopted the revised recommendations
of the Canadian Institute of Chartered Accountants regarding accounting for
income taxes. Under these revised recommendations, income taxes are now
accounted for using the liability method. These new recommendations are
consistent with those of SFAS 109 under accounting principles generally
accepted in the United States.
The adoption of these revised recommendations did not result in any changes
to prior years' earnings, shareholders' equity or cash flows. However, certain
additional disclosures have been provided. The effect of these recommendations
on the current year is the recognition of tax assets of $4,824,824 of which
approximately $3.5 million was recorded as an income tax recovery in the
consolidated statement of operations.
4Accounts receivable
<TABLE>
<CAPTION>
1999 1998
--------- ---------
$ $
--------- ---------
<S> <C> <C>
Trade accounts receivable................................ 4,305,188 1,095,819
Accrued interest......................................... 176,019 35,956
Current portion of loan receivable....................... 13,592 12,853
Other.................................................... 146,767 75,088
--------- ---------
4,641,566 1,219,716
========= =========
5Inventory
<CAPTION>
1999 1998
--------- ---------
$ $
--------- ---------
<S> <C> <C>
Replacement parts........................................ 2,763,261 910,234
U-Scan(R) Express systems................................ 600,682 490,815
--------- ---------
3,363,943 1,401,049
========= =========
</TABLE>
6Loans receivable
These loans are as follows:
a) To an employee to purchase common shares of the Company in the
amount of Cdn$24,391 (1998 - Cdn$27,099). This loan is non-interest
bearing and is repayable in annual instalments of Cdn$2,708 until
June 30, 2008; and
F-9
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
b) To an officer/director to purchase a home in the amount of
Cdn$221,000 (1998 - Cdn$238,000). This loan is non-interest bearing
and is repayable in annual instalments of Cdn$17,000 until July 1,
2012. This loan is forgivable if the officer/director leaves the
employment of the Company for any reason.
7Capital assets
<TABLE>
<CAPTION>
1999 1998
--------- ---------
$ $
--------- ---------
<S> <C> <C>
Cost
Test units............................................. 443,931 242,317
Equipment.............................................. 331,775 41,105
Leasehold improvements................................. 499,105 265,391
Leasehold improvements under construction.............. 275,862 --
Computer equipment..................................... 516,286 163,828
Patents................................................ 13,686 12,942
--------- ---------
2,080,645 725,583
--------- ---------
Accumulated amortization
Test units............................................. 268,670 143,954
Equipment.............................................. 33,322 18,314
Leasehold improvements................................. 253,756 131,242
Leasehold improvements under construction.............. -- --
Computer equipment..................................... 164,050 54,609
Patents................................................ 12,944 11,595
--------- ---------
732,742 359,714
--------- ---------
Net carrying amount...................................... 1,347,903 365,869
========= =========
8Accounts payable and accrued liabilities
<CAPTION>
1999 1998
--------- ---------
$ $
--------- ---------
<S> <C> <C>
Trade accounts payable................................... 2,923,123 802,653
Accrued salaries, vacation pay and benefits.............. 100,632 121,089
Outstanding cheques...................................... 635,434 309,272
--------- ---------
3,659,189 1,233,014
========= =========
</TABLE>
9Contract advance
Pursuant to an exclusive, worldwide assembly and marketing agreement, the
Company received a non-interest-bearing advance of $500,000. On April 1, 1998,
the agreement was replaced with an exclusive assembly agreement which
terminates on December 31, 2000. The remaining balance of the advance of
$250,000 is repayable on December 31, 2000.
F-10
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
10Share capital
The Company's authorized share capital consists of an unlimited number of
Class "A" shares, and Class "B" and Class "C" preference shares.
The Class "A" shares are designated as common shares.
The Class "B" preference shares are voting, non-participating and redeemable
for the amount paid up thereon. In the event of the liquidation, dissolution
or wind-up of the Company, the Class "B" preference shares rank in priority to
all other classes.
The Class "C" preference shares are issuable in series with rights,
privileges, restrictions and conditions designated by the directors. In the
event of the liquidation, dissolution or wind-up of the Company, the Class "C"
preference shares rank in priority to the common shares.
<TABLE>
<CAPTION>
Issued
Common
Shares $
---------- ----------
<S> <C> <C>
Balance - December 31, 1996............................ 7,417,022 16,411,360
Cancellation of shares under Employee Stock Purchase
Arrangement.......................................... (9,000) (51,360)
Cancellation of loan receivable under Employee Stock
Purchase Arrangement................................. -- 51,360
---------- ----------
Balance - December 31, 1997............................ 7,408,022 16,411,360
Issued for cash pursuant to exercise of stock
options.............................................. 1,000 2,998
Issued pursuant to exercise of warrants............... 70,256
Ascribed value from other capital.................... 3,575
Cash................................................. 432,598
Cancellation of shares under Employee Stock Purchase
Arrangement.......................................... (4,000) (22,827)
Cancellation of loan receivable under Employee Stock
Purchase Arrangement................................. -- 22,827
---------- ----------
Balance - December 31, 1998............................ 7,475,278 16,850,531
Issued for cash pursuant to exercise of stock
options.............................................. 934,271 2,393,538
Issued pursuant to exercise of warrants............... 27,692 --
Ascribed value from other capital.................... -- 2,681
Cash................................................. -- 73,556
Issued for cash pursuant to public offering........... 3,000,000 27,000,000
Share issue costs, net of related future income
taxes................................................ -- (1,803,821)
Repayment of loans under Employee Stock Purchase
Arrangement.......................................... -- 141,348
---------- ----------
Balance - December 31, 1999............................ 11,437,241 44,657,833
========== ==========
</TABLE>
During 1999, the Company filed a registration statement with the Securities
and Exchange Commission qualifying the issuance of 3,000,000 common shares for
gross proceeds of $9.00 per share. The net proceeds from this offering
amounted to $25,196,179, after deducting underwriting commissions and other
expenses of $1,803,821 (net of future income taxes of $989,613).
F-11
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
On February 26, 1996, regulatory approval was received to issue 42,000
common shares under an Employee Stock Purchase Arrangement pursuant to which
certain employees of the Company were entitled to purchase common shares of
the Company at a price of Cdn$8.75 per share. Under the Arrangement the
Company provided interest-free non-recourse loans payable according to various
occurrences, but no later than the 10th anniversary of the issuance of the
shares, which loans were secured by a pledge of the shares. These loans
receivable have been presented as a deduction from share capital. At December
31, 1999, 24,000 common shares are issued and outstanding under this
Arrangement and all loans under the Arrangement have been repaid.
11Stock option plan/warrants
The Company has a stock option plan that provides for the granting of
options to employees and directors for the purchase of the Company's common
shares. Options may be granted by the Board of Directors for terms of up to
ten years. The Board of Directors establishes the exercise period, vesting
terms and other conditions for each grant at the grant date. Options may be
granted with exercise prices as permitted by securities regulatory
authorities. A maximum of 3,000,000 common shares may be issued pursuant to
options granted under this plan. Options outstanding under the plan generally
expire five years after the date of grant and vest either immediately or over
a period of up to two years.
In addition, the Company has granted options under certain employment
agreements and established certain terms for some options granted under the
1997 Stock Option Plan as follows:
a) In 1997, options to purchase 1,200,000 common shares were granted to
three senior officers. These options have an exercise price of $3.00 per
share and expire in 2002. As at December 31, 1999, options to purchase
900,000 common shares are outstanding, all of which are exercisable
(1998 - 1,200,000 outstanding, 900,000 exercisable). The employment
agreements contained the following provisions:
i) The holder was permitted to exercise the above options without
paying cash by accepting the number of shares having a value equal
to the in-the-money value of the options. This right was irrevocably
waived by the holders in 1998.
ii) If a change of control or substantial asset disposal occurred, the
unexercised options would no longer be exercisable and the holder
would have the right to acquire 4.04% of the then outstanding
shares of the Company reduced by a specified number of shares if
any of the options had been exercised. Such shares could be
acquired for nominal consideration. If the shares could not be
issued, the holders would be entitled to a cash payment based on
certain specified criteria. In January 1999, the change of control
and substantial asset disposal provisions were deleted and a new
change of control provision was inserted in the agreements. Under
the new change of control provision, if a change of control should
occur, the exercise price of all options, warrants or rights held
by these senior officers would be amended to a nominal value. If
shares cannot be issued under this change of control provision, the
Company is required to pay the holders the fair value of the shares
that would have been issued.
iii) In the event of termination by the Company without cause, the
exercise price on the options would be amended to a nominal value.
b) The 1997 employment agreements provide that in the event of termination
without cause, the exercise price of all options, warrants or rights
would be amended to a nominal value. At December 31, 1999, options to
purchase 1,812,000 (1998 - 1,692,000) common shares with a weighted
average exercise
F-12
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
price of $10.84 (1998 - $2.80) and 140,000 (1998 - 140,000) warrants
with a weighted average exercise price of Cdn$4.64 (1998 - $4.64) were
subject to this provision of which 1,182,000 options and 140,000
warrants were exercisable (1998 - 1,392,000 options and 140,000
warrants).
c) In 1997, options to purchase 312,000 common shares were granted,
including 282,000 which were granted to three senior officers, with a
reload feature whereby upon exercise of the option, a new option is
issued with an exercise price equal to the then current market price.
Two consecutive reloads are permitted. The holder was permitted to
exercise the options without paying cash by accepting the number of
shares having a value equal to the in-the-money value of the options.
This right was irrevocably waived by the holders of options to acquire
307,000 common shares in 1998.
During 1999, 287,000 of these options were exercised and immediately
reloaded at the then current market price. As at December 31, 1999,
options subject to this provision, all of which are exercisable, are as
follows:
<TABLE>
<CAPTION>
Exercise Number of
prices options
$ outstanding
-------- -----------
<S> <C>
3.00........................................................ 20,000
16.13........................................................ 282,000(1)
24.56........................................................ 5,000(1)
-------
307,000
=======
</TABLE>
--------
(1) These options may be reloaded one more time.
d) In 1997, options to purchase 20,000 common shares were granted to an
outside consultant at an exercise price of $3.00.
Details of stock options are as follows:
<TABLE>
<CAPTION>
United States dollar exercise price Canadian dollar exercise price
------------------------------------------- --------------------------------
Weighted Weighted
average average
exercise price exercise price
Number of per share Number of per share
options $ options Cdn$
------------- -------------------- ------------- ------------------
<S> <C> <C> <C> <C>
Balance - December 31,
1996 -- -- 360,000 2.08
Granted................. 1,571,000 3.00 -- --
------------------- --------------- -------- ----
Balance - December 31,
1997 1,571,000 3.00 360,000 2.08
Granted................. 105,000 5.78 -- --
Expired................. (10,000) 3.00 -- --
------------------- --------------- -------- ----
Balance - December 31,
1998 1,666,000 3.18 360,000 2.08
Granted................. 1,028,000 19.81 -- --
Expired................. (1,000) 3.00 -- --
Exercised............... (636,000) 3.13 (300,000) 2.00
------------------- --------------- -------- ----
Balance - December 31,
1999 2,057,000 11.49 60,000 2.50
=================== =============== ======== ====
</TABLE>
F-13
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
The following table summarizes information concerning currently outstanding
options:
<TABLE>
<CAPTION>
Weighted
average
Number of Number of remaining
Exercise price options options contractual
$ outstanding exercisable life
-------------- ----------- ----------- -----------
<S> <C> <C> <C>
CDN 2.50 60,000 60,000 0.3 years
3.00 954,000 954,000 2.3 years
5.56 75,000 25,000 3.2 years
9.75 65,000 -- 4.3 years
12.88 330,000 -- 4.0 years
16.13 282,000 282,000 2.3 years
24.56 5,000 5,000 2.3 years
31.25 346,000 -- 4.9 years
--------- ---------
2,117,000 1,326,000
========= =========
</TABLE>
The following table summarizes the weighted average grant-date fair value
per share for options granted.
<TABLE>
<CAPTION>
Weighted
average
grant-date
fair value
Number of per share
options $
--------- ----------
<S> <C> <C>
1997
Exercise price per share less than market price per
share (1)........................................... 1,220,000 3.58
Exercise price per share equal to market price per
share............................................... 351,000 1.47
1998
Exercise price per share less than market price per
share............................................... 100,000 5.22
Exercise price per share equal to market price per
share............................................... 5,000 5.60
1999
Exercise price per share equal to market price per
share............................................... 1,028,000 11.60
</TABLE>
- --------
(1) Of these 1,220,000 options, (i) an aggregate of 1.2 million options was
granted at an exercise price of $3.00 per share pursuant to employment
agreements made as of May 5, 1997 (the substance of which was agreed to
prior to May 5, 1997) with three senior executives of the Company (the
market price per share was $2.75 per share on May 4, 1997), which
agreements were formally ratified and confirmed by the Board of Directors
of the Company on September 24, 1997 (on which date the market price per
share was $5.75); and (ii) 20,000 options were granted at an exercise
price of $3.00 per share to a consultant to the Company pursuant to a
consulting arrangement agreed to as of June 26, 1997 (the market price per
share on June 25, 1997 was $4.25), which options were formally ratified
and confirmed by the Board of Directors of the Company on October 31, 1997
(on which date the market price per share was $5.50).
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997: dividend yield of nil,
risk-free interest rate of 5.58%, 4.85% and 5.70% to 6.57% respectively,
expected volatility of 80%, 77% to 85% and 80% to 87% respectively, and
expected lives of 3.44, 5.0 and 5.0 years respectively.
F-14
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
Details of warrants are as follows:
<TABLE>
<CAPTION>
United States
dollar exercise Canadian dollar
price exercise price
------------------ ------------------
Weighted Weighted
average average
exercise exercise
price price
Number per Number per
of share of share
warrants $ warrants Cdn$
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance - December 31, 1996 and
1997............................... 331,023 6.58 220,000 5.69
Exercised......................... (10,256) 6.50 (60,000) 9.46
Expired........................... (13,500) 6.60 -- --
------- ---- ------- ----
Balance - December 31, 1998......... 307,267 6.58 160,000 4.28
Exercised......................... (7,692) 6.50 (20,000) 1.75
------- ---- ------- ----
Balance - December 31, 1999......... 299,575 6.58 140,000 4.64
======= ==== ======= ====
</TABLE>
During 1997, no warrants were granted or exercised, and none expired.
The following table summarizes information concerning currently outstanding
warrants:
<TABLE>
<CAPTION>
Number of Weighted
warrants average
Exercise outstanding remaining
price and contractual
$ exercisable life
-------- ----------- -----------
<S> <C> <C>
CDN 3.75 40,000 0.8 years
5.00 100,000 1.7 years
6.50 58,975 2.8 years
6.60 240,600 1.8 years
-------
439,575
=======
</TABLE>
The warrants expire at various dates to October 24, 2002.
12Other disclosures
Research and development tax credits
Research and development tax credits include:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
$ $ $
------- ------- ------
(note (note
2) 2)
<S> <C> <C> <C>
Refundable tax credits.............................. 250,046 114,494 99,600
Non-refundable tax credits realizable against future
income taxes related to
Current year expenditures......................... 171,473 -- --
Prior years' expenditures not previously
recognized....................................... 318,965 -- --
------- ------- ------
740,484 114,494 99,600
======= ======= ======
</TABLE>
F-15
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
Commitments
a) The Company has entered into operating leases for its premises and
certain office equipment. The minimum amounts payable for each of the
next four years, excluding the Company's proportionate share of common
operating costs, are as follows:
<TABLE>
<CAPTION>
$
-------
<S> <C>
2000.............................................................. 192,218
2001.............................................................. 123,086
2002.............................................................. 49,582
2003.............................................................. 27,096
-------
391,982
=======
</TABLE>
b) The U.S. Treasury bill in the amount of $564,841 has been pledged in
respect of corporate credit card facilities and an unused line of credit
in the amount of Cdn$500,000.
Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than
a date. Although the change in date has occurred, it is not possible to
conclude that all aspects of the Year 2000 Issue that may affect the Company,
including those related to the efforts of customers, suppliers, or other third
parties, will be fully resolved.
Contingency
In each of 1995 and 1996, the Company received demand letters from the same
claimant alleging patent infringement. In June 1999, this same claimant filed
a civil action alleging patent infringement in the United States District
Court for the District of Utah against the Company and PSC. In addition, a
similar suit has been filed in the State of Utah against one of the Company's
customers. At the Company's expense, the Company's counsel is defending this
suit. The Company is also contractually bound to indemnify the customer for
any damages it incurs in connection with such suit. The Company also received
a lawyer's letter from another party alleging infringement of another patent.
The Company believes these claims to be without merit and intends to
vigorously defend its position. Consequently, no provision has been made in
these financial statements with respect to the above claims.
13Income taxes
The income tax recovery is composed of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
$ $ $
---------- -------- --------
(note 2) (note 2)
<S> <C> <C> <C>
Current......................................... -- -- --
Future, before undernoted item.................. 65,758 -- --
Benefit of prior years' non-capital
losses not previously recognized............ (3,597,341) -- --
---------- ------ ------
(3,531,583) -- --
========== ====== ======
</TABLE>
F-16
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
The reconciliation of the combined Canadian federal and Quebec provincial
income tax rate to the income tax recovery is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
$ $ $
---------- ---------- ----------
(note 2) (note 2)
<S> <C> <C> <C>
Earnings (loss) before income taxes.... 120,185 (3,910,764) (1,381,137)
---------- ---------- ----------
Combined Canadian federal and Quebec
provincial income taxes at 38%...... 45,670 (1,486,090) (524,832)
Unrecorded benefit of non-capital
losses................................ -- 1,475,785 515,868
Future benefit of previously
unrecognized non-capital losses of
prior years......................... (3,597,341) -- --
Other.................................. 20,088 10,305 8,964
---------- ---------- ----------
(3,531,583) -- --
========== ========== ==========
</TABLE>
The future income tax balances are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ----------
$ $
--------- ----------
<S> <C> <C>
Current future income tax assets
Non-refundable research and development tax credits
(net of related income taxes)....................... 310,201 --
Non-capital losses................................... 2,500,000 --
Share issue costs.................................... 202,796 --
--------- ----------
Current future income tax assets..................... 3,012,997 --
--------- ----------
Long-term future income tax assets
Research and development expenses.................... 739,146 503,489
Non-refundable research and development tax credits
(net of related income taxes)....................... -- 188,482
Non-capital losses................................... 678,481 2,831,800
Share issue costs.................................... 608,388 --
Capital assets....................................... 96,013 --
--------- ----------
2,122,028 3,523,771
Valuation allowance.................................. -- (3,523,771)
--------- ----------
Long-term future income tax assets................... 2,122,028 --
--------- ----------
Total future income tax assets....................... 5,135,025 --
========= ==========
</TABLE>
F-17
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
As at December 31, 1999, for Canadian federal and Quebec provincial income
tax purposes, the Company has non-capital loss carryforwards of approximately
Cdn$12,417,000 which can be carried forward to reduce future taxable income
and which expire as follows:
<TABLE>
<CAPTION>
CDN$
---------
<S> <C>
2000............................................................... 2,000
2001............................................................... 63,000
2002............................................................... 895,000
2003............................................................... 2,177,000
2004............................................................... 2,190,000
2005............................................................... 6,100,000
2006............................................................... 990,000
</TABLE>
Certain eligible scientific research and development expenditures incurred
by the Company may be deferred and deducted in future years. These unclaimed
deductions, which can be carried forward indefinitely, amounted to
Cdn$2,420,000 for Canadian federal purposes and Cdn$4,010,000 for Quebec
provincial purposes as at December 31, 1999.
As at December 31, 1999, the Company has non-refundable research and
development tax credits of Cdn$728,644 which can be carried forward to reduce
Canadian federal income taxes payable and expire in various years until 2009.
The future tax benefits of these carryforwards and tax credits have been
recognized in the financial statements.
The carryforwards and the tax credits claimed are subject to review and
possible adjustment by the Canadian federal and Quebec provincial government
authorities.
14Segmented information
Substantially all of the Company's revenue is derived from export sales to
supermarket retailers in the United States and is denominated in U.S. dollars.
Substantially all of the Company's operations and assets are located in
Canada.
Major customers
Sales to major customers (customers from which 10% or more of total revenue
is derived during the specified period) are summarized as follows:
<TABLE>
<CAPTION>
1998 1998 1997
---------- --------- ---------
$ $ $
---------- --------- ---------
(note 2) (note 2)
<S> <C> <C> <C>
Customer 1.................................... 15,909,477 4,035,080 1,277,239
Customer 2.................................... 8,267,126 725,420 N/A
Customer 3.................................... N/A N/A 1,094,966
</TABLE>
F-18
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
15Financial instruments
Credit risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash, the U.S. Treasury bill, short-term
investments and accounts receivable. Cash is maintained with a high-credit
quality financial institution. Short-term investments consist of short-term
discounted notes issued by high-credit quality corporations. For accounts
receivable, the Company performs periodic credit evaluations and typically
does not require collateral. Allowances are maintained for potential credit
losses consistent with the credit risk, historical trends and other
information.
Interest rate risk
The Company's exposure to interest rate risk is as follows:
<TABLE>
<S> <C>
Cash Non-interest bearing
U.S. Treasury bill Fixed interest rate
Short-term investments Fixed interest rate
Accounts receivable Non-interest bearing
Unused line of credit Interest rate of prime plus 1%
Accounts payable and accrued liabilities Non-interest bearing
Contract advance Non-interest bearing
</TABLE>
Short-term investments
Short-term investments consist of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
$ $
---------- ---------
<S> <C> <C>
Short-term discounted notes denominated in U.S. dollars
with an effective yield of 5.8% (1998 - 7.625%),
maturing on April 3, 2000
(1998 - December 1, 1999)............................. 4,354,219 5,524,819
Short-term discounted notes denominated in Canadian
dollars with an effective yield of 5.1%, maturing on
March 7 and 14, 2000.................................. 20,282,387 --
---------- ---------
24,636,606 5,524,819
========== =========
</TABLE>
Fair value
Due to their short-term maturities, the carrying values of cash, the U.S.
Treasury bill, short-term investments, accounts receivable, and accounts
payable and accrued liabilities are reasonable estimates of their fair values.
The fair value of the contract advance at December 31, 1999 is approximately
$227,000 (1998 - $332,000) based on discounted cash flows.
F-19
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
16 Additional disclosures required by U.S. GAAP and differences between
Canadian GAAP and U.S. GAAP
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP") that conform, in
all material respects, with generally accepted accounting principles in the
United States ("U.S. GAAP") during the periods presented, except with respect
to the following:
New accounting standards
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The Standard, which is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999, is not expected to
have a material impact on the Company's disclosure or accounting.
Accounting for stock-based compensation
For stock-based compensation plans with employees (including directors), the
Company has chosen to use the intrinsic value method (APB Opinion No. 25),
which requires compensation costs to be recognized on the difference, if any,
between the quoted market price of the stock as at the grant date and the
amount the individual must pay to acquire the stock. Variable stock option
plans require subsequent increases in the fair value of the underlying stock
to be recorded as additional compensation costs. The options issued by the
Company in 1997 have a cashless exercise option, as described in note 11, and
accordingly, they are accounted for as variable stock option plans. On April
22, 1998, certain option holders irrevocably waived the cashless exercise
option; therefore, subsequent changes in the fair value of the underlying
stock are no longer recorded as an increase or decrease of compensation costs,
until these options are exercised.
If the fair value-based accounting method under SFAS No. 123 had been used
to account for stock-based compensation costs relating to options and warrants
issued to employees, the net income figures and related earnings per share
figures under U.S. GAAP would be as follows for the years ended December 31,
1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
$ $ $
---------- ---------- ----------
<S> <C> <C> <C>
Net loss for the year in accordance
with U.S. GAAP........................ (1,629,811) (5,685,587) (4,575,788)
Basic and fully diluted net loss per
common share in accordance with U.S.
GAAP.................................. (0.17) (0.76) (0.62)
</TABLE>
Change in reporting currency
As mentioned in note 2, in 1998 the Company adopted the U.S. dollar as its
reporting currency. Under U.S. GAAP, the financial statements, including prior
years, are translated according to the current rate method. Under Canadian
GAAP, at the time of change in reporting currency, the historical financial
statements are presented using a translation of convenience.
Under Canadian GAAP, the statement of operations for the years ended
December 31, 1998 and 1997 were translated into U.S. dollars using an exchange
rate of US$1.00 = Cdn$1.5333. Under U.S. GAAP, revenues and expenses would be
translated at exchange rates prevailing at the respective transaction dates.
Average exchange rates for the years ended December 31, 1998 and 1997 were
US$1.00 = Cdn$1.4835 and Cdn$1.3844, respectively.
F-20
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
Net earnings (loss) per share
Under U.S. GAAP, fully diluted net earnings (loss) per share is calculated
based on the weighted average number of shares outstanding during the year,
plus the effects of dilutive common share equivalents, such as options and
warrants outstanding during the year. This method requires that fully diluted
net earnings (loss) per share be calculated, using the treasury stock method,
as if all common share equivalents had been exercised at the beginning of the
reporting period, or period of issue, as the case may be, and that the funds
obtained thereby were used to purchase common shares of the Company at the
average trading price of the common shares during the period.
Reconciliation of net earnings (loss) to conform with U.S. GAAP
The following summary sets out the material adjustments to the Company's
reported net earnings (loss) and net earnings (loss) per common share which
would be made to conform with U.S. GAAP.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ----------
$ $ $
---------- ----------- ----------
<S> <C> <C> <C>
Net earnings (loss) for the year in
accordance with Canadian GAAP........ 3,651,768 (3,910,764) (1,381,137)
Stock-based compensation costs........ (9,227,197) (12,371,637) (5,273,053)
Change in reporting currency.......... -- (120,255) (151,603)
---------- ----------- ----------
Net loss for the year in accordance
with U.S. GAAP....................... (5,575,429) (16,402,656) (6,805,793)
Other comprehensive income (loss)
Foreign currency translation
adjustments.......................... 652,062 (690,003) (530,984)
---------- ----------- ----------
Comprehensive loss.................... (4,923,367) (17,092,659) (7,336,777)
========== =========== ==========
Basic and fully diluted net loss per
common share in accordance with U.S.
GAAP................................. (0.57) (2.20) (0.92)
========== =========== ==========
</TABLE>
Balance sheet
Loans receivable
Under U.S. GAAP, loans provided in exchange for shares issued are required
to be reflected as an offset to shareholders' equity.
Share issue costs
Under U.S. GAAP, SFAS No. 123, transactions in which an entity acquires
goods and services from non-employees in exchange for equity instruments are
required to be recorded at fair value. On May 31, 1996, 45,000 warrants were
granted to an outside consultant and on October 24, 1996, 240,600 warrants
were granted to a non-related party. The fair values of these warrants were
$205,472 and $628,447 respectively, which have been charged to deficit as
share issue costs.
F-21
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
As a result of the above adjustments to net earnings (loss), loans receivable
and share issue costs, differences with respect to the balance sheet under U.S.
GAAP are as follows:
Share capital
<TABLE>
<CAPTION>
1999 1998
---------- ----------
$ $
---------- ----------
<S> <C> <C>
Share capital in accordance with Canadian GAAP..... 44,657,833 16,850,531
Stock-based compensation costs on options exercised
during the year................................... 15,111,792 --
Change in reporting currency
Current year...................................... -- 15,048
Cumulative effect of prior years.................. 2,587,999 2,572,951
Loan receivable.................................... (14,953) (17,674)
---------- ----------
Share capital in accordance with U.S. GAAP......... 62,342,671 19,420,856
========== ==========
</TABLE>
Other capital
<TABLE>
<CAPTION>
1999 1998
----------- ----------
$ $
----------- ----------
<S> <C> <C>
Other capital in accordance with Canadian GAAP.... 20,559 23,240
Stock-based compensation costs
Current year..................................... 9,227,197 12,371,637
Cumulative effect of prior years................. 17,807,290 5,435,653
Stock-based compensation costs on options
exercised during the year....................... (15,111,792) --
Change in reporting currency
Current year..................................... -- (425)
Cumulative effect of prior years................. 968,350 968,775
----------- ----------
Other capital in accordance with U.S. GAAP........ 12,911,604 18,798,880
=========== ==========
</TABLE>
Deficit
<TABLE>
<CAPTION>
1999 1998
----------- -----------
$ $
----------- -----------
<S> <C> <C>
Deficit in accordance with Canadian GAAP........... (5,625,622) (9,277,390)
Share issue costs.................................. (833,919) (833,919)
Stock-based compensation costs
Current year...................................... (9,227,197) (12,371,637)
Cumulative effect of prior years.................. (17,807,290) (5,435,653)
Change in reporting currency
Current year...................................... -- (120,255)
Cumulative effect of prior years.................. (1,188,668) (1,068,413)
----------- -----------
Deficit in accordance with U.S. GAAP............... (34,682,696) (29,107,267)
=========== ===========
</TABLE>
F-22
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)
Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss), which results solely from the
translation of the financial statements in accordance with the current rate
method, is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
$ $
---------- ----------
<S> <C> <C>
Opening balance..................................... (1,533,762) (843,759)
Change during the year.............................. 652,062 (690,003)
---------- ----------
Closing balance..................................... (881,700) (1,533,762)
========== ==========
</TABLE>
Shareholders' equity
<TABLE>
<CAPTION>
1999 1998
---------- ---------
$ $
---------- ---------
<S> <C> <C>
Shareholders' equity in accordance with Canadian
GAAP.............................................. 39,704,832 7,596,381
Loan receivable.................................... (14,953) (17,674)
---------- ---------
Shareholders' equity in accordance with U.S. GAAP.. 39,689,879 7,578,707
========== =========
</TABLE>
Statement of cash flows
Under Canadian GAAP, the statement of cash flows for the years ended
December 31, 1998 and 1997 was translated into U.S. dollars using an exchange
rate of US$1.00 = Cdn$1.5333. Under U.S. GAAP, the historical exchange rates
on the dates of the cash flow activities would be used. Following is a summary
cash flow statement for each of 1998 and 1997 under U.S. GAAP.
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Operating activities.............................. (5,130,768) (2,651,258)
Financing activities.............................. 325,219 --
Investing activities.............................. 5,054,858 (11,454,805)
---------- -----------
Increase (decrease) in cash and cash equivalents
during the year.................................. 249,309 (14,106,063)
Cash and cash equivalents--Beginning of year...... 289,181 14,395,244
---------- -----------
Cash and cash equivalents--End of year............ 538,490 289,181
========== ===========
</TABLE>
17Subsequent events
In January 2000, the Company issued 7,692 common shares pursuant to the
exercise of warrants at an exercise price of $6.50, for total gross cash
proceeds of $49,998. In addition, the Company issued 16,000 common shares
pursuant to the exercise of options at a weighted average exercise price of
$5.40 per share for gross cash proceeds of $86,438.
Also in January 2000, the Company filed a registration statement with the
Securities and Exchange Commission in order to register common shares
underlying 253,420 outstanding warrants with a weighted average exercise price
of $6.59 per share.
F-23
<PAGE>
INSIDE BACK COVER
[The background is blue. The graphs that appear, clockwise from the top
left corner, are: bar graph showing Total U-Scan Systems Installed at
year-end for 1997, 1998 and 1999; Revenue (in millions) for 1997, 1998
and 1999; Total U-Scan/(R)/ Checkout Stations at year-end for 1997, 1998
and 1999; and U-Scan/(R)/ Shopper Transactions (in millions) for 1998
and 1999. In the center of the page and these four graphs is a schematic
picture of the United States indicating, in dark blue, states in which
we have installed U-Scan Express, with the remaining states in white.]
<PAGE>
BACK COVER
[Logo] [The back cover will have a blue background getting darker from
the top of the cover to the bottom.]
[A picture of the U-Scan Express will appear, with the following phrases
each with a line pointing to the relevant component in the system
(clockwise, from the lower left corner): Security Weighing Platform, POS
Receipt Printer, Bill & Coin Dispenser, a Pinpad, Bill & Coin
Acceptor, Video Surveillance Monitor, Touchscreen Monitor,
Scanner/Scale]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses payable by the registrant in connection with the
issuance and distribution of the securities being registered are as follows:
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 22,770
Nasdaq National Market Listing Fee................................. $ 8,780
NASD Registration Fee.............................................. $ 17,500
Accounting Fees and Expenses....................................... $250,000
Printing and Engraving Expenses.................................... $175,000
Legal Fees and Expenses............................................ $350,000
Miscellaneous Expenses............................................. $100,950
--------
Total............................................................ $925,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers
The Company's By-laws provide the following:
Subject to the provisions of the Canada Business Corporations Act (the
"CBCA"), every director and officer of the Company (including those who have
acted at the Company's request as an officer or director of a body corporate
of which the Company is or was a shareholder or creditor) and his heirs and
legal representatives shall from time to time be indemnified and saved
harmless by the Company from and against all costs, charges and expenses
reasonably incurred by him in respect of any civil, criminal or administrative
action or proceeding to which he is made a party by reason of being or having
been a director or officer of the Company or such body corporate (including
without limitation all losses, liabilities, costs, charges and expenses
incurred by him in respect of any act or proceeding for the recovery of claims
of employees or former employees of the Company or such body corporate or in
respect of any claim based upon the failure of the Company to deduct,
withhold, remit or pay any amount for taxes, assessments and other charges of
any nature whatsoever as required by law), if
(a) he acted honestly and in good faith with a view to the best interests
of the Company; and
(b) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, he had reasonable grounds for
believing that his conduct was lawful.
The By-laws also contain a provision eliminating the liability of directors
or officers for losses, damages or other misfortunes of the Company arising
out of the execution of the duties of his office or in relation thereto,
unless occasioned by his own wilful neglect or default (subject to compliance
with the mandatory obligations and duties imposed by the CBCA and the
regulations thereunder and the liability imposed for any breach thereof).
The Company shall also indemnify such person in such other circumstances as
the CBCA may require.
II-1
<PAGE>
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Articles
3.2 By-laws
4 Specimen certificate of the common shares
5 Opinion of Goodman Phillips & Vineberg*
23.1 Consent of Goodman Phillips & Vineberg (included in Exhibit 5)*
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of CT Corporation
Power of attorney (included on the signature page of the registration
24.1 statement)
</TABLE>
- --------
* To be filed by amendment
Item 17. Undertakings
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that (i) for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; (ii) for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rules 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and (iii) for
the purposes of determining any liability under the Securities Act of 1933,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form F-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Montreal, Province of Quebec, on the 24th day of
February, 2000.
Optimal Robotics Corp.
(Registrant)
/s/ Neil S. Wechsler
By: _________________________________
Neil S. Wechsler
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the persons who appear below
appoint and constitute Neil S. Wechsler and Holden L. Ostrin, and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign (a) any and all amendments (including post-
effective amendments) to this Registration Statement and (b) any and all
Registration Statements filed pursuant to Rule 462 under the Securities Act of
1933, as amended, and in each case to file the same, together with all
exhibits thereto, with the Securities and Exchange Commission and such other
agencies, offices and persons as may be required by applicable law, granting
unto each said attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that each said attorney-in-
fact and agents or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Neil S. Wechsler Director (Principal February 24, 2000
____________________________________ Executive Officer)
Neil S. Wechsler
/s/ Holden L. Ostrin Director February 24, 2000
____________________________________
Holden L. Ostrin
/s/ Henry M. Karp Director February 24, 2000
____________________________________
Henry M. Karp
/s/ Leon P. Garfinkle Director February 24, 2000
____________________________________
Leon P. Garfinkle
/s/ James S. Gertler Director (Authorized February 24, 2000
____________________________________ Representative in the
James S. Gertler United States)
/s/ Gary S. Wechsler Principal Financial and February 24, 2000
____________________________________ Accounting Officer
Gary S. Wechsler
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<C> <S>
1 Form of Underwriting Agreement
3.1 Certificate and Articles of Continuance (incorporated by reference to
Exhibit 3.1 to the Company's registration statement on Form F-1, file
333-4950, filed with the Commission on October 24, 1996)
3.2 By-laws (incorporated by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K, File No. 0-28572, filed with the
Commission on March 8, 1999)
4 Specimen certificate of the common shares (incorporated by reference
to Exhibit 1.1 to the Company's Registration Statement on Form 8, File
No. 0-28572, filed with the Commission on July 17, 1996)
5 Opinion of Goodman Phillips & Vineberg*
23.1 Consent of Goodman Phillips & Vineberg (included in Exhibit 5)*
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of CT Corporation
24.1 Power of attorney (included on the signature page of the registration
statement)
</TABLE>
- --------
* To be filed by amendment
<PAGE>
OPTIMAL ROBOTICS CORP.
COMMON STOCK
UNDERWRITING AGREEMENT
-----------------------
__________________, 2000
GERARD KLAUER MATTISON & CO., INC.
THE ROBINSON-HUMPHREY COMPANY, LLC
RAYMOND JAMES & ASSOCIATES, INC.
As representatives of the several
Underwriters named in Schedule I hereto,
c/o Gerard Klauer Mattison & Co., Inc.
529 Fifth Avenue
New York, New York 10017
Dear Sirs:
Optimal Robotics Corp., a Canadian corporation (the "Company") proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I (the "Underwriters") 1,325,000 Class "A"
shares, without par value ("Common Shares"), of the Company and certain
shareholders of the Company named in Schedule II hereto (the "Selling
Shareholders") propose, subject to the terms and conditions stated herein, to
sell to the Underwriters an aggregate of 675,000 additional Common Shares in the
respective amounts set forth opposite their names in Schedule II hereto (said
aggregate of 2,000,000 shares are herein called the "Firm Shares"). In
addition, the Company proposes to grant to the Underwriters an option to
purchase up to 300,000 additional common shares (the "Optional Shares"), as
provided in Section 2 hereof. The Firm Shares and the Optional Shares that the
Underwriters elect to purchase pursuant to Section 2 hereof are collectively
called the "Shares."
1. (a) Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(i) A registration statement on Form F-3 (File No. 333-
_________) with respect to the Shares, including a prospectus subject
to completion, has been filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of
1933, as amended (the "Act"), and one or more amendments to such
registration statement may have been so filed. After the execution of
this Agreement, the Company will file with the Commission one or more
of the following: (A) if such registration statement, as it may have
been amended, has become effective under the Act and information has
been omitted therefrom in accordance with Rule 430A under the Act, a
prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed,
in such registration statement) with such changes or insertions as are
required by Rule 430A or permitted by Rule 424(b) under the Act and as
have been provided to and approved you, in your capacity as
representatives of the Underwriters (the "Representatives"), or (B) if
such registration statement, as it may have been amended, has not
become effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment
has been provided to and approved by the Representatives prior to the
<PAGE>
execution of this Agreement or (C) if such initial Registration
Statement, as it may have been amended, has become effective under the
Act and the number of Shares to be offered has subsequently been
increased, a registration statement (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Act and as has
been provided to and approved by the Representatives. As used in this
Agreement, the term "Registration Statement" means such registration
statement, as amended at the time when it was or is declared effective,
including all financial statement schedules and exhibits thereto
together with any Rule 462(b) Registration Statement, and including any
information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term
"Preliminary Prospectus" means each prospectus subject to completion
included in such registration statement or any amendment or post-
effective amendment thereto (including the prospectus subject to
completion, if any, included in the Registration Statement at the time
it was or is declared effective); and the term "Prospectus" means the
prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act or, if no prospectus is required to be so filed, such
term means the prospectus included in the Registration Statement. Any
reference herein to the Registration Statement, any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include
the documents incorporated therein by reference pursuant to Form F-3
under the Act, as from time to time amended or supplemented pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the Act or otherwise. For purposes of the following representations and
warranties, to the extent reference is made to the Prospectus and at
the relevant time the Prospectus is not yet in existence, such
reference shall be deemed to be to the most recent Preliminary
Prospectus.
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued and no proceeding for that
purpose has been instituted or threatened by the Commission or the
securities authority of any state or other jurisdiction. If the
Registration Statement has become effective under the Act, no stop
order suspending the effectiveness of the Registration Statement or any
part thereof has been issued and no proceeding for that purpose has
been instituted or threatened or, to the best knowledge of the Company,
contemplated by the Commission or the securities authority of any state
or other jurisdiction.
(iii) When any Preliminary Prospectus was filed with the
Commission it (A) contained all statements required to be stated
therein in accordance with, and complied in all material respects with
the requirements of, the Act and the rules and regulations of the
Commission thereunder and (B) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. When the Registration Statement
or any amendment thereto was or is declared effective, and at each Time
of Delivery (as hereinafter defined), it (A) contained or will contain
all statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements
of, the Act and the rules and regulations of the Commission thereunder
and (B) did not or will not include any untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein not misleading. When the Prospectus or any amendment
or supplement thereto is filed with the Commission pursuant to Rule
424(b) (or, if the Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement or the
amendment thereto containing such amendment or supplement to the
Prospectus was or is declared effective) and at each Time of Delivery,
2
<PAGE>
the Prospectus, as amended or supplemented at any such time, (A)
contained or will contain all statements required to be stated therein
in accordance with, and complied or will comply in all material
respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (B) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
The foregoing provisions of this paragraph (iii) do not apply to
statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or
any amendment or supplement thereto in reliance upon and in conformity
with written information furnished to the Company by any Underwriter
through you specifically for use therein. The Company and the
Underwriters hereby acknowledge that the following constitutes the only
information furnished in writing to the Company by the Underwriters
specifically for use in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any such amendment or supplement: (i)
the statements in the last paragraph on the cover page of the
Prospectus; and (ii) the statements under the caption "Underwriting" in
the Prospectus. The documents incorporated or deemed to be incorporated
by reference in the Prospectus, at the time they were or hereafter are
filed with the Commission, conformed or will conform in all material
respects to the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder, and none of such documents
contained or will contain an untrue statement of a material fact or
omitted or will omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
(iv) The descriptions in the Registration Statement and the
Prospectus of statutes, legal and governmental proceedings or contracts
and other documents are accurate and fairly present , in all material
respects, the information required to be shown under the Act and the
rules and regulations of the Commission; and there are no statutes or
legal or governmental proceedings required under the Act and the rules
and regulations of the Commission to be described in the Registration
Statement or the Prospectus that are not described as required and no
contracts or documents of a character that are required under the Act
and the rules and regulations of the Commission to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described and filed as
required.
(v) The Company was duly incorporated pursuant to the
Business Corporations Act (Ontario) and was continued and is validly
existing as a corporation in good standing under the Canada Business
Corporation Act and has full power and authority (corporate and other)
to own or lease its properties and conduct its business as described in
the Prospectus. The Company has full power and authority (corporate and
other) to enter into this Agreement and to perform its obligations
hereunder. The Company is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of each
other jurisdiction in which it owns or leases properties, or conducts
any business, so as to require such qualification, except where the
failure to so qualify would not have a material adverse effect on the
financial position, results of operations or business of the Company.
(vi) The Company's authorized, issued and outstanding
capital stock is as disclosed in the Prospectus. All of the issued
shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and conform to the
description of the Common Shares contained in the Prospectus. None of
3
<PAGE>
the issued shares of capital stock of the Company has been issued or is
owned or held in violation of any preemptive rights of shareholders,
and no person or entity (including any holder of outstanding shares of
capital stock of the Company) has any preemptive or other rights to
subscribe for any of the Shares. The description of the Company's
option, and other stock incentive plans or arrangements, and the
options or other rights granted or to be granted thereunder, set forth
in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options
and rights.
(vii) Except as disclosed in the Prospectus, the Company
does not own, directly or indirectly, any capital stock or other equity
securities of any other corporation or any partnership interest in any
partnership, joint venture or other association.
(viii) Except as disclosed in the Prospectus, there are no
outstanding (A) securities or obligations of the Company convertible
into or exchangeable for any capital stock of the Company, (B)
warrants, rights or options to subscribe for or purchase from the
Company any such capital stock or any such convertible or exchangeable
securities or obligations, or (C) obligations of the Company to issue
any shares of capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or options.
(ix) Since the date of the most recent audited financial
statements included in the Prospectus, the Company has not sustained
any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as disclosed in or contemplated by the
Prospectus.
(x) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and other than
as disclosed in or contemplated by the Registration Statement and the
Prospectus, (A) the Company has not incurred any liabilities or
obligations, direct or contingent, or entered into any transactions,
not in the ordinary course of business, that are material to the
Company, (B) the Company has not purchased any of its outstanding
capital stock or declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock, (C) there has not been
any material change in the capital stock, long-term debt or short-term
debt of the Company, (D) there has not been any material adverse
change, or any development involving a prospective material adverse
change, in or affecting the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or
prospects of the Company, in each case other than as disclosed in or
contemplated by the Prospectus and (E) there has not been any material
transaction entered into or any material transaction that is probable
of being entered into by the Company, other than transactions in the
ordinary course of business.
(xi) The Shares to be sold by the Company hereunder have
been duly authorized and, when issued and delivered against payment
therefor as provided herein, will be validly issued and fully paid and
nonassessable and will conform to the description of the Common Shares
contained in the Prospectus; the Shares to be sold by the Selling
Shareholders hereunder have been duly authorized and validly issued and
are fully paid and nonassessable; and the certificates evidencing the
Shares will comply with all applicable requirements of Canadian law.
The Underwriters will receive good title to
4
<PAGE>
the Shares to be issued and delivered hereunder, in good delivery form
and free and clear of all pledges, liens, hypothecations, encumbrances,
claims, security interests, restrictions, agreements, voting trusts and
adverse interests whatsoever. The Firm Shares to be sold by the Company
and the Optional Shares have been approved for inclusion on the Nasdaq
National Market, subject only to official notice of issuance. The Firm
Shares to be sold by the Selling Shareholders are included on the
Nasdaq National Market.
(xii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to the Registration Statement (or any such right has been
effectively waived) or any securities being registered pursuant to any
other registration statement filed by the Company under the Act.
(xiii) All offers and sales by the Company of the Company's
capital stock prior to the date hereof were at all relevant times duly
registered under the Act or exempt from the registration requirements
of the Act and were duly registered or the subject of an available
exemption from the registration requirements of the applicable state
securities or blue sky laws.
(xiv) The Company is not, nor with the giving of notice or
passage of time or both would be, in violation of its Articles of
Incorporation or Bylaws or in default in any material respect under any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company is a party or to which any
of its properties or assets are subject.
(xv) The issuance of the Firm Shares being sold by the
Company and the Optional Shares and the sale of the Shares and the
performance of this Agreement and the consummation of the transactions
herein contemplated will not conflict with, or (with or without the
giving of notice or the passage of time or both) result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement, lease or
other material agreement or instrument to which the Company is a party
or to which any of its properties or assets is subject, nor will such
action conflict with or violate any provision of the Articles of
Incorporation or Bylaws of the Company or any statute, rule or
regulation or any order, judgment or decree of any court or
governmental agency or body having jurisdiction over the Company or any
of its properties or assets.
(xvi) The Company owns no real property; has good title to
all personal property owned by it, free and clear of all liens,
security interests, pledges, charges, encumbrances, mortgages and
defects, except such as are disclosed in the Prospectus or such as do
not materially and adversely affect the value of such property and do
not interfere with the use made or proposed to be made of such property
by the Company; and any real property and buildings held under lease by
the Company are held under valid, subsisting and enforceable leases,
with such exceptions as are disclosed in the Prospectus or are not
material and do not interfere with the use made or proposed to be made
of such property and buildings by the Company.
5
<PAGE>
(xvii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing with,
any court or governmental agency or body is required for the sale of
the Shares or the consummation of the transactions contemplated by this
Agreement, except the registration of the Shares under the Act (which,
if the Registration Statement is not effective as of the time of
execution hereof, shall be obtained as provided in this Agreement) and
such as may be required from the National Association of Securities
Dealers, Inc. (the "NASD") and under state or provincial securities
laws in connection with the offer, sale and distribution of the Shares
by the Underwriters.
(xviii) Other than as disclosed in the Prospectus, there is
no litigation, arbitration, claim, proceeding (formal or informal) or
investigation pending or, to the best of the Company's knowledge,
threatened (or any basis therefor) in which the Company is a party or
of which any of its properties or assets are the subject which, if
determined adversely to the Company, would individually or in the
aggregate have a material adverse effect on the financial position,
results of operations or business of the Company. The Company is not in
violation of, or in default with respect to, any statute, rule,
regulation, order, judgment or decree, except such as do not and will
not individually or in the aggregate have a material adverse effect on
the financial position, results of operations or business of the
Company, and the Company is not required to take any action in order to
avoid any such violation or default.
(xix) The Company is conducting its business in compliance
with all the laws, rules and regulations of the jurisdictions in which
it is conducting business, except where the failure to so comply would
not have, individually or in the aggregate, a material adverse effect
on the business or financial condition of the Company. Without limiting
the foregoing, the Company holds and is operating in compliance with
all licenses, authorizations, consents, approvals, certificates and
permits (individually, a "Permit") from any regulatory body or
administrative agency or other governmental body having jurisdiction
that are applicable to the operations of the Company as now conducted
or proposed to be conducted as described in the Prospectus, all of
which Permits are current, except where the failure to so hold or
comply with any Permit would not have, individually or in the
aggregate, a material adverse effect on the business or financial
condition of the Company. The Company is not aware of, nor has it
received any notice of, any pending or threatened proceedings, or any
circumstances which could lead it to believe that any such proceedings
are imminent, relating to the revocation or modification of any such
Permit or Approval which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the
business or financial condition of the Company.
(xx) To the best of the Company's knowledge,
PricewaterhouseCoopers, who have audited certain financial statements
of the Company, are, and were during the periods covered by their
reports included in the Prospectus, independent public accountants as
required by the Act and the rules and regulations of the Commission
thereunder.
(xxi) The financial statements and schedules (including the
related notes) of the Company included or incorporated by reference in
the Registration Statement or the Prospectus were prepared in
accordance with generally accepted accounting principles in Canada
consistently applied throughout the periods involved and present
fairly, in all material respects, the financial condition, results of
operations, cash
6
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flows and changes in shareholders' equity of the Company, at the dates
and for the periods presented. All adjustments necessary for a fair
presentation of results for such periods have been made. No other
financial statements are required to be included or incorporated by
reference in the Registration Statement. No supporting schedules are
required to be included in the Registration Statement other than those
so included. The selected financial data, the tables and financial and
statistical data set forth in the Prospectus fairly present, on the
basis stated in the Prospectus, the information included therein on a
basis consistent with that of the audited financial statements
contained in the Registration Statement and the books and records of
the Company. The financial statements and schedules included or
incorporated by reference in the Registration Statement and the
Prospectus conform to the requirements of Regulation S-X of the
Commission applicable thereto and present fairly, in all material
respects, the information presented therein for the periods shown. The
Company has no material contingent obligations that are required to be
disclosed in the Company's financial statements in accordance with
generally accepted accounting principles in Canada which have not been
so disclosed in the financial statements included or incorporated by
reference in the Registration Statement.
(xxii) This Agreement has been duly authorized, executed
and delivered by the Company and each of the Selling Shareholders and
constitutes the valid and binding agreement of each of them enforceable
against each of them in accordance with its terms, subject, as to
enforcement, to applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws relating to or affecting the enforcement
of creditors' rights generally and to general equitable principles.
(xxiii) Neither the Company nor any of its officers,
directors or affiliates has (A) taken, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of the Shares or (B) since the filing of the Registration
Statement (1) sold, bid for, purchased or paid anyone any compensation
for soliciting purchases of, the Shares or (2) paid or agreed to pay to
any person any compensation for soliciting another to purchase any
other securities of the Company. The Company and, to the best of the
Company's knowledge, its officers, directors and employees have
complied with Section 5 of the Act and no one has been authorized by
the Company or any person purporting to act in the name or on behalf of
the Company to give any information or to make any representations or
warranties with respect to any matters described in the Prospectus
other than those contained in the Prospectus.
(xxiv) The Company has obtained for the benefit of the
Company and the Underwriters from each of the Company's directors and
officers (as identified in the Prospectus) a written agreement that (i)
for a period of 90 days from the date of the Prospectus with respect to
all of the Company's officers and directors other than the Selling
----------
Shareholders, and (ii) until February 24, 2001 with respect to the
Selling Shareholders, such director or officer will not, without the
prior written consent of Gerard Klauer Mattison & Co., Inc., which
consent shall not be unreasonably withheld, directly or indirectly (A)
sell, pledge, offer to sell, solicit an offer to buy, contract to sell,
grant any option, right or warrant to purchase, sell any option or
contract to purchase, or otherwise transfer or dispose of, directly or
indirectly, any Common Shares, or any securities convertible into or
exercisable or exchangeable for Common Shares (including, without
limitation, Common Shares or securities convertible into or exercisable
or
7
<PAGE>
exchangeable for Common Shares which may be deemed to be beneficially
owned by the undersigned in accordance with the rules and regulations
of the Securities and Exchange Commission), (B) enter into any swap or
other arrangement that transfers all or a portion of the economic
consequences associated with the ownership of the Common Shares
(regardless of whether any of the transactions described in clause (A)
or (B) is to be settled by the delivery of Common Shares, or such other
securities, in cash or otherwise), or (C) make any demand for or
exercise any right with respect to the registration of any Common
Shares or any securities convertible into or exercisable or
exchangeable for Common Shares; provided, however, that such consent
shall not be required for dispositions pursuant to Section 2 hereof or
for Common Shares disposed of as bona fide gifts so long as each donee
agrees in writing to be bound by the terms of such agreement.
(xxv) Neither the Company nor any director, officer, agent,
employee or other person associated with or acting on behalf of the
Company has, directly or indirectly, used any funds of the Company for
unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity; made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or
made any bribe, unlawful rebate, payoff, influence payment, kickback or
other unlawful payment.
(xxvi) (a) The operations of the Company with respect to
any real property currently leased or owned or by any means controlled
by the Company (the "Real Property") are in material compliance with
all federal, state, and local laws, ordinances, rules, and regulations
relating to occupational health and safety and the environment
(collectively, "Laws"), except where the failure to so comply would not
have a material adverse effect on the Company's business or results of
operations, (b) the Company has all licenses, permits and
authorizations necessary to operate under all Laws and are in
compliance with all terms and conditions of such licenses, permits and
authorizations, except where such failure would not have a material
adverse effect on the Company's business or results of operations; (c)
the Company has not authorized or conducted, nor has it knowledge of,
the generation, transportation, storage, use, treatment, disposal or
release of any hazardous substance, hazardous waste, hazardous
material, hazardous constituent, toxic substance, pollutant,
contaminant, petroleum product, natural gas, liquefied gas or synthetic
gas defined or regulated under any environmental law on, in or under
any Real Property in violation of any laws except where such violation
would not have a material adverse effect on the Company's business or
results of operations; and (d) there is no pending or, to the best of
the Company's knowledge, threatened claim, litigation or any
administrative agency proceeding, nor has the Company received any
written or oral notice from any governmental entity or third party,
that: (A) alleges a violation of any Laws by the Company; (B) alleges
the Company is a liable party under the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq.
-------
or any state superfund law; (C) alleges possible contamination of the
environment by the Company; or (D) alleges possible contamination of
the Real Property, except as to each of the above for any violation,
liability or contamination that would not have a material adverse
effect on the Company's business or results of operations.
(b) The Company owns or possesses, or is licensed or
otherwise has the legal right to utilize, the patents, patent rights,
licenses, inventions, copyrights, know-how, trademarks (including,
without limitation, the right to use the marks "U-SCAN" and
8
<PAGE>
"U-SCAN EXPRESS") service marks, trade names and other intangible
property (collectively, the "Intellectual Property Rights") presently
employed by it in connection with the business now operated by it
except where the failure to so own or possess such legal rights could
not reasonably be expected to have a material adverse effect on the
business of the Company, and the Company has not received any notice
other than as disclosed in the Prospectus, nor is it otherwise aware of
any infringement of or conflict with asserted rights of others with
respect to any intellectual property rights or other proprietary rights
which, singularly or in the aggregate, if the subject of an unfavorable
final determination, could reasonably be expected to have a material
adverse effect on the business of the Company.
(xxvii) The Company has delivered or made available to you,
or your counsel, prior to the date the Registration Statement was
declared effective copies of all pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus or other incentive plans, all other
written employee programs, arrangements or agreements, all medical,
vision, dental or other health plans, all life insurance plans and all
other employee benefit plans or fringe benefit plans, including,
without limitation, "employee benefit plans" as that term is defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), adopted, maintained, sponsored in whole or in part
or contributed to by the Company, or its predecessors for the benefit
of employees, retirees, dependents, spouses, directors, independent
contractors or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors or other
beneficiaries are eligible to participate (collectively, the "Company
Benefit Plans").
The Company (and each of its predecessors that adopted or
contributed to a Company Benefit Plan) has maintained all Company
Benefit Plans (including filing all reports and returns required to be
filed with respect thereto) in accordance with their terms and is in
compliance in all material respects with all presently applicable
provisions of ERISA, the Internal Revenue Code and any other applicable
federal and state laws. Each Company Benefit Plan which is intended to
be qualified under Section 401(a) of the Internal Revenue Code has
either received a favorable determination letter from the Internal
Revenue Service or will timely request such a letter prior to the
expiration of any remedial amendment period applicable without penalty
to the Company Benefit Plan under the Internal Revenue Code and has at
all times been maintained in accordance with Section 401 of the
Internal Revenue Code. The Company has not engaged in a transaction
with respect to any Company Benefit Plan that, assuming the taxable
period of such transaction expired as of the date hereof, would subject
the Company to a tax or penalty imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA.
The Company is not obligated to provide post-retirement
medical benefits or any other unfunded post-retirement welfare
benefits. Neither the Company nor any member of a group of trades or
businesses under common control (as defined in ERISA Sections
4001(a)(14) and 4001(b)(1)) with the Company, have at any time within
the last six years sponsored, contributed to or been obligated under
Title I or IV of ERISA to contribute to a "defined benefit plan" (as
defined in ERISA Section 3(35)). Within the last six years, neither the
Company nor any member of a group of trades or businesses under common
control (as defined in ERISA Sections 4001(a)(14) and 4001(b)(1)) with
the Company, have had an "obligation to contribute" (as defined in
9
<PAGE>
ERISA Section 4212) to a "multiemployer plan" (as defined in ERISA
Sections 4001(a)(3) and 3(37)(A)).
(xxviii) No labor dispute exists or, to the knowledge of
the Company, is imminent with the Company's employees which could
reasonably be expected to materially adversely affect the financial
condition, results of operations or business or the Company.
(xxix) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which it is
engaged; and the Company has no knowledge of any facts or circumstances
that would prevent the renewal of its existing insurance coverage as
and when such coverage expires or the obtaining of similar coverage
from similar insurers as may be necessary to continue its business at a
comparable cost.
(xxx) The Company makes and keeps accurate books and
records reflecting its assets and maintains internal accounting
controls which provide reasonable assurance that (A) transactions are
executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of the
Company's financial statements in accordance with generally accepted
accounting principles in Canada and to maintain accountability for the
assets of the Company, (C) access to the assets of the Company is
permitted only in accordance with management's authorization, (D) the
recorded accountability for assets of the Company is compared with
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences, and (E) such controls would prevent or
detect errors or irregularities in amounts that would be material in
relation to the Company's financial statements.
(xxxi) The Company's business systems, including its
computer hardware and software, (i) correctly processes date
information at all times, including the year 2000; and (ii) did not
suffer any abends, aborts, improper operation, invalid or incorrect
results or other interruptions in operation as a result of the approach
or reaching of any particular date or the improper process of any date.
"Processing" of date information includes, but is not limited to,
accepting input of dates without error, outputting all dates in an
error-free form, and performing calculations, comparisons or operations
or taking actions or making decisions using dates, portions of dates,
or time periods. The concept of Year 2000 Compliance includes all
issues relating to the handling of dates or time periods. The Company
is in compliance with the "Statement of the Commission Regarding
Disclosure of Year 2000 Issues and Consequences by Public Companies,
Investment Advisers, Investment Companies and Municipal Securities
Issuers" (Release No. 33-7558, July 29, 1998) and Release No. 33-7609,
------------------- -------------------
November 9, 1998, related to Year 2000 compliance.
(xxxii) The Company has filed all Canadian, United States,
provincial, state and local tax returns that are required to be filed
by it and has paid (if due) all taxes shown as due on such returns as
well as all other material taxes, assessments and governmental charges
that are due and payable, and, to the knowledge of the Company, no
material deficiency with respect to any such return has been assessed
or proposed. All applicable income and employment taxes have been
withheld and paid (if due) for any individuals who would be considered
common law employees of the Company for federal income and employment
tax withholding purposes. The Company has prepared or filed all tax
information reports, currency transaction reports and secured all IRS
W-9
10
<PAGE>
forms or begun back-up withholding as may be required by law, except
where the failure to so file is not reasonably likely to have a
material adverse effect. There is no tax deficiency that has been
asserted against the Company that is reasonably likely to have a
material adverse effect on the Company.
(xxxiii) There are no related-party transactions involving
the Company or any other person, which transactions are required to be
described in the Prospectus and which have not been described as
required.
(xxxiv) The Common Shares are registered pursuant to
Section 12(g) of the Exchange Act and are qualified as a Nasdaq
National Market security of The Nasdaq Stock Market, Inc. The Company
has taken no action designed to terminate, or likely to have the effect
of terminating, the registration of the Common Shares under the
Exchange Act or qualification of the Common shares on the Nasdaq
National Market, nor has the Company received any notification that the
Commission or the NASD is contemplating terminating such registration
or qualification.
(xxxv) Any certificate signed by an officer of the Company
and delivered to the Representatives or to counsel for the Underwriters
pursuant to this Agreement shall be deemed to be a representation and
warranty by the Company to each Underwriter as to the matters set forth
therein.
(xxxvi) Except as disclosed in the financial statements
included in the Prospectus, the Company does not have any liabilities,
whether accrued, absolute, contingent or otherwise due or to become due
other than liabilities incurred in the ordinary course of business
consistent with past practice since the date of such financial
statements and which could not have, individually or in the aggregate,
a material adverse effect on the Company.
(xxxvii) No statement, certificate, instrument, or other
writing furnished or to be furnished by the Company to the
Representatives pursuant to this Agreement or any other document,
agreement, or instrument referred to herein contains or will contain
any untrue statement of material fact. No document to be filed by the
Company with any regulatory authority in connection with the
transactions contemplated hereby will, at the time such document is
filed, be false or misleading with respect to any material fact, or
contain any untrue statement of a material fact. All documents that the
Company is responsible for filing with any regulatory authority in
connection with the transactions contemplated hereby will comply as to
form in all material respects with the provisions of applicable law.
(xxxviii) The Company is not, will not become as a result of
the transactions contemplated hereby, and does not intend to conduct
its business in a manner that would cause it to become, an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940 as amended.
(b) Representations and Warranties of the Selling Shareholders. Each
Selling Shareholder, severally, and not jointly, represents and warrants to, and
agrees with, each of the several Underwriters and the Company that:
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<PAGE>
(i) Such Selling Shareholder has the legal capacity to enter
into this Agreement, the Power of Attorney and the Custody Agreement
(as hereinafter defined) and to sell, assign, transfer and deliver to
the Underwriters the Shares to be sold by such Selling Shareholder
hereunder.
(ii) Such Selling Shareholder has duly executed and
delivered this Agreement, the Power of Attorney and the Custody
Agreement, and each constitutes the valid and binding agreement of
such Selling Shareholder enforceable against such Selling Shareholder
in accordance with its terms, subject, as to enforcement, to
applicable bankruptcy, insolvency, reorganization and moratorium laws
and other laws relating to or affecting the enforcement of creditors'
rights generally and to general equitable principles.
(iii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing with,
any court or governmental agency or body is required for the sale of
the Shares to be sold by such Selling Shareholder or the consummation
of the transactions contemplated by this Agreement, the Power of
Attorney or the Custody Agreement, except the registration of such
Shares under the Act (which, if the Registration Statement is not
effective as of the time of execution hereof, shall be obtained as
provided in this Agreement) and such as may be required under state or
provincial securities laws in connection with the offer, sale and
distribution of such Shares by the Underwriters.
(iv) The sale of the Shares to be sold by such Selling
Shareholder and the performance of this Agreement, the Power of
Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with,
or (with or without the giving of notice or the passage of time or
both) result in a breach of violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement, lease or other material agreement or
instrument to which such Selling Shareholder is a party or to which
any of his properties or assets is subject except for such breaches or
violations as would not have a material adverse effect on the
Company's financial condition or results of operations, nor will such
action conflict with or violate any statute, rule or regulation or any
order, judgment or decree of any court or governmental agency or body
having jurisdiction over such Selling Shareholder or any of such
Selling Shareholder's properties or assets except such conflicts or
violations as would not have a material adverse effect on the
Company's financial condition or results of operations.
(v) Such Selling Shareholder has, and immediately prior to
Time of Delivery (as defined in Section 4 hereof), such Selling
Shareholder will have, good and valid title to the Shares to be sold
by such Selling Shareholder hereunder, free and clear of all liens,
security interests, pledges, charges, encumbrances, defects,
shareholders' agreements, voting trusts, equities or claims of any
nature whatsoever; and, upon delivery of such Shares against payment
therefor as provided herein, good and valid title to such Shares, free
and clear of all liens, security interests, pledges, charges,
encumbrances, defects, shareholders' agreements, voting trusts,
equities or claims of any nature whatsoever, will pass to the several
Underwriters.
(vi) Such Selling Shareholder has not (A) taken, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any
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<PAGE>
security of the Company to facilitate the sale or resale of the Shares
or (B) since the filing of the Registration Statement (l) sold, bid
for, purchased or paid anyone any compensation for soliciting
purchases of, the Shares or (2) paid or agreed to pay to any person
any compensation for soliciting another to purchase any other
securities of the Company.
(vii) When any Preliminary Prospectus was filed with the
Commission it (A) contained all statements required to be stated
therein in accordance with, and complied in all material respects with
the requirements of, the Act and the rules and regulations of the
Commission thereunder, and (B) did not include any untrue statement of
a material fact or omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading. When the Registration
Statement or any amendment thereto was or is declared effective and at
each Time of Delivery, it (A) contained or will contain all statements
required to be stated therein in accordance with, and complied or will
comply in all material respects with the requirements of, the Act and
the rules and regulations of the Commission thereunder and (B) did not
or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
misleading. When the Prospectus or any amendment or supplement
thereto is filed with the Commission pursuant to Rule 424(b) (or, if
the Prospectus or such amendment or supplement is not required to be
so filed, when the Registration Statement or the amendment thereto
containing such amendment or supplement to the Prospectus was or is
declared effective), and at each Time of Delivery, the Prospectus, as
amended or supplemented at any such time, (A) contained or will
contain all statements required to be stated therein in accordance
with, and complied or will comply in all material respects with the
requirements of, the Act and the rules and regulations of the
Commission thereunder and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
foregoing provisions of this paragraph (vii) do not apply to
statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or
any amendment or supplement thereto in reliance upon and in conformity
with written information furnished to the Company by any Underwriter
through you specifically for use therein.
(viii) Such Selling Shareholder, without undertaking any
independent investigation, is not aware that any of the
representations and warranties set forth in Section 1(a) above is
untrue or inaccurate in any material respect.
In order to document the Underwriters' compliance with the reporting and
withholding provisions of the Internal Revenue Code of 1986, as amended, with
respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the First Time of Delivery
(as hereinafter defined) a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
Each of the Selling Shareholders represents and warrants that certificates
in negotiable form representing all of the Shares to be sold by such Selling
Shareholder hereunder will be placed in custody under a Custody Agreement, in
the form heretofore furnished to and approved by you, duly executed and
delivered by such Selling Shareholder to Goodman Phillips & Vineberg, as
custodian (the "Custodian"), and that such Selling Shareholder has duly executed
and delivered a Power of Attorney, in the form heretofore furnished to and
approved by you, appointing the persons indicated in Schedule II hereto as
13
<PAGE>
such Selling Shareholder's attorneys-in-fact (the "Attorneys-in-Fact") with
authority to execute and deliver this Agreement on behalf of such Selling
Shareholder, to determine the purchase price to be paid by the Underwriters to
the Selling Shareholders as provided in Section 2 hereof, to authorize the
delivery of the Shares to be sold by such Selling Shareholder hereunder and
otherwise to act on behalf of such Selling Shareholder in connection with the
transactions contemplated by this Agreement and the Custody Agreement.
Each of the Selling Shareholders specifically agrees that the Shares
represented by the certificates held in custody for such Selling Shareholder
under the Custody Agreement are subject to the interests of the Underwriters
hereunder, and that the arrangements made by such Selling Shareholder for such
custody, and the appointment by such Selling Shareholder of the Attorneys-in-
Fact by the Power of Attorney, are irrevocable. Each of the Selling
Shareholders specifically agrees that the obligations of such Selling
Shareholder hereunder shall not be terminated by operation of law, whether by
the death or incapacity of such Selling Shareholder or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee or the
termination of such estate or trust, or in the case of a partnership or
corporation, by the dissolution of such partnership or corporation, or by the
occurrence of any other event.
2. Purchase and Sale of Shares. Subject to the terms and conditions
herein set forth, (a) the Company agrees to issue and sell to the several
Underwriters, 1,325,000 of the Firm Shares and (b) each of the Selling
Shareholders agrees, severally and not jointly, to sell to the Underwriters, the
number of Firm Shares set forth next to the name of such Selling Shareholder on
Schedule II hereto. The Underwriters agree, severally and not jointly, to
purchase from the Company and the Selling Shareholders, respectively, the Firm
Shares. The purchase price per share to be paid by the several Underwriters to
the Company and the Selling Shareholders respectively, shall be $_____ per
share. The obligation of each Underwriter to the Company shall be to purchase
from the Company that number of full shares which (as nearly as practicable, as
determined by you) bears to 3,125,000 the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule I hereto
bears to the total number of Firm Shares. The obligation of each Underwriter to
the Selling Shareholders shall be to purchase from the Selling Shareholders that
number of full shares which (as nearly as practicable, as determined by you)
bears to 675,000 the same proportion as the number of shares set forth opposite
the name of such Underwriter in Schedule I hereto bears to the total number of
Firm Shares. The Company and the Selling Shareholders shall each pay to the
Underwriters, on account of their underwriting discount, $_____ per share
purchased from them (which amount, in the case of the Selling Shareholders,
shall be set off against the purchase price of $_____ per share payable by the
Underwriters).
The Company hereby grants to the Underwriters the right to purchase at
their election in whole or in part from time to time up an aggregate of 300,000
Optional Shares upon the terms and at the purchase price per share set forth in
the paragraph above, for the sole purpose of covering over-allotments in the
sale of Firm Shares. Any such election to purchase Optional Shares may be
exercised by written notice from you to the Company given from time to time
within a period of 30 calendar days after the date of this Agreement and setting
forth the aggregate number of Optional Shares to be purchased and the date on
which such Optional Shares are to be delivered, as determined by you but in no
event earlier than the First Time of Delivery (as hereinafter defined) or,
unless you and the Company otherwise agree in writing, earlier than two or later
than ten business days after the date of such notice.
In the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares, the Company agrees to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at the purchase price per share set forth the
paragraph above, that portion of the number of Optional Shares as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying 300,000 by a fraction, the
numerator of which is the maximum number of Optional Shares that such
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Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of the Optional Shares that all of the Underwriters are entitled to
purchase hereunder.
In the event you elect to purchase all or a portion of the Optional Shares,
the Company agrees to furnish or cause to be furnished to you the certificates,
letters and opinions, and to satisfy all conditions, set forth in Section 7
hereof at each Subsequent Time of Delivery (as hereinafter defined).
3. Offering by the Underwriters. Upon the authorization by you of the
release of the Shares, the several Underwriters propose to offer the Shares for
sale upon the terms and conditions disclosed in the Prospectus.
4. Delivery of Shares; Closing. Certificates in definitive form for the
Shares to be purchased by each Underwriter hereunder, and in such denominations
and registered in such names as Gerard Klauer Mattison & Co., Inc. may request
upon at least 48 hours' prior notice to the Company and/or the Attorneys-in-
Fact, as applicable, shall be delivered by or on behalf of the Company and/or
the Selling Shareholders, as applicable, to you for the account of such
Underwriter, against payment by such Underwriter on its behalf of the purchase
price therefor by wire transfer or certified or official bank check or checks
(payable in same day funds) payable to the order of the Company and/or the
Custodian, as their interests may appear, in next-day available funds. The
closing of the sale and purchase of the Shares shall be held at the offices of
Smith, Gambrell & Russell, LLP, Promenade II, Suite 3100, 1230 Peachtree Street,
N.E., Atlanta, Georgia 30309-3592, except that physical delivery of such
certificates shall be made at the office of The Depository Trust Company, 55
Water Street, New York, New York 10041. The time and date of such delivery and
payment shall be, with respect to the Firm Shares, at 9:00 a.m. Eastern Time, on
the third (or if the Firm Shares are priced, as contemplated by Rule 15c6-1(c)
promulgated pursuant to the Exchange Act, after 4:30 p.m., Eastern Time, the
fourth) full business day after this Agreement is executed or at such other time
and date not less than the seventh full business day thereafter as you and the
Company may agree upon in writing, and, with respect to the Optional Shares, at
9:00 a.m., Eastern Time, on the date and location specified by you in the
written notice given by you of the Underwriters' election to purchase all or
part of the Optional Shares, or at such other time and date as you and the
Company may agree upon in writing. Such time and date for delivery of the Firm
Shares is herein called the "First Time of Delivery," such time and date for
delivery of any Optional Shares, if not the First Time of Delivery, is herein
called a "Subsequent Time of Delivery," and each such time and date for delivery
is herein called a "Time of Delivery." The Company will make such certificates
available for checking and packaging at least 24 hours prior to each Time of
Delivery at the office of The Depository Trust Company, 55 Water Street, New
York, New York 10041 or at such other location in New York, New York specified
by you in writing at least 48 hours prior to such Time of Delivery.
5. (a) Covenants of the Company. The Company covenants and agrees with
each of the Underwriters:
(i) If the Registration Statement has been declared effective
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by you,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the date on which the Registration
Statement is declared effective. The Company will advise you promptly of
any such filing pursuant to Rule 424(b).
(ii) The Company will not file with the Commission the
Prospectus or the amendment referred to in the second sentence of Section
l(a)(i) hereof, any amendment or
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supplement to the Prospectus or any amendment to the Registration Statement
unless you have received a reasonable period of time to review any such
proposed amendment or supplement and consented to the filing thereof and
will use its best efforts to cause any such amendment to the Registration
Statement to be declared effective as promptly as possible. Upon the
request of the Representatives or counsel for the Underwriters, the Company
will promptly prepare and file with the Commission, in accordance with the
rules and regulations of the Commission, any amendments to the Registration
Statement or amendments or supplements to the Prospectus that may be
necessary or advisable in connection with the distribution of the Shares by
the several Underwriters and will use its best efforts to cause any such
amendment to the Registration Statement to be declared effective as
promptly as possible. If required, the Company will file any amendment or
supplement to the Prospectus with the Commission in the manner and within
the time period required by Rule 424(b) under the Act. The Company will
advise the Representatives, promptly after receiving notice thereof, of the
time when the Registration Statement or any amendment thereto has been
filed or declared effective or the Prospectus or any amendment or
supplement thereto has been filed and will provide evidence to the
Representatives of each such filing or effectiveness.
(iii) If the Company elects to file a Rule 462(b) Registration
Statement, the Company shall file it with the Commission in compliance with
Rule 462(b) by 10:00 p.m. Eastern Time, on the date of this Agreement, and
the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the
Act.
(iv) The Company will advise you promptly after receiving notice
or obtaining knowledge of (A) the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any
part thereof or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, (B) the suspension of the qualification of the Shares for offer or
sale in any jurisdiction or of the initiation or threatening of any
proceeding for any such purpose, or (C) any request made by the Commission
or any securities authority of any other jurisdiction for amending the
Registration Statement, for amending or supplementing the Prospectus or for
additional information. The Company will use its best efforts to prevent
the issuance of any such stop order and, if any such stop order is issued,
to obtain the withdrawal thereof as promptly as possible.
(v) If the delivery of a prospectus relating to the Shares is
required under the Act at any time prior to the expiration of nine months
after the date of the Prospectus and if at such time any events have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or if for any reason it is necessary during such same period to
amend or supplement the Prospectus to comply with the Act or the rules and
regulations thereunder, the Company will promptly notify you and upon your
request (but at the Company's expense) prepare and file with the Commission
an amendment or supplement to the Prospectus that corrects such statement
or omission or effects such compliance and will furnish without charge to
each Underwriter and to any dealer in securities as many copies of such
amended or supplemented Prospectus as you may from time to time reasonably
request. If the delivery of a prospectus relating to the Shares is
required under the Act at any time nine months or more after the date of
the Prospectus, upon your request but at the expense of such Underwriter,
the Company will prepare and deliver to such Underwriter as many copies as
you may request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Act. Neither your
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consent to, nor the Underwriters' delivery of, any such amendment or
supplement shall constitute a waiver of any of the conditions set forth in
Section 7.
(vi) The Company promptly from time to time will take such
action as you may reasonably request to qualify the Shares for offering and
sale under the securities laws of such jurisdictions in the United States
or, on a basis that is exempt from the prospectus requirement in the
Canadian provinces of Ontario and Quebec, as you may request and will
continue such qualifications in effect for as long as may be necessary to
complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction.
(vii) The Company will promptly provide you, without charge, (A)
two manually executed copies of the Registration Statement as originally
filed with the Commission and of each amendment thereto, (B) for each other
Underwriter a conformed copy of the Registration Statement as originally
filed and of each amendment thereto, without exhibits, and (C) so long as a
prospectus relating to the Shares is required to be delivered under the
Act, as many copies of each Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto as you may reasonably request.
(viii) As soon as practicable, but in any event not later than
45 days after the end of the Company's fiscal quarter in which the first
anniversary of the effective date of the Registration Statement occurs, the
Company will make generally available to its security holders an earnings
statement of the Company and its subsidiaries, if any, covering a period of
at least 12 months beginning after the effective date of the Registration
Statement (which need not be audited) complying with Section 11(a) of the
Act and the rules and regulations thereunder.
(ix) During the period beginning on the date hereof and
continuing to and including the date 90 days after the date of the
Prospectus, the Company will not, without the prior written consent of
Gerard Klauer Mattison & Co., Inc., which consent shall not be unreasonably
withheld, offer, pledge, issue, sell, contract to sell, grant any option,
right or warrant for the sale of, or otherwise dispose of (or announce any
of the foregoing, directly or indirectly), any Common Shares or securities
convertible into, exercisable or exchangeable for, Common Shares, except as
provided in Section 2 and except that the Company may (A) grant options
pursuant to the Company's stock option plans as described in the
Registration Statement; and (B) issue Common Shares upon the exercise of
any of the Company's outstanding stock options as described in the
Registration Statement or stock options granted under clause (A) above.
(x) During a period of five years from the effective date of the
Registration Statement, the Company will furnish to you and, upon request,
to each of the other Underwriters, without charge, (A) copies of all
reports or other communications (financial or other) furnished to
shareholders, (B) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission, the NASD or
any national securities exchange, and (C) such additional information
concerning the business and financial condition of the Company and its
subsidiaries, if any, as you may reasonably request.
(xi) Neither the Company nor any of its officers, directors or
affiliates will (A) take, directly or indirectly, prior to the termination
of the underwriting syndicate contemplated by this Agreement, any action
designed to cause or to result in, or that might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of any of the Shares, (B)
sell, bid for, purchase or
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pay anyone any compensation for soliciting purchases of, the Shares or (C)
pay or agree to pay to any person any compensation for soliciting another
to purchase any other securities of the Company.
6. Expenses. The Company will pay all costs and expenses incident to the
performance by the Company and the Selling Shareholders of their respective
obligations under this Agreement, whether or not the transactions contemplated
hereby are consummated or this Agreement is terminated pursuant to Section 10
hereof, including, without limitation, all costs and expenses incident to (i)
the fees, disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and, if applicable, filing
of the Registration Statement (including all amendments thereto), any
Preliminary Prospectus, the Prospectus and any amendments and supplements
thereto, this Agreement and any blue sky memoranda; (ii) the delivery of copies
of the foregoing documents to the Underwriters; (iii) the filing fees of the
Commission and the NASD relating to the Shares and the related reasonable fees
and disbursements of counsel for the Underwriters in connection with filings
with the NASD; (iv) the preparation, issuance and delivery to the Underwriters
of any certificates evidencing the Shares, including transfer agent's and
registrar's fees; (v) the qualification of the Shares for offering and sale
under state securities and blue sky laws, including filing fees and fees and
disbursements of counsel for the Underwriters relating thereto; (vi) any listing
of the securities on the Nasdaq National Market and (vii) any expenses for
travel, lodging and meals incurred by the Company and any of its officers,
directors and employees in connection with any meetings with prospective
investors in the Shares. It is understood, however, that, except as provided in
this Section, Section 8 and Section 10 hereof, the Underwriters will pay all of
their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses relating to the offer and sale of the Shares.
7. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder to purchase and pay for the Shares to be delivered at
each Time of Delivery shall be subject to the accuracy of the representations
and warranties of the Company and the Selling Shareholders contained herein as
of the date hereof and as of such Time of Delivery, to the accuracy of the
statements of Company officers made pursuant to the provisions hereof, to the
performance by the Company and the Selling Shareholders of their respective
covenants and agreements hereunder which are to be performed as of such Time of
Delivery, and to the following additional conditions precedent:
(a) If the registration statement as amended to date has not become
effective prior to the execution of this Agreement, such registration statement
shall have been declared effective not later than 11:00 a.m., Eastern Time, on
the date following the date of this Agreement or such later date and/or time as
shall have been consented to by you in writing. The Prospectus and any
amendment or supplement thereto shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing and in accordance with Section 5(a) of this Agreement; if the Company has
elected to file a registration statement under Rule 462(b), it shall have become
effective by 10:00 p.m. Eastern Time, on the date of this Agreement; no stop
order suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceedings for that purpose shall have
been instituted, threatened or, to the knowledge of the Company and the
Representatives, contemplated by the Commission; and all requests for additional
information on the part of the Commission shall have been complied with to your
reasonable satisfaction.
(b) Smith, Gambrell & Russell, LLP, counsel for the Underwriters,
shall have furnished to you such opinion or opinions, dated such Time of
Delivery, with respect to the incorporation of the Company, the validity of the
Shares being delivered at such Time of Delivery, the Registration Statement, the
Prospectus, and other related matters as you may reasonably request, and the
Company
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shall have furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
(c) You shall have received an opinion, dated such Time of Delivery,
of Goodman Phillips & Vineberg, counsel for the Company, in form and substance
satisfactory to you and your counsel, to the effect that:
(i) The Company was duly incorporated pursuant to the Business
Corporations Act (Ontario) and was continued and is validly existing as a
corporation in good standing under the Canada Business Corporations Act and
has the corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement and the
Prospectus and to enter into this Agreement and perform its obligations
hereunder. The Company is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of certain states to be
specifically enumerated.
(ii) The Company's authorized, issued and outstanding capital
stock is as disclosed in the Prospectus. All of the issued shares of
capital stock of the Company (including the Shares to be sold by the
Selling Shareholders) have been duly authorized and validly issued, are
fully paid and nonassessable and conform to the description of the Common
Shares contained in the Prospectus. To such counsel's knowledge, none of
the issued shares of capital stock of the Company has been issued or is
owned or held in violation of any preemptive rights of shareholders, and,
to such counsel's knowledge, no person or entity (including any holder of
outstanding shares of capital stock of the Company) has any preemptive or
other rights to subscribe for any of the Shares.
(iii) Except as disclosed in the Prospectus, to such counsel's
knowledge, the Company does not own, directly or indirectly, any capital
stock or other equity securities of any other corporation or any ownership
interest in any partnership, joint venture or other association.
(iv) Except as disclosed in the Prospectus, to such counsel's
knowledge, there are no outstanding (A) securities or obligations of the
Company convertible into or exchangeable for any capital stock of the
Company, (B) warrants, rights or options to subscribe for or purchase from
the Company any such capital stock or any such convertible or exchangeable
securities or obligations, or (C) obligations of the Company to issue any
shares of capital stock, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
(v) The Shares to be issued and sold by the Company have been
duly authorized and, when issued and delivered against payment therefor as
provided herein, will be validly issued and fully paid and nonassessable
and will conform to the description of the Common Shares contained in the
Prospectus; the certificates evidencing the Shares comply with all
applicable requirements of Canadian law; the Firm Shares to be sold by the
Company and the Optional Shares have been listed on the Nasdaq National
Market subject to notice of issuance. To such counsel's knowledge, none of
the authorized or outstanding Common Shares is subject to any preemptive or
similar right to purchase any Common Shares. The Underwriters will receive
good title to the Shares to be issued and delivered by the Company
hereunder, in good delivery form and free and clear of all pledges, liens,
hypothecations, encumbrances, claims, security interests, restrictions,
agreements, voting trusts and adverse interests whatsoever.
(vi) Except as disclosed in the Prospectus, to such counsel's
knowledge, there are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with
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respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement (or any such
right has been effectively waived) or in any securities being registered
pursuant to any other registration statement filed by the Company under the
Act.
(vii) All offers and sales of the Company's capital stock prior
to the date hereof were at all relevant times duly registered under the Act
or exempt from the registration requirements of the Act and were duly
registered or the subject of an available exemption from the registration
requirements of the applicable provincial or state securities laws.
(viii) The Company is not, nor with the giving of notice or
passage of time or both, would it be, with respect to any event or omission
known to such counsel having occurred to the date hereof, in violation of
its Articles of Incorporation [Continuance] or Bylaws or in default in any
material respect under any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument known to such counsel to
which the Company is a party or to which any of its properties or assets is
subject.
(ix) The issue and sale of the Shares being issued at such Time
of Delivery and the performance of this Agreement and the consummation of
the transactions herein contemplated will not conflict with, or (with or
without the giving of notice or the passage of time or both) result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument known to such counsel to which the
Company is a party or to which any of its properties or assets is subject,
nor will such action conflict with or violate any provision of the Articles
of Incorporation [Continuance] or Bylaws of the Company or any statute,
rule or regulation or any order, judgment or decree of any court or
governmental agency or body having jurisdiction over the Company or any of
its properties or assets.
(x) Any real property and buildings which are, to such counsel's
knowledge, held under lease by the Company are held by the Company under
valid, subsisting and enforceable leases with such exceptions as are
disclosed in the Prospectus or are not material and do not interfere with
the use made and proposed to be made of such property and buildings by the
Company.
(xi) No consent, approval, authorization, order or declaration of
or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the issue and sale of the
Shares or the consummation of the transactions contemplated by this
Agreement, except the registration of the Shares under the Act and such as
may be required from the NASD or under provincial or state securities laws.
(xii) To such counsel's knowledge and other than as disclosed in
or contemplated by the Prospectus, there is no litigation, arbitration,
claim, proceeding (formal or informal) or investigation pending or
threatened (or any basis therefor) in which the Company is a party or of
which any of its properties or assets is the subject which, if determined
adversely to the Company, would individually or in the aggregate have a
material adverse effect on the financial position, results of operations or
business of the Company; and, to such counsel's knowledge, the Company is
not in violation of, or in default with respect to, any statute, rule,
regulation, order, judgment or decree, except as described in the
Prospectus, nor is the Company required to take any action in order to
avoid any such violation or default.
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(xiii) To the knowledge of such counsel and except where the
failure to own or possess such rights could not reasonably be expected to
have a material adverse effect on the business of the Company, the Company
owns or has the right to use all patents, trademarks, trade names, service
marks, copyrights, and applications therefor; franchises; trade secrets;
proprietary or other confidential information and intangible properties and
assets (collectively, "Intangibles"), including, but not limited to, the
right to use the marks "U-SCAN" and "U-SCAN EXPRESS" and certain related
marks and logos presently employed by it in connection with its business as
presently conducted or as the Prospectus indicates the Company proposes to
conduct; to the knowledge of such counsel, the Company has not infringed
and is not infringing, nor will the conduct of the Company's business as
proposed in the Prospectus infringe, except as disclosed in the Prospectus,
and the Company has not received notice of infringement with respect to
asserted Intangibles of others, and, to the knowledge of such counsel,
except where the alleged infringement is not reasonably likely to have a
material adverse effect on the business of the Company, and to the
knowledge of such counsel, there is no infringement by others of
Intangibles of the Company.
(xiv) The Company has full legal right and corporate power and
authority to enter into this Agreement and to issue, sell and deliver the
Shares to be sold by it to the Underwriters as provided herein; and this
Agreement has been duly authorized, executed and delivered by the Company,
and assuming due authorization, execution and delivery by the
Representatives, constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.
(xv) The Registration Statement and the Prospectus and each
amendment or supplement thereto (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion), as of their respective effective or issue dates, complied as to
form in all material respects with the requirements of the Act and the
rules and regulations thereunder. The descriptions in the Registration
Statement and the Prospectus of statutes, legal and governmental
proceedings or contracts and other documents are accurate and fairly
present the information required to be shown; and such counsel do not know
of any statutes or legal or governmental proceedings required to be
described in the Registration Statement or Prospectus that are not
described as required or of any contracts or documents of a character
required to be described in the Registration Statement or Prospectus or to
be filed as exhibits to the Registration Statement which are not described
and filed as required.
(xvi) The documents incorporated by reference in the Prospectus
(except for any financial statements and schedules included in such
documents, as to which such counsel need express no opinion), when they
were filed with the Commission, complied as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
(xvii) The Registration Statement has been declared effective by
the Commission under the Act; any required filing of the Prospectus
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); and to such counsel's knowledge no stop
order suspending the effectiveness of the Registration Statement or any
part thereof has been issued and, to such counsel's knowledge, no
proceedings for that purpose have been instituted or threatened or are
contemplated by the Commission.
(xviii) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company," or a company
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"controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940.
Such counsel shall also state that, based upon the participation of such
counsel in the preparation of the Registration Statement and the Prospectus,
and the review and discussion of the content thereof, nothing has come to the
attention of such counsel which gives them reason to believe that (i) the
Registration Statement, or any further amendment thereto made prior to such Time
of Delivery, on its effective date and as of such Time of Delivery, contained or
contains any untrue statement of a material fact or omitted or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) that the Prospectus, or any amendment
or supplement thereto made prior to such Time of Delivery, as of its issue date
and as of such Time of Delivery, contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading (provided that such counsel need express no belief
regarding the financial statements and related schedules and other financial
data contained in the Registration Statement, any amendment thereto, or the
Prospectus, or any amendment or supplement thereto).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdiction other than the jurisdiction of
incorporation of the Company, to the extent satisfactory in form and scope to
counsel for the Underwriters, upon the opinion of such other counsel as shall be
acceptable to the Underwriters and their counsel, provided that such counsel
states such counsel believes that the Underwriters are justified in relying upon
such opinion and copies of such opinion are delivered to the Representatives and
counsel for the Underwriters.
(d) You shall have received an opinion, dated such Time of Delivery,
of Goodman Phillips & Vineberg, counsel for the Selling Shareholders in form and
substance satisfactory to you and your counsel, to the effect that:
(i) Each of the Selling Shareholders has the legal capacity to
enter into this Agreement, the Power of Attorney and the Custody Agreement
and to sell, assign, transfer and deliver to the Underwriters the Shares to
be sold by such Selling Shareholder hereunder.
(ii) This Agreement, a Power of Attorney and a Custody Agreement
have been duly executed and delivered by such Selling Shareholder, each of
which is enforceable against such Selling Shareholder in accordance with
its terms subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to or affecting
the enforcement of creditors' rights generally and to general equitable
principles.
(iii) The sale of the Shares to be sold by such Selling
Shareholder at such Time of Delivery and the performance of this Agreement,
the Power of Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with, or
(with or without the giving of notice or the passage of time or both)
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument known to such counsel to
which such Selling Shareholder is a party or to which any of his properties
or assets is subject, nor will such action conflict with or violate any
statute, rule or regulation or any order, judgment or decree of any court
or governmental agency or body having jurisdiction over such Selling
Shareholder or any of such Selling Shareholder's properties or assets.
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(iv) No consent, approval, authorization, order or declaration of
or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the issue and sale of the
Shares being sold by such Selling Shareholder or the consummation of the
transactions contemplated by this Agreement, the Power of Attorney or the
Custody Agreement, except the registration of such Shares under the Act and
such as may be required under provincial or state securities laws in
connection with the offer, sale and distribution of such Shares by the
Underwriters.
(v) Upon delivery to the Underwriters, good and valid title to
the Shares to be sold by such Selling Shareholder hereunder, free and clear
of all liens, encumbrances, equities, claims, restrictions, security
interests, voting trusts or other defects of title whatsoever, will have
been transferred to the Underwriters (whom such counsel may assume to be
bona fide purchasers) who have purchased Shares hereunder. To the best of
such counsel's knowledge, there are no such liens, encumbrances, equities,
claims, restrictions, security interests, voting trusts or other defects of
title.
(vi) The Firm Shares to be sold by the Selling Shareholders are
listed on the Nasdaq National Market.
(e) You shall have received opinions, dated such Time of Delivery, of
(i) Graham & James LLP and (ii) Cooper & Dunham LLP, each special counsel to the
Company, satisfactory in form and substance to counsel for the Underwriters.
(f) You shall have received from PricewaterhouseCoopers LLP letters
dated, respectively, the date hereof (or, if the Registration Statement has been
declared effective prior to the execution and delivery of this Agreement, dated
such effective date and the date of this Agreement) and each Time of Delivery,
in form and substance satisfactory to you, to the effect set forth in Annex I
hereto. In the event that the letters referred to in this Section 7(f) set
forth any changes, decreases or increases in the items specified in paragraphs
(iv)(B) and (C) of Annex I, it shall be a further condition to the obligations
of the Underwriters that (i) such letters shall be accompanied by a written
explanation by the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (ii) such changes,
decreases or increases do not, in your sole judgment, make it impracticable or
inadvisable to proceed with the purchase, sale and delivery of the Shares being
delivered at such Time of Delivery as contemplated by the Registration
Statement, as amended as of the date of such letter.
(g) Since the date of the latest audited financial statements included
in the Prospectus, the Company shall not have sustained (i) any loss or
interference with its business from fire, explosion, flood, hurricane or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as disclosed in or
contemplated by the Prospectus, or (ii) any change, or any development involving
a prospective change (including without limitation a change in management or
control of the Company), in or affecting the condition (financial or otherwise),
results of operations, net worth or business prospects of the Company, otherwise
than as disclosed in or contemplated by the Prospectus, the effect of which, in
either such case, is in your judgment so material and adverse as to make it
impracticable or inadvisable to proceed with the purchase, sale and delivery of
the Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date hereof.
(h) Subsequent to the date hereof there shall not have occurred any of
the following: (i) any suspension or limitation in trading in securities
generally on the New York Stock Exchange, or any setting of minimum prices for
trading on such exchange, or in the Common Shares by the Commission or the
Nasdaq National Market; (ii) a moratorium on commercial banking activities in
New York declared
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by either federal or state authorities; (iii) any outbreak or escalation of
hostilities involving the United States, declaration by the United States of a
national emergency or war or any other national or international calamity or
emergency if the effect of any such event specified in this clause (iii) in your
judgment makes it impracticable or inadvisable to proceed with the purchase,
sale and delivery of the Shares being delivered at such Time of Delivery as
contemplated by the Registration Statement, as amended as of the date hereof;
(iv) the enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or other governmental authority which in
your opinion materially and adversely affects or may materially and adversely
affect the business or operations of the Company; or (v) the taking of any
action by any governmental body or agency in respect of its monetary or fiscal
affairs which in your reasonable opinion has a material adverse effect on the
securities markets in the United States.
(i) The Company shall have furnished to you at such Time of Delivery
certificates of officers of the Company and certificates of the Selling
Shareholders, satisfactory to you, as to the accuracy of the representations and
warranties of the Company and such Selling Shareholders herein at and as of such
Time of Delivery, as to the performance by the Company and such Selling
Shareholders of all of their respective obligations hereunder to be performed at
or prior to such Time of Delivery, and as to such other matters as you may
reasonably request, and the Company shall have furnished or caused to be
furnished certificates as to the matters set forth in subsections (a) and (g) of
this Section 7, and as to such other matters as you may reasonably request.
(j) The Firm Shares to be sold by the Company and the Optional Shares
shall be listed on the Nasdaq National Market, subject to notice of
issuance. The Firm Shares to be sold by the Selling Shareholders shall be
listed on Nasdaq National Market.
(k) The lock-up agreements described herein at Section 1(a)(xxiv)
shall be in full force and effect.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter and the directors, officers,
employees, counsel and agents of each Underwriter and each person, if any, who
controls each Underwriter within the meaning of the Act or the Exchange Act,
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon: (i) any untrue statement or alleged untrue statement made
by the Company in Section 1(a) of this Agreement; (ii) any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto or in any documents filed under the
Exchange Act and deemed to be incorporated by reference into the Prospectus, (B)
any application or other document, or any amendment or supplement thereto,
executed by the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify the Shares
under the securities or blue sky laws thereof or filed with the Commission or
any securities association or securities exchange (each an "Application"); or
(C) any audio or visual materials, approved by the Company and derived solely
from information supplied by the Company to be used in connection with the
marketing of the Shares, including without limitation, slides, videos, films or
tape recordings; (iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or in any documents filed
under the Exchange Act and deemed to be incorporated by reference into the
Prospectus, or any Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iv) any failure of
the Company to perform its obligations hereunder or under law, and will
reimburse upon demand each Underwriter or controlling person or representative
of such Underwriter for any legal or other expenses reasonably incurred by such
24
<PAGE>
Underwriter in connection with investigating, defending against or appearing as
a third-party witness in connection with any such loss, claim, damage, liability
or action whether or not such Underwriter or controlling person or
representative of such Underwriter is a party to any action or proceeding;
provided, however, that the Company shall not be liable in any such case to the
- -------- -------
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any amendment thereto,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto or any Application in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through you expressly
for use therein (provided that the Company and the Underwriters hereby
acknowledge that the following constitutes the only information furnished in
writing to the Company by the Underwriters specifically for use in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
such amendment or supplement: (i) the statements in the last paragraph on the
cover page of the Prospectus; and (ii) the statements under the caption
"Underwriting" in the Prospectus); provided, further, that with respect to any
-------- -------
Preliminary Prospectus, the foregoing indemnity agreement shall not inure to the
benefit of any Underwriter from whom the person asserting any loss, claim,
damage, liability or expense purchased Shares, or any person controlling such
underwriter, if copies of the Prospectus were timely delivered to the
Underwriter and a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense, unless the failure to deliver such Prospectus was
the result of the Company's non-compliance with its obligations under Sections
5(a)(ii) and 5(a)(vii) hereof. The Company will not, without the prior written
consent of each Underwriter, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding (or
related cause of action or portion thereof) in respect of which indemnification
may be sought hereunder (whether or not such Underwriter is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of such Underwriter from all liability
arising out of such claim, action, suit or proceeding (or related cause of
action or portion thereof).
(b) Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter and the directors, officers,
employees, counsel and agents of each Underwriter and each person, if any, who
controls each Underwriter within the meaning of the Act or the Exchange Act,
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon: (i) any untrue statement or alleged untrue statement made
by such Selling Shareholder in Section 1(b) of this Agreement; or (ii) any
untrue statement or alleged untrue statement of any material fact regarding such
Selling Shareholder contained in the Registration Statement or any amendment
thereto, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto or in any documents filed under the Exchange Act and deemed
to be incorporated by reference into the Prospectus, or any Application
regarding such Selling Shareholder or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse upon demand each Underwriter or controlling person or
representative of such Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action whether or not such Underwriter or controlling
person or representative of such Underwriter is a party to any action or
proceeding; provided, however, that no such Selling Shareholder shall be liable
-------- -------
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement or
any amendment thereto, any Preliminary Prospectus, the Prospectus or any
25
<PAGE>
amendment or supplement thereto or in any documents filed under the Exchange Act
and deemed to be incorporated by reference into the Prospectus, or any
Application in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through you expressly for use
therein (provided that the Company and the Underwriters hereby acknowledge that
the following constitutes the only information furnished in writing to the
Selling Shareholders by the Underwriters specifically for use in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any such amendment
or supplement: (i) the statements in the last paragraph on the cover page of the
Prospectus; and (ii) the statements under the caption "Underwriting" in the
Prospectus); provided, further, that with respect to any Preliminary Prospectus,
-------- -------
the foregoing indemnity agreement shall not inure to the benefit of any
Underwriter from whom the person asserting any loss, claim, damage, liability or
expense purchased Shares, or any person controlling such underwriter, if copies
of the Prospectus were timely delivered to the Underwriter and a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage, liability or expense, unless
the failure to deliver such Prospectus was the result of the Company's non-
compliance with its obligations under Sections 5(a)(ii) and 5(a)(vii) hereof;
provided, further, however, that such Selling Shareholder shall be liable
- -------- ------- -------
hereunder in any case only to the extent of the total net proceeds from the
offering (before deducting expenses) received by such Selling Shareholder from
the Underwriters for the Shares sold by such Selling Shareholder hereunder
unless any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement or any amendment or supplement thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or
any Application in reliance upon and conformity with written information
furnished to the Company by such Selling Shareholder expressly for use therein,
in which case such limitation of the liability of such Selling Shareholder shall
not apply. The parties agree that the only information furnished to the Company
by the Selling Shareholders is the information relating to the Selling
Shareholders contained in the section "Principal and Selling Shareholders." No
Selling Shareholder will, without the prior written consent of each Underwriter,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding (or related cause of action or
portion thereof) in respect of which indemnification may be sought hereunder
(whether or not such Underwriter is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of such Underwriter from all liability arising out of such
claim, action, suit or proceeding (or related cause of action or portion
thereof).
(c) Each Underwriter, severally but not jointly, agrees to indemnify
and hold harmless the Company, each person, if any, who controls the Company
within the meaning of the Act or the Exchange Act, each director of the Company
and each officer of the Company who signs the Registration Statement and each
Selling Shareholder against any losses, claims, damages or liabilities to which
the Company or any Selling Shareholder may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement or
any amendment thereto, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or any Application or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter through you expressly for use therein (provided that the Company,
the Selling Shareholders and the Underwriters hereby acknowledge that the
following constitutes the only information furnished in writing to the Company
and the Selling
26
<PAGE>
Shareholders by the Underwriters specifically for use in the Preliminary
Prospectus, the Registration Statement or the Prospectus, or any such amendment
or supplement: (i) the statements in the last paragraph on the cover page of the
Prospectus; and (ii) the statements under the caption "Underwriting" in the
Prospectus); and will reimburse the Company and each Selling Shareholder for any
legal or other expenses reasonably incurred by the Company or such Selling
Shareholder in connection with investigating or defending any such loss, claim,
damage, liability or action. In addition, in a situation when an Underwriter is
an indemnifying party under this subsection (c), the Underwriter will not,
without the prior written consent of the Company and such Selling Shareholder,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding (or related cause of action or
portion thereof) in respect of which indemnification may be sought hereunder
(whether or not the Company or such Selling Shareholder is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of the Company and such Selling
Shareholder from all liability arising out of such claim, action, suit or
proceeding (or related cause of action or portion thereof).
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action or any claim,
demand, default or alleged default which could create a right of indemnity
hereunder, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party shall not relieve it from any liability which
it may have to any indemnified party otherwise than under such subsection,
except to the extent the indemnifying party is prejudiced thereby. In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party, be counsel to the
indemnifying party); provided, however, that if the defendants in any such
-------- -------
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be one or more
legal defenses available to it or other indemnified parties which are different
from or additional to those available to the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party and such indemnified party shall have the
right to select separate counsel to defend such action on behalf of such
indemnified party. After such notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, which separate counsel shall be
designated by the Representatives in the case of indemnity arising under
paragraphs (a) or (b) of this Section 8) or (ii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party. Nothing in this Section 8(d) shall preclude an
indemnified party from participating at its own expense in the defense of any
such action so assumed by the indemnifying party.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of
27
<PAGE>
such losses, claims, damages or liabilities (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative benefits received by
the Company and the Selling Shareholders on the one hand and the Underwriters on
the other from the offering of the Shares. If, however, the allocation provided
by the immediately preceding sentence is not permitted by applicable law or if
the indemnified party failed to give the notice required under subsection (d)
above, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company and the Selling Shareholders on the one hand and the Underwriters on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Selling Shareholders on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
and the Selling Shareholders bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the Selling
Shareholders on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Selling Shareholders and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (e) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (e). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (e) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (e), no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. Further,
notwithstanding the provisions of this subsection (e), no Selling Shareholder
shall be required to contribute any amount that, together with the amount of any
damages which such Selling Shareholder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission, exceeds the limit on such Selling Shareholder's liability prescribed
by Section 8(b). No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The Selling
Shareholders' contribution obligations in this subsection (e) are several and
not joint. The Underwriters' obligations in this subsection (e) to contribute
are several in proportion to their respective underwriting obligations and not
joint.
(f) The obligations of the Company and the Selling Shareholders under
this Section 8 shall be in addition to any liability which the Company or such
Selling Shareholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 8
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company and any Selling Shareholder and to each
person, if any, who controls the Company or any Selling Shareholder within the
meaning of the Act.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
28
<PAGE>
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company and the Selling Shareholders set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or any persons controlling the Company, (ii) acceptance of any Shares and
payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, or to any Selling Shareholder shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 8.
9. Default of Underwriters. (a) If any Underwriter defaults in its
obligation to purchase Shares at a Time of Delivery, you may in your discretion
arrange for you or another party or other parties to purchase such Shares on the
terms contained herein. If within thirty-six (36) hours after such default by
any Underwriter you do not arrange for the purchase of such Shares, the Company
and the Selling Shareholders shall be entitled to a further period of thirty-six
(36) hours within which to procure another party or other parties satisfactory
to you to purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company and the Selling
Shareholders that you have so arranged for the purchase of such Shares, or the
Company and the Selling Shareholders notify you that they have so arranged for
the purchase of such Shares, you or the Company and the Selling Shareholders
shall have the right to postpone a Time of Delivery for a period of not more
than seven days in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus that in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Shareholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed 10% of the
aggregate number of Shares to be purchased at such Time of Delivery, then the
Company and the Selling Shareholders shall have the right to require each non-
defaulting Underwriter to purchase the number of Shares which such Underwriter
agreed to purchase hereunder at such Time of Delivery and, in addition, to
require each non-defaulting Underwriter to purchase its pro rata share (based on
the number of Shares which such Underwriter agreed to purchase hereunder) of the
Shares of such defaulting Underwriter or Underwriters for which such
arrangements have not been made, but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
10. Termination. (a) This Agreement may be terminated with respect to
the Firm Shares or any Optional Shares in the sole discretion of the
Representatives by notice to the Company given prior to the First Time of
Delivery or any Subsequent Time of Delivery, respectively, in the event that (i)
any condition to the obligations of the Underwriters set forth in Section 7
hereof has not been satisfied, or (ii) the Company or the Selling Shareholders
shall have failed, refused or been unable to deliver the Shares or to perform
all obligations and satisfy all conditions on their respective parts to be
performed or satisfied hereunder at or prior to such Time of Delivery, in either
case other than by reason of a default by any of the Underwriters. If this
Agreement is terminated pursuant to this Section 10(a), the Company, and the
Selling Shareholders if they are at fault, pro rata in accordance with the
number of Shares proposed to be sold hereunder will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including counsel fees and
disbursements) that shall have been incurred by them in connection with the
proposed purchase and sale of the Shares. Neither the Company nor any Selling
Shareholder shall in any event be liable to any of the Underwriters for the loss
of anticipated profits from the transactions covered by this Agreement.
29
<PAGE>
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Shareholders as provided in Section 9(a), the aggregate number
of such Shares which remains unpurchased exceeds 10% of the aggregate number of
Shares to be purchased at such Time of Delivery, or if the Company and the
Selling Shareholders shall not exercise the right described in Section 9(b) to
require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to a
Subsequent Time of Delivery, the obligations of the Underwriters to purchase and
of the Company or the Selling Shareholders to sell the Optional Shares) shall
thereupon terminate, without liability on the part of any non-defaulting
Underwriter, the Company or the Selling Shareholders, except for the expenses to
be borne by the Company, the Selling Shareholders and the Underwriters as
provided in Section 6 hereof and the indemnity and contribution agreements in
Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
11. Survival. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers, the Selling
Shareholders and the several Underwriters, as set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation (or any
statement as to the results thereof) made by or on behalf of any Underwriter or
any controlling person referred to in Section 8(e) or the Company, any Selling
Shareholder or any officer or director or controlling person of the Company or
any Selling Shareholder referred to in Section 8(e), and shall survive delivery
of and payment for the Shares. The respective agreements, covenants,
indemnities and other statements set forth in Sections 6 and 8 hereof shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement, for such time as is necessary to exceed the appropriate
statute of limitations.
12. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed, delivered or telegraphed and
confirmed in writing to you in care of Gerard Klauer Mattison & Co., Inc., 529
Fifth Avenue, New York, New York 10017, Attention: Corporate Finance Department
(with a copy to Smith, Gambrell & Russell, LLP, Promenade II, Suite 3100, 1230
Peachtree Street, N.E., Atlanta, Georgia 30309-3592, Attention: Arthur Jay
Schwartz, Esq.); if to any Selling Shareholder shall be sufficient in all
respects if delivered or sent by registered mail to counsel for such Selling
Shareholder at its address set forth in Schedule II hereto; and if sent to the
Company, shall be mailed, delivered or telegraphed and confirmed in writing to
the Company at 4700 de la Savane, Suite 101, Montreal, Quebec H4P 1T7,
Attention: Holden L. Ostrin.
13. Representatives. You will act for the several Underwriters in
connection with the transactions contemplated by this Agreement, and any action
under this Agreement taken by you jointly or by Gerard Klauer Mattison & Co.,
Inc. will be binding upon all the Underwriters. The Representatives hereby
represent and warrant that they are so authorized to act on behalf of the
several Underwriters.
14. Binding Effect. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters, the Company and the Selling
Shareholders and to the extent provided in Sections 8 and 10 hereof, the
officers and directors and controlling persons referred to therein and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to any
provisions regarding conflicts of laws.
16. Counterparts. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
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<PAGE>
17. General Provisions. This Agreement constitutes the entire agreement
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understanding and negotiations with respect
to the subject matter hereof. This Agreement may not be amended or modified
unless in writing by all the parties hereto, and no condition herein (express or
implied) may be waived unless waived in writing by each party whom the condition
is meant to benefit.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us one of the counterparts hereof, and upon the
acceptance hereof by Gerard Klauer Mattison & Co., Inc., on behalf of each of
the Underwriters, this letter will constitute a binding agreement among the
Underwriters and the Company. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in the Master Agreement among underwriters, a copy of which shall be
submitted to the Company for examination, upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
OPTIMAL ROBOTICS CORP.
By:_____________________________
Name: Holden L. Ostrin
Title: Co-Chairman
SELLING SHAREHOLDERS
By:_______________________________
Holden L. Ostrin, as Attorney-in-Fact
for the Selling Shareholders
[SIGNATURES CONTINUED ON NEXT PAGE]
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The foregoing Agreement is hereby confirmed and accepted as of the date first
written above at New York, New York.
GERARD KLAUER MATTISON & CO., INC.
THE ROBINSON-HUMPHREY COMPANY, LLC
RAYMOND JAMES & ASSOCIATES, INC.
By: Gerard Klauer Mattison & Co., Inc.
By:___________________________________
(Authorized Representative)
On behalf of each of the Underwriters
32
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Underwriter Total Number
- ----------- of Firm Shares
to be
Purchased
--------------
<S> <C>
Gerard Klauer Mattison & Co., Inc............................
The Robinson-Humphrey Company, LLC...........................
Raymond James & Associates, Inc..............................
Total................................................... 1,325,000
=========
</TABLE>
33
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Total Number
of Firm Shares
Selling Shareholders(1) to be Sold
- ---------------------- --------------
<S> <C>
Neil S. Wechsler.................................. 200,000
Holdin L. Ostrin.................................. 200,000
Henry M. Karp..................................... 200,000
Gary Wechsler..................................... 75,000
-------
Total........................................ 675,000
=======
</TABLE>
_________________________
(1) Each of the Selling Shareholders has executed and delivered a Power of
Attorney appointing Neil S. Wechsler and Holden L. Ostrin such Selling
Shareholder's Attorneys-in-Fact and is represented by Goodman Phillips &
Vineberg, 430 Park Avenue, New York, New York 10022.
<PAGE>
ANNEX I
Pursuant to Section 7(f) of the Underwriting Agreement,
PricewaterhouseCoopers LLP shall furnish letters to the Underwriters to the
effect that:
(i) they are independent public accountants with respect to the
Company within the meaning the Act and the applicable published rules and
regulations thereunder;
(ii) in their opinion, the financial statements and schedules audited
by them and included in the Prospectus and the Registration Statement and
in any documents incorporated by reference in the Prospectus comply as to
form in all material respects with the applicable accounting requirements
of the Act and the Exchange Act and the related published rules and
regulations thereunder with respect to Registration Statements on Form F-3;
(iii) the unaudited summary and selected financial information
included in the Preliminary Prospectus and the Prospectus under the
captions "Prospectus Summary," "Selected Financial Data" and
"Capitalization" agrees with the corresponding amounts in the audited
financial statements included in the Prospectus or previously reported on
by them;
(iv) On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a
reading of the latest available interim financial statements of the
Company, inspection of the minute books of the Company since the date of
the latest audited financial statements included in the Prospectus,
inquiries of officials of the Company responsible for financial accounting
matters and such other inquiries and procedures as may be specified in such
letter, nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements, if any, of the Company
included in the Registration Statement and the Prospectus do not
comply in form in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations thereunder or are not in conformity with generally
accepted principles applied on the basis substantially consistent with
that of the audited consolidated financial statements included in the
Registration Statement and the Prospectus;
(B) as of a specified date not more than five (5) days prior to
the date of such letter, there were any changes in the capital stock
(other than the issuance of capital stock upon exercise of options
which were outstanding on the date of the latest balance sheet
included in the Prospectus) or any increase in inventories or the
long-term debt or short-term debt of the Company, or any decreases in
net current assets or net assets or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus, except in each case
for changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such letter; and
(C) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (B) there were any decreases in revenues or operating
income or the total or per share amounts of net income or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with the
comparable period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in each
case for increases or decreases which the Prospectus discloses have
occurred or may occur which are described in such letter; and
<PAGE>
(v) In addition to the audit referred to in their report included in
the Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraph (iv) above, they
have carried out certain specified procedures, not constituting an audit in
accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records of
the Company, included in the Registration Statement and the Prospectus and
in documents incorporated by reference in the Prospectus, or which appear
in Part II of, or in exhibits and schedules to, the Registration Statement
specified by the Representatives, and have compared and agreed such
amounts, percentages and financial information with the accounting records
of the Company or to analyses and schedules prepared by the Company from
its detailed accounting records.
References to the Registration Statement and the Prospectus in this Annex I
shall include any amendment or supplement thereto at the date of such letter.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the inclusion in the prospectus constituting part of
this Registration Statement on Form F-3 of our report dated February 4, 2000
relating to the financial statements of Optimal Robotics Corp. that appear in
such prospectus. We also consent to the reference to us under the heading
"Experts" in such prospectus.
/s/ PricewaterhouseCoopers LLP
Montreal, Quebec, Canada
February 24 , 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF AGENT FOR SERVICE
We consent to our being named as agent for service for Optimal Robotics Corp.
in this registration statement.
Our acceptance of this designation and our continued representation is
contingent upon our receipt of timely payment of our charges for this service.
CT Corporation System
/s/ Thomas Baldwin
By: ___________________________
Name: Thomas Baldwin
Title:Customer Specialist
February 23, 2000
